Comment by rawgabbit | Hacker News Reader

Comment by rawgabbit | Hacker News Reader

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>The long-running debate over whether the purpose of the corporation is to maximize short-term profits for shareholders or, alternatively, to operate in the interest of all stakeholders to promote long-term value, dates back to the 1932 law review exchange between Merrick Dodd (here) and Adolf Berle (here). Milton Friedman’s 1970 essay, The Social Responsibility Of Business Is to Increase Its Profits, epitomizes the former view, known as shareholder primacy, which posits that the sole role of the corporation is to maximize shareholder profits. In Friedman’s words, “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits.” We have long advocated for a broader view of corporate purpose than Friedman’s and the shareholder primacy theory: first, as described in 1979 in Takeover Bids in the Target’s Boardroom, to empower boards to consider the interests of all stakeholders, including the communities in which corporations operate, in repudiating takeover bids by opportunistic raiders; and later, to encourage directors to resist short-term pressures and allow boards to exercise their business judgment to evaluate the variety of stakeholder interests that are essential to promoting sustainable success and growth in long-term corporate value.

https://corpgov.law.harvard.edu/2022/11/29/understanding-the...

Yeah, it's not hard to find knowledgeable commentary to the effect that the duty of directors to act in the interests of the shareholders does not mean a simple-minded duty to maximize profits. The interests of shareholders are complicated, and boards can make nuanced decisions about short-term vs long-term profits, risks, reputation, and such things that are difficult to capture using financial reports.

Here's a Cornell law school prof saying just this. https://www.nytimes.com/roomfordebate/2015/04/16/what-are-co...

"There is a common belief that corporate directors have a legal duty to maximize corporate profits and 'shareholder value' — even if this means skirting ethical rules, damaging the environment or harming employees. But this belief is utterly false. To quote the U.S. Supreme Court opinion in the recent Hobby Lobby case: 'Modern corporate law does not require for-profit corporations to pursue profit at the expense of everything else, and many do not.'"

"Serving shareholders’ 'best interests' is not the same thing as either maximizing profits, or maximizing shareholder value. 'Shareholder value,' for one thing, is a vague objective: No single 'shareholder value' can exist, because different shareholders have different values. Some are long-term investors planning to hold stock for years or decades; others are short-term speculators."

"More to the point, corporate directors are protected from most interference when it comes to running their business by a doctrine known as the business judgment rule. It says, in brief, that so long as a board of directors is not tainted by personal conflicts of interest and makes a reasonable effort to stay informed, courts will not second-guess the board’s decisions about what is best for the company — even when those decisions predictably reduce profits or share price."

> Here's a Cornell law school prof saying just this. https://www.nytimes.com/roomfordebate/2015/04/16/what-are-co...

In fact she (Lynn Stout) wrote an entire book on the subject:

* https://www.goodreads.com/book/show/13132729-the-shareholder...

The debate may be over whether short-term or long-term goals are a higher priority, but both sides are based on the understanding that company leadership has a fiduciary duty to shareholders.

The nuance is that fiduciary duty does not mean sacrificing your future as a business for short term profits. This Milton Friedman definition needs to stop. What Milton Friedman was advocating was the law of the jungle where corporations have the fiduciary duty to cheat lie and steal from their customers employees and vendors. By this definition the Sackler’s Purdue Pharma should be lauded for foisting the opioid epidemic on the American public.

> […] but both sides are based on the understanding that company leadership has a fiduciary duty to shareholders.

Not really? Kind of?

Yes, directors have a "fiduciary duty to shareholders" but they also have a fiduciary duty to the corporation itself. § 102(b)(7):

* https://delcode.delaware.gov/title8/c001/sc01/

Further, you have to ask which shareholders:

> Serving shareholders’ “best interests” is not the same thing as either maximizing profits, or maximizing shareholder value. "Shareholder value," for one thing, is a vague objective: No single “shareholder value” can exist, because different shareholders have different values. Some are long-term investors planning to hold stock for years or decades; others are short-term speculators.

* https://www.nytimes.com/roomfordebate/2015/04/16/what-are-co...

I think we're in agreement here. I wasn't trying to say that corporate leadership is bound to a specific interpretation of what "best interests" means.

That was actually my point in the GP comment, though I may not have phrased it clearly enough. The article and quotes linked earlier are just calling out that there's a debate as to how "best interests" is interpreted. Some may see that and consider short term profits, others may use it to justify focusing on long term profits and company health.

The debate is there for sure and the law is vague enough to allow many interpretations, but all interpretations still have to be based on the idea that leadership is doing what they believe is in the shareholders' best interests in one way or another.

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