The question of choice between a profitable vs unprofitable venture is easy. But yeah, to what extent is choosing profitable instead of VERY profitable a breach of duty to shareholders?
> Contrary to what many believe, U.S. corporate law does not impose any enforceable legal duty on corporate directors or executives of public corporations to maximize profits or share price. The economic case for shareholder-value maximization similarly rests on incorrect factual claims about the structure of corporations, including the mistaken claims that shareholders “own” corporations, that they have the only residual claim on the firm’s profits, and that they are principals who hire and control directors to act as their agents.
[0] https://corpgov.law.harvard.edu/2012/06/26/the-shareholder-v...
Willingly getting sued by hostile shareholders is in itself not acting in the best interest of shareholders so while it’s not in code, it’s buried in many decades of case law and in reality it reflects the maligned incentives for companies.
> Willingly getting sued by hostile shareholders is in itself not acting in the best interest of shareholders
Really? So if I am a hostile shareholder demanding massive workforce reductions so I can get a $1 dividend today, even though this action will make it impossible for anyone to get a $10 dividend tomorrow, it is in the best interest of shareholders for the company to capitulate to my demand? What if other shareholders are employees? Whose best interests are served then?
Your own citation is basically an acknowledgement of that. In particular:
> “This dogma drives directors and executives to run public firms with a relentless focus on raising stock price. In the quest to “unlock shareholder value” they sell key assets, fire loyal employees, and ruthlessly squeeze the workforce that remains; cut back on product support, customer assistance, and research and development; delay replacing outworn, outmoded, and unsafe equipment; shower CEOs with stock options and expensive pay packages to “incentivize” them; drain cash reserves to pay large dividends and repurchase company shares, leveraging firms until they teeter on the brink of insolvency; and lobby regulators and Congress to change the law so they can chase short-term profits speculating in high-risk financial derivatives.”
That false pledge certainly suggests that rather than being controlled by the dogma, they perpetuate it so workers and citizens accept turpitude as inevitable and necessary. The carrot is the stock option; the stick is the myth that everyone will get in big trouble if workers refuse to put shareholder wealth first.
[0] https://en.wikipedia.org/wiki/Business_Roundtable#2019_corpo...
The shareholders own the company. It is their property. They paid for it, they own it, and likewise they can do whatever they want with it.
It would be crazy if I proposed you let me drive your car to work everyday. Why? Because you own your car, it's your property, and it works for your own interest. Basically every human agrees with this logic, but somehow "the company is just focused on pleasing shareholders" escapes this.
The shareholders, via the board, hold final say over the company, it's direction, and it's alignment...because they own it.
It's more like voting for public officials. Shareholders can vote to fire a CEO if they feel he's not acting in their best interests no mattter if that's the case or not.
Raid your own assets, cut costs manically so you can have a few splendid quarters with stock buyback bonanza or focus on long term value creation, which a lot of times involves giving at least a passing tought to other stakeholders such as client and employees?
The getting was great for some time for HP shareholders under Fiorina, or GE shareholders under Welch. Lots of them left the sinking ships at the right moment, but I bet that lot of the others left holding the bag, would have preferred having bought AAPL.
avoiding the destruction of good faith with consumers is a legitimate business interest
There are a few, I mean very few executives who stand firm on defending good faith toward customer happiness and quality. One of the only things stopping the spiral is competition. That’s why there’s an incentive to consolidate into a few massive conglomerates.