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Comment by COGlory | Hacker News Reader

This is the kind of stuff I don't understand.

On one hand: "Corporations are bound by fiduciary responsibility to maximize profit"

On the other hand...private concerts. Could an argument REALLY be made that Microsoft execs are so valuable that if they didn't have this concert, the execs would leave and the company would suffer more losses than it spent on the concert? Why does it seem like executives are the only areas that aren't ever subject to cost cutting? Shouldn't the march to profit necessitate a steady downward trend in CEO salaries? Do I just not understand what fiduciary responsibility is? Why can't shareholders sue over this concert?

I was never a fan of the "corporation maximize profit legal responsibility" argument, but it doesn't even seem consistent with itself...

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It's rather simple.

> Corporations are bound by fiduciary responsibility to maximize profit

This can be thought of as a myth, at least in the way it's usually talked about in online discourse. Leaders have enormous leeway in interpreting "maximizing profit" and anything but very actively and intentionally destroying the company almost certainly does not put one at risk of any kind of material procedures regarding fiduciary responsibility.

It is used online as a cop-out trying to excuse people acting in extremely unethical ways, causing massive damage to society, in the name of companies. This does not reflect the reality of fiduciary responsibility as a legal concept whatsoever.

This is not legal advice but even a shallow look into the topic will make this clear.

You can even just draw obvious lines between “hmm is anything ever really enforced on individuals in companies”. The answer is, generally no. In large companies it’s nearly always no.

Indeed, pretty much all such cases of individuals being prosecuted that I can think of are ones where the act is illegal regardless of it taking place as part of the company, i.e. not a concept that purely relates to corporations and has no direct equivalent in the personal sphere.

You can also just draw the line to "how would you argue in court that someone wasn't trying to maximize profit". Even if it was illegal (it isn't) it's impossible to prove beyond reasonable doubt in 99.99% of cases where it's brought up online.

Because this

> Corporations are bound by fiduciary responsibility to maximize profit

Is just dead wrong. There is absolutely NOTHING that requires, suggests, or even implies that the duties of the CEO are to maximize profit.

The CEO has the following three fiduciary duties:

Care - they will act to gain information relevant to their decisions (they will act with care)

Loyalty - They will act in the best interests of the company and its owners instead of say - for personal gain, or for the benefit of a 3rd party (they are loyal)

Disclosure - They will disclose relevant business proceedings and possible negative outcomes or significant issues (They are honest)

----

Notice what's conspicuously absent? Not a word about profits anywhere in there.

Notably - acting with care often means that they should be making decisions that are not immediately profitable, but set the company up for long term success (ie: making large capital investments, or upgrading infrastructure)

Now - there's a neo-capitalist viewpoint that says that maximum profit should be the result of the three above duties, and that shareholders (and really the board) should be looking for maximum profits, but... to quote a silly movie: "Yeah, well, you know, that's just, like, your opinion, man."

And really - the CEO's job is to keep the board of directors happy.

Is it bad optics to host a concert right before a round of layoffs? probably.

Can it be a good decision given the above? Certainly.

Simple counter you might make: We're about to have to cut a significant portion of the workforce, this will have an impact on moral. We are attempting to keep moral high among our most valuable employees, and the costs of the concert are utterly negligible in comparison to the long term cost of retaining those employees. It is in our best interest to continue providing compelling perks that retain and attract the best talent available - even if we have to make hard decisions to wind down or cancel teams and products that are not meeting our expected goals.

I think this comment is conflating a few different things. The definition of fiduciary duty varies depending on the jurisdiction you're in. Most public companies are based in Delaware, and this seems like some version of that.

In Delaware, the duty of disclosure is part of the duty of loyalty, along with good faith and oversight. Likewise, the duties are the same for both directors and officers whether CEO or not on the care and loyalty front.

Most of the CEO obligations and duties are outlined in the charter of the company rather than in Delaware law. I believe the only CEO specific duty in Delaware law is signing share certificates.

Agreed with your analysis of the business importance of this. That said, I hope the leaders would not feel good about doing this in light of the hard choices they ultimately made.

The idea that these are the most valuable employees is just a weird cult. Ya, so valuable that led the company into a situation where they have to make mass layoffs, wouldn’t want to lose any of these geniuses. It’s just a walled garden of MBAs and their family and friends.

I mean... arguably. On the whole I'd probably agree with you - the US business schools seem to be having disastrous long term impacts on the economy (although good stock growth and profits - hence the drastic inequality we're seeing right now).

But the way companies operate mean it's not you or me who gets to decide who's valuable... it's the company executives.

It’s a greedy little enclave of people who have shucked and jived their way to the top. Of course they’re going to act like this. Execs look out for themselves ONLY.

CEO salaries are sky high due to supply and demand... truly good leadership skills are super rare, and still virtually unobtainable even with high salaries.

Think about this- they pay those high salaries, yet the best leaders they could get at this salary level think this private concert was a good idea. These people are still not high caliber leaders. Maybe they could have recruited better with a higher salary?

Ultimately, there is something wrong with the pipeline to leadership skills in our society, if these skills are that rare that they're nearly priceless. The world could really benefit from having a lot more skilled, strong, and empathetic leaders that know how to take responsibility and suffer hardship as needed to stick to their principles and goals.

There's also no great way to vet execs for leadership skill. The biggest signal people use is prior performance, and that can be and is frequently massaged and fudged.

CEO salaries are decided by boards of directors, who are often other CEOs who have a vested interest in maintaining this system of extremely inflated compensation. It's essentially an aristocracy and is pretty unique to the US[1].

[1] https://www.wtwco.com/en-US/Insights/2020/12/ceo-pay-landsca...

I don’t buy it. If companies could hire sufficient leadership for much less money, this would give them a huge competitive advantage.

