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Comment by rhizome | Hacker News Reader

>they still have an obligation to do right by the minority shareholders

Fiduciary duty is extremely rare to be the subject of a suit against a, let's say, CEO. It's a complex area of law because it isn't actually a law, nor specified anywhere, and not a requirement for corporate existence. So, it's a set of court decisions that future cases are built upon, but in general a house of cards in that it could be invalidated by a) legislation; and b) adverse rulings at any level of a suit.

It's a myth that the only purpose of executives is to maximize profit for the shareholders. It's a canard. PBCs are a counterfactual here, full stop.

https://en.wikipedia.org/wiki/Public-benefit_corporation

[note the significant use of "goal" in describing traditional corporations]

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C-level executives are appointed and removed by the board. The board is appointed and removed by the shareholders. Yes, technically, executives are not required to act in the shareholders interests by law. But they are often appointed with the specific instruction to act in the shareholders' best interests, and can be removed from office for not doing that.

From my experience being a CEO and reporting to a board, trying to act in anything other than the shareholder's best interests would be... problematic, shall we say. I would need to be very convincing that what I was doing was in the best long-term interests of the organisation. Or have a board who agreed with the "not maximising shareholder value" goal.

It's only technically a myth that the only purpose of executives is to maximise profit for shareholders. That's definitely the most common instruction from the board, often implicit rather than explicit, and not doing that will get you into trouble in most situations. That trouble may not be a law suit, more probably just being summarily dismissed.

I think you missed the context of the founder-CEO being a 51% shareholder.

I agree with you that maximizing profit as the sole metric is a myth, which is perhaps why I didn't mention it.

However, in practice if one has taken $10m from investors looking for a big payday, one can't just do any old thing. Doing something sufficiently contrary to the interests of minority shareholders could certainly result in a lawsuit. Could the shareholders win? Who knows! As you say, it's a murky area. But winning in that case isn't what matters. The lawsuit will tie the company up for years, forcing significant spending. And if they include the CEO in the lawsuit, it will mean personal expense and an enormous headache. So in practice, the Keybase execs couldn't just say, "Fuck it, we won't sell to Zoom, everything is open source now." Not without talking it through with the investors, anyhow.

>Doing something sufficiently contrary to the interests of minority shareholders could certainly result in a lawsuit.

I suppose, but does it? Ever? Not to be antagonistic but your entire paragraph is a hypothetical which is substituting for anything from the real world, which leads me to believe that it's either not a risk at all, or such a small risk as to be invisible and still effectively not a risk. I mean, I'm sure we would have heard some cautionary tales by now!

What sort of examples are you finding yourself unable to Google for? There are plenty of lawsuits out there for breaching the rights of minority shareholders. Mostly with public companies, but private companies too.

If you're specifically asking about VC-vs-founder lawsuits, I think we don't see many of those because everybody has strong incentives not to let it get to that stage. Founders really want to keep on good terms with VCs. VCs want to be seen as pro-founder. Their incentives are generally aligned right up until things start going south.

And once we get to the on-the-brink-of-failure stage, the VCs hold all the cards. Any continued investment requires the VCs to at least approve. If a founder ever might want to do something venture-backed again, they need to stay in their VC's good graces. If the investors don't have majority control, they at least have board seats and the ability to disrupt any deals or other actions the CEO might make against their interests, both internally and by threatening deal partners. The CEO also probably can't afford a lawsuit either with the company's funds or on their own.

So I don't think we see the cautionary tales because few who have been selected by investors and spent years dancing to their tune turn out contrary enough to set those relationships on fire when it doesn't really get them anything.

Can you clarify your statement about the PBCs? I can't figure out if you're saying they are a good thing, or just a theatrical performance.

I am curious because B-corps have been popularized in the recent years, but when I looked into what B-corps are, it seems to me those are just bogus certificates that aren't doing any good, except enriching the people who print certificates for these types of corporations.

I don't really know whether I am right or wrong here, but I weren't able to find anything that actually makes a B corp different than any other. Would love to hear your thoughts.

I think they're a good thing that disproves the conventional wisdom that corporations are "required" to act only in the profit interests of shareholders, that share price is the only measure of executive performance.

Going further, I believe this canard is promoted by greedy assholes as justification for their bullying of "nicer" people who might have a more holistic view of corporate behavior, something which bullies are psychologically incapable. These people would call PBCs theatrical, "hey bro, good for you!" on par with starting a nonprofit.

I don't know a lot about B-corps so I'm generally talking out of my ass, but it seems like a "hey we tried" get out of jail card if they decide to shed it, which they can always do. If they don't wind up shedding it, do they go for PBC? Overall, maybe it's good for setting expectations, but since there's no legal committment involved I don't see much more to think about it.

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