The Shareholder Value Myth
https://www.marketplace.org/2022/04/25/how-shareholders-jump... > “There is a widespread and completely erroneous belief out there that there is some sort of legal duty that corporate managers have to ‘maximize profits’ or ‘maximize shareholder value,’” said Cornell law professor Lynn Stout, author of “The Shareholder Value Myth.” In Stout’s view, the misplaced assumption comes from an old case that cites stockholders’ interests. That case did not set legal precedent, she said, compared to a more recent case. > “You can just pick up the Supreme Court case ‘Hobby Lobby’ decided just a few…
My standard reply to these posts: 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taken from a review [2] of the same: "Stout traces the birth of this “fable” to the “oversized effects of a single outdated and widely misunderstood judicial opinion.”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.”…
I also recommend Professor Stout's book, and especially to fellow specialists and governance wonks. Not because I agree with her main thrust, her characterization of the orthodox view, or her conclusions about it, but because resisting the book in good conscience requires summoning foundational primary sources that practitioners don't have to handle very often. If you lead right, it's good to fight a southpaw from time to time. When recommending it to those who aren't corporate attorneys or otherwise involved in the subject matter, I include a caveat: If this is the only book you read on…
Here is a summary of Lynn Stout's arguments about the "Shareholder Value Myth". https://corpgov.law.harvard.edu/2012/06/26/the-shareholder-v... When I think about corporations trying to maximize profits at the expense of all others, I think of ancient Rome. Rome did maximize profits at the expense of everything else, even enslaving citizens for failing to pay their taxes which was one of the causes of the second servile war. https://en.wikipedia.org/wiki/Second_Servile_War The idea that corporations should deify shareholders at the expense of society means that shareholders are…
Some say the answer all starts with $5 days and Dodge vs Ford. https://corpgov.law.harvard.edu/2021/12/01/dodge-v-ford-what... Much more in-depth read: https://scholarship.law.vanderbilt.edu/cgi/viewcontent.cgi?a... If you'd like to read a book on each side of the coin: "The Shareholder Value Myth" - Lynn Stout and Stephen Bainbridge just published a rebuttal book "The Profit Motive" I've read Lynn Stouts book, it's good, I've yet to start Stephen Bainbridge but I've been told it's a good read.
I'm not a lawyer, but I did just read a book† written by a lawyer†† about this topic. I think it's possible that it can vary state to state, but in Delaware (a very popular place to form corporations) the law††† says: The business and affairs of every corporation organized under this chapter shall be managed by or under the direction of a board of directors, except as may be otherwise provided in this chapter or in its certificate of incorporation. † http://www.amazon.com/The-Shareholder-Value-Myth-Shareholder... †† http://www.lawschool.cornell.edu/faculty/bio_lynn_stout.cfm †††…
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,…
> 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...
Sorry if I copy and paste a comment I left some time ago in another thread ( https://news.ycombinator.com/item?id=7983281 ) but it's relevant: 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…
The corporate fiduciary duty to maximize profit is a discredited myth that unfortunately has been propagated for decades by persistent misinterpretation of bad case law (Dodge v. Ford), compounded by simple inertia, ignorance, and (I speculate) the partnership of unenlightened neoliberal ideology with the cynical short-term self-interest of wealthy corporate shareholders. Corporate leaders are expected to act in the interests of shareholders, but their legal obligations are satisfied if they can argue that their business judgment supported their chosen direction. And business judgment can…