It looks to me like the problem is actually the opposite: these skills are so rare that an astronomical salary still won’t make it easy to find someone that can do the job well. Companies are paying these crazy amounts and yet still settling for relatively unskilled leaders, and they would get even worse if they paid even less. US ceos get paid more because the demand is higher. I have had the opportunity to work closely with a lot of leaders in industry, and have seen firsthand that only a tiny fraction are competent. A big portion of companies fail because they aren’t able to recruit anyone with strong leadership skills at any price.

I don't buy it. The decision of who a company hires at what level of compensation rests nearly entirely in a class of individuals consisting of those very same people being hired at some level of compensation. Expecting the executive class to screen and compensate itself based on actual merit rather than mutual favors is akin to expecting congresspersons to vote on their own raises, or expecting cops to investigate themselves for corruption/wrongdoing, or otherwise expecting a committee of wolves to make a decision on tonight's dinner that's in the best interest of sheep.

If it was about competence, then the competent executives would've pushed out the incompetent ones in favor of competent replacements sourced from the general public. Instead, they do the precise opposite, favoring incompetent incumbents and fighting tooth and nail against competent replacements sourced from the general public. That fight is in vain: like any fight between the aristocracy and bourgeoisie, the latter has the actual skill and knowledge to win... only for their descendants to inherit their wealth and become the new aristocracy, against which a new bourgeoisie struggles - and rinse and repeat.

Put simply: it's the same Old Money v. New Money bullshit we've seen for as long as the concept of wealth has existed.

> That fight is in vain: like any fight between the aristocracy and bourgeoisie, the latter has the actual skill and knowledge to win...

Only because the former keeps believing the justifications and rules dished out against them by the latter. Its not different than the religion in middle ages and how the aristocrats and priesthood dished out justifications and rules to maintain the order.

Otherwise the former has the power to change everything in the democratic apparatus.

If you can’t find those skills, then why are you paying so much to people that don’t have them? You’re living in a world of a perfect simulation when it’s really just a bunch of grubby people protecting a lifestyle they think they deserve.

Good leadership isn’t rare, you just can’t pay to have it.

A good CEO is hard to find, but perhaps people are just terrible at predicting who will be a good CEO. Would we see worse results if people were promoted into the role with less salary?

My guess is the success rate would be more or less the same.

>Maybe they could have recruited better with a higher salary?

I've heard drug addicts say similar things about their next hit.

And gambling addicts about their next bet.

So these execs are highly paid because of these elusive leadership skills, that they don’t have because they’re not paid enough? This concert is not something a real leader would take part in. These are really lucky managers. What I’m saying is, the explanation that these execs are so highly paid because of their leadership skills is nonsense. As another user pointed out, at this point it’s just an aristocracy.

> Why does it seem like executives are the only areas that aren't ever subject to cost cutting?

It’s deceptively as simple as the fact that they are the one cutting costs. Who would fire himself ?

The board?

And who sits on boards? Current and former executives who have vested interest in the status quo.

ceos get fired all the time https://www.cnn.com/2019/07/19/success/ceos-getting-fired/in...

aside from those numbers, i suspect a good chunk of ceo drama is underreported, because if you publicly PIP them and kick them out, it will hurt the company.

Yes but CEOs are fired because the boards are judging they are not up to the task or that they don’t share the same idea of how the company should be driven.

Somehow, getting fired is the standard way out for a CEO. They are financially prepared to it (emotionally prepared, I suppose it depends on a per person basis).

It’s really not the same as firing thousands of people because you are badly managing the company. And it’s even worse when hiring then firing thousands of people is just part of your plan : executives are not stupid, they knew their last years growth was circumstantial and that it wouldn’t last.

I think you understand more than you think if this statement throws you for a loop:

> “Corporations are bound by fiduciary responsibility to maximize profit"

This might be the view of some CEOs (maybe it’s the logical conclusion of the Jack Welch school of thought?) but it certainly isn’t the case from a corporate law perspective.

Officers have a fiduciary duty of loyalty not to compete against the corporation or steal its opportunities; and officers have the fiduciary duty of care to act in an informed manner, but they certainly do not have a legal responsibility to the shareholders or anyone else to maximize profits.

At the time of (my) commenting parent is heavily downvoted.

> “Corporations are bound by fiduciary responsibility to maximize profit"

This is often repeated on HN and elsewhere. I'm not a corporate lawyer or any sort of lawyer but an Internet search indicates this isn't true. I wish people would comment instead of just downvoting.

Maximizing shareholder value is a position taken by many that is getting less popular.

Value is difficult - Wall St cares about quarterly results, but shareholder value may be better served with a different scope.

An alternate theory - it was planned and paid for long before the cost cutting. They could have cancelled it to save face, but chose not to.

I work at Microsoft and I have many peers upset about this. By the time they realized they needed layoffs it was probably too late to get their money back on the concert anyways.

They are taking a charge back of $1.2bn with the layoff. Are you suggesting canceling the private performance would have costed a huge amount on similar lines?

No, of course not. But others seem to be. And in my opinion by the time they decided to do layoffs it would’ve been too late to cancel the concert and get their money back, so you might as well enjoy the concert.

But why was the concert planned in the first place

Or they fired the workers so they could afford the concert, as well as fine food, dining and escorts, with all the other aristocrats at Davos.

No time to care about the little people when you're pocketing the silverware and golden chandeliers as the titanic sinks.

I think it’s a mix of “execs are the top dogs so they can decide to splurge a little on themselves”, the key is “a little”, I have no idea how much a private concert costs but anything less than $1M is probably considered “acceptable amount of splurge”

Well the important thing is this is everything you need to know about the corporate world in one article.

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