I wanna surface this to my main timeline because it's kinda important to say out loud from time to time:
Businesses do NOT "have to" focus exclusively on their return to shareholders. Not legally, not morally.
That is the misguided OPINION of a 1970 essay by Milton Friedman, and the fact that everyone seemed to just hop on board that opinion is a significant reason why we switched gears into hyper-hell-capitaliam since then.
Push back on this every time you see it.
I thought they had a legal, fiduciary responsablity to their shareholders, no?
@dogfox Yeah, but not SOLE responsibility. The idea that you have to raise next quarter's profits at all costs is just bananapants crazy, when you think about it.
Companies used to believe they had a responsibility to their shareholders, yes, but also their employees, the surrounding community, the industry, and the country at large.
Nowadays, you'd be asked if you are, or were, ever a member of the Chinese Communist Party if you suggested any of that.
My comment was in no way a defense of that insanity. I just wasn't clear how much lunacy had been codified into law.
And yes, things did used to be less crazy and inhuman.
That is true.
I wonder if giving executives all these stock options is creating "perverse incentives" (gag!)...
@dogfox @kajord @danhulton Pretty unquestionably.
One way to demonstrate this is to watch the differences in behaviour, and company longevity, between professional CEOs who are hired into a company and (presumably on average less competent) CEOs who start a family company. The family companies survive *far* longer with a *far* longer investment horizon. Because professional CEOs are looking out up to about 4 years (the duration of their grants) and family CEOs for generations.
@iinavpov @dogfox @kajord @danhulton
My favourite way to demonstrate it is to look down the list of the world's oldest companies: https://en.wikipedia.org/wiki/List_of_oldest_companies
@codefolio
That's definitely a start!
Master bootlicker, that one.
I'd add the responsibility to the future shareholders. Buybacks at the expense of R&D or productions are an example of breaking that.
Jack Welch has called it “the dumbest idea in the world.” Vinci Group Chairman and CEO Xavier Huillard has called it “totally idiotic.” Alibaba CEO Jack Ma has said that “customers are number one; employees are number two and shareholders are number three.” Paul Polman, CEO of Unilever [UN], has denounced “the cult of shareholder […]
That's a good point. And the argument that the only common interest of shareholders is maximizing profits falls down in the face of something like climate change.
@drfancypantsesq @dogfox @danhulton I had an old-school boss who said that "the company" was a triangle of customers, owners, and employees. He said his decisions were based on balancing the interests of all three groups, and ideally, to find approaches that made them all grow.
Too many half-ass MBAs only focus on one, or maybe two of the three groups.
@dogfox @danhulton yes, but “responsibility to shareholders” is not the same as “share price go up”.
“Running a sustainable business” is a perfectly fine way to satisfy that responsibility.
Furthermore, the general precedent is that courts are absurdly deferential to boards/management about how to run a business. So in practice the legal requirement is “don't lie about¹ using company funds to build your holiday home”.
¹: if you're public about using company funds to build your holiday home that's probably ok!
I suppose a board could use that as a defense in court. But it wouldn't stop them being voted out.
@dogfox @danhulton indeed, but the original point is that there's a pervasive myth that companies are legally required to be maximally awful in pursuit of profit. This is untrue; there is no such legal requirement.
This is important, because people expecting companies to be awful is a significant cause of companies being awful.
@blake @danhulton It was a non-binding comment in a 1919 Michigan state supreme court decision Dodge v. Ford.
https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co.
As the wiki article goes on to state, the significance of that comment is blown very far out of proportion by non-legal people and is not state or federal law anywhere, afaik.
@danhulton Hear hear!
I have to admit, as a bit of an amateur legal nerd, I'd be interested to see how that would be justified in practice. Like, I'd love to follow the proceedings of a case where some company chose a course of action that balanced profit with ethics or some other motivation, and they were sued by shareholders for breach of fiduciary duty on the basis that they could have made a different choice that would have been more profitable.
"You can't purposefully crash a plane into the ground favoring your own interests over shareholder's" turned into a positive affirmation that doesn't actually exist, taken as bite sized gospel, and renders up agenciless automatons nobody can do anything about, allegedly.
@danhulton Jack Welch was the CEO role model for that, destroying the massive wealth-creation engine of GE for the short term gain of a few people.
If Adam Smith was alive, he'd be ready to give these people a Glasgow kiss.
The Evil CEO That Elon Musk Is Copying | The Class Room ft. @FDSignifire
THIS x one KAJILLION bajillion
("Yes sorry, it's too bad people have to starve we have nonsensical rules we gotta follow because profit")
@danhulton The corporation can exist for *any legal purpose.* Shares of stock are an interest in the company, not a promise of any particular return or a contract that says the company must maximize profit over all else.
Moreover, “maximize shareholder value” or “maximize profits” is a nonsensical goal. Maximize for who, when? Maximum profit this quarter, or over the next decade? Those are ALWAYS two different goals. And—again—are not the only legal goal even a for-profit company can pursue.
No one in business actually believes this: it's a convenient excuse for short-term looting that enriches management
@RichPuchalsky Yeah, and therein lies the problem, I'd say. The fact that it's so widely believed means that they can in fact perform this looting and not just get away with it, but be lauded as business geniuses.
Whereas if we didn't, societally, buy into the lie, they'd be strung up (though likely just figuratively) and ostracized (definitely literally).
They may not have to, but that that they do is the norm nowadays; the bigger the corp, the more they focus on profits.
Why else do we have corps making record profits while the wages of their workers do not keep pace with those rising profits.
Little or no benefits, no retirement funds.
Visitors fighting unionization of their work places.
All the while, they buy off our politicians to keep giving them tax breaks.
You're right, they don't have to be greedy jerks, but reality shows that the majority of them willingly are.
Plaintiff shareholders, Dodge et al., brought an action against Defendant corporation, Ford Motor Company, to force Defendant to pay a more substantial dividend, and to change questionable business decisions by Defendant.
CitationDodge v. Ford Motor Co., 204 Mich. 459, 170 N.W. 668, 1919 Mich. LEXIS 720, 3 A.L.R. 413 (Mich. 1919) Brief Fact Summary. Plaintiff shareholders, Dodge et al., brought an action against Defendant corporation, Ford Motor Company, to force Defendant to pay a more substantial dividend, and to change questionable business decisions by Defendant. Synopsis
By the late 70's, when I was doing an MBA, this had become rock-solid dogma from the profs. Maybe what I saw was merely the product of advancing in my education, but it appeared to also be an era of increasing transactionalism, culminating in the greed of the '90's...which itself has not backed off much.
@danhulton Incorrect. The concept of maximising shareholder value being the officers' only duty is tied to Dodge v. Ford from 1919.
Having said that, the judgment doesn't say short-term share price rise is the only way to do it, so basically, as long as officers act in good faith that whatever they do will maximise value for shareholders eventually, they're off the hook.
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