> Although that's unlikely to be good law today.
Can you explain further here? It seems to me that maximizing shareholder value is, at least today, the exclusive purpose for which corporations exist. The law seems to require this.
Can you explain further here? It seems to me that maximizing shareholder value is, at least today, the exclusive purpose for which corporations exist. The law seems to require this.
I highly recommend to just get the book [1], it's written very well and in layman terms but here's an extract taken from a review [2] of the same:
"Stout traces the birth of this “fable” to the “oversized effects of a single outdated and widely misunderstood judicial opinion.” Dodge v. Ford Motor Company was a 1919 decision of the Michigan Supreme Court. The opinion’s status as a meaningful legal precedent on the issue of corporate purpose is tenuous at best. Yet, its facts “are familiar to virtually every student who has taken a course in corporate law.” As Stout has observed in the past, “[t]he case is old, it hails from a state court that plays only a marginal role in the corporate law arena, and it involves a conflict between controlling and minority shareholders” more than an issue of corporate purpose generally. The chapter explains quite well that any idea that corporate law, as a positive matter, affirmatively requires companies to maximize shareholder wealth turns out to be spurious. In fact, none of the three sources of corporate law (internal corporate law, state statutes and judicial opinions) expressly require shareholder primacy as most typically describe it. To the contrary, through the routine application of the business judgment rule, courts regularly provide prophylactic protection for the informed and non-conflicted decisions of corporate boards"
[1] "The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corportations, and the Public" by Lynn Stout http://www.amazon.co.uk/The-Shareholder-Value-Myth-Sharehold...
[2] http://arizonastatelawjournal.org/book-review-the-shareholde...
A further note: private corporations are under absolutely no obligations as to how they do or do not reinvest their profits. So your blanket statement is way off base, the private company economy is drastically larger than the publicly traded economy.
I like Amazon, and also assume that they'll actually make money at some point, but the financial graveyard is filled to the brim with companies like this.
Even being generous and giving Amazon a future 20 pe ratio, at the recent highs, would require roughly $9 billion in profit. Once again being generous and assuming they can ever reach a 5% net income margin, they need $180+ billion in sales. Let's recalculate for a 15 pe ratio and 3.5% net income margin: $342 billion in sales (that's the Walmart scenario).
The stock has nowhere to go for a decade from the recent $400x levels. The party is over.
Even discarding all other revenue streams, you want to compare the company to a retailer growing sales at 1% y/y (WalMart), while they grow sales at 22%? All this while only being in 12 international markets and citing a lack of non-English content as holding them back in the high margin area of digital content.
Your evaluation seems entirely misguided and ham-handed to be honest.