No, it's not size. It's being publicly traded. There are laws and rules that require publicly traded companies to maximize stockholder profit. Google went public, and thus now they can't have the same culture they once did. It's pretty simple.
There are laws and rules that require publicly traded companies to maximize stockholder profit.
No [truthonthemarket.com] no [latimes.com] no [wikipedia.org] no [yahoo.com]!
It's not really true. It's not completely false to talk about the need of public companies to take into consideration , but there are significant problems with the argument most of the time you see someone trot out that line. Shareholder wealth maximization is a consideration, but is by far need not be be-all, end-all goal from a legal perspective. This is particularly true in this scenario of 20% time, because if the board thought that 20% time was a good thing to have from the company's perspective, they would be completely allowed to implement it.
"While the duty to maximize shareholder value may be a useful shorthand for a corporate manager to think about how to act on a day to day basis, this is not legally required or enforceable. The only constraint on board decision making is a pair of duties â" the âoeduty of careâ and the âoeduty of loyalty.â The duty of care requires boards to be well informed and to make deliberate decisions after careful consideration of the issues. Importantly, board members are entitled to rely on experts and corporate officers for their information, can easily comply with duty of care obligations by spending shareholder money on lawyers and process, and, in any event, are routinely indemnified against damages for any breaches of this duty. The duty of loyalty self evidently requires board members to put the interests of the corporation ahead of their own personal interest."
"But if shareholder value thinking is counterproductive, how did it become so prevalent? Non-experts often assume the approach is rooted in law, and that public companies are legally required to maximize profits and shareholder returns. This is pure myth. Thanks to a legal doctrine called the business judgment rule, corporate directors who refrain from using corporate funds to line their own pockets remain legally free to pursue almost any other objective, including providing secure jobs to employees, quality products for consumers and research and tax revenues to benefit society."
"[Dodge vs. Ford Motor Company] is frequently cited as support for the idea that "corporate law requires boards of directors to maximize shareholder wealth." The following articles attempt to refute that interpretation.... In that context, the Dodge decision is viewed as a mixed result for both sides of the dispute. Ford was denied the ability to arbitrarily undermine the profitability of the firm, and thereby eliminate future dividends. Under the upheld business judgment rule, however, Ford was given considerable leeway via control of his board about what investments he could make. That left him with considerable influence over dividends, but not as complete control as he wished."
"Many of us have heard that corporations are legally required to maximize shareholder value. Guess what, they are not. The law in the United States does not require management to maximize shareholder value (except under rare circumstances such as when the company gets put up for sale). This may surprise you because you've also probably also heard that shareholders own the corporation. That's not true either."
"In case law speak, judicial commentary articulating an opinion and not decisive to the case is known as "dicta" and is not binding in the court of law. The comments that have made Dodge v. Ford the single-most known case for defining a corporation's duty to maximize shareholder growth...comes in, well, dicta."
It's just how the whole stock market/analyst reports/etc are reported/portrayed in North America.
Meet the numbers that a bunch of random guys have made up as to how much you "should" have sold this quarter, or your stock price drops because a bunch of hedge funds have decided that the random guys know more about running your business than you do.
Your refutal of the maxime shareholder profit argument may be technically correct, but it's probably simplistic....whenever an officer of a company makes a decision that can be questioned as not maximizing profit, he is opening himself up to the possibility of a shareholder lawsuit. If the officer is the CEO, the risks are even greater.
So guess what happens...the ceo is advised by his lawyer how to behave, the ceo advises his subordinate managers how to behave, and the a new culture trickles down...
Shareholder wealth maximization is a consideration, but is by far need not be be-all, end-all goal from a legal perspective
But from an economic perspective, it is, and should be, the major driving force behind everything a company does.
Many of us have heard that corporations are legally required to maximize shareholder value. Guess what, they are not. The law in the United States does not require management to maximize shareholder value
Of course not. Corporations can be established for many purposes. But ma
There are laws and rules that require publicly traded companies to maximize stockholder profit.
It's not really true. It's not completely false to talk about the need of public companies to take into consideration , but there are significant problems with the argument most of the time you see someone trot out that line. Shareholder wealth maximization is a consideration, but is by far need not be be-all, end-all goal from a legal perspective.
To be fair to people making that argument, this is something which varies between jurisdictions. Under English law, for instance, directors are fiduciaries of the shareholders and are required to always act in the shareholders' best interests, regardless of the interests of the ``company'',its employees, or society at large. Even under American law, it's fairly common for a company's articles of incorporation or stockmarket prospectus to say that it'll always act to maximise shareholder profits, and those
Maybe you can't buy happiness, but these days you can certainly charge it.
Object lesson (Score:5, Insightful)
The stock market kills companies.
Re: (Score:1)
It's not the stock market: it's size.
Re: (Score:0, Troll)
No, it's not size. It's being publicly traded. There are laws and rules that require publicly traded companies to maximize stockholder profit. Google went public, and thus now they can't have the same culture they once did. It's pretty simple.
Re:Object lesson (Score:5, Informative)
No [truthonthemarket.com] no [latimes.com] no [wikipedia.org] no [yahoo.com]!
It's not really true. It's not completely false to talk about the need of public companies to take into consideration , but there are significant problems with the argument most of the time you see someone trot out that line. Shareholder wealth maximization is a consideration, but is by far need not be be-all, end-all goal from a legal perspective. This is particularly true in this scenario of 20% time, because if the board thought that 20% time was a good thing to have from the company's perspective, they would be completely allowed to implement it.
"While the duty to maximize shareholder value may be a useful shorthand for a corporate manager to think about how to act on a day to day basis, this is not legally required or enforceable. The only constraint on board decision making is a pair of duties â" the âoeduty of careâ and the âoeduty of loyalty.â The duty of care requires boards to be well informed and to make deliberate decisions after careful consideration of the issues. Importantly, board members are entitled to rely on experts and corporate officers for their information, can easily comply with duty of care obligations by spending shareholder money on lawyers and process, and, in any event, are routinely indemnified against damages for any breaches of this duty. The duty of loyalty self evidently requires board members to put the interests of the corporation ahead of their own personal interest."
"But if shareholder value thinking is counterproductive, how did it become so prevalent? Non-experts often assume the approach is rooted in law, and that public companies are legally required to maximize profits and shareholder returns. This is pure myth. Thanks to a legal doctrine called the business judgment rule, corporate directors who refrain from using corporate funds to line their own pockets remain legally free to pursue almost any other objective, including providing secure jobs to employees, quality products for consumers and research and tax revenues to benefit society."
"[Dodge vs. Ford Motor Company] is frequently cited as support for the idea that "corporate law requires boards of directors to maximize shareholder wealth." The following articles attempt to refute that interpretation. ... In that context, the Dodge decision is viewed as a mixed result for both sides of the dispute. Ford was denied the ability to arbitrarily undermine the profitability of the firm, and thereby eliminate future dividends. Under the upheld business judgment rule, however, Ford was given considerable leeway via control of his board about what investments he could make. That left him with considerable influence over dividends, but not as complete control as he wished."
"Many of us have heard that corporations are legally required to maximize shareholder value. Guess what, they are not. The law in the United States does not require management to maximize shareholder value (except under rare circumstances such as when the company gets put up for sale). This may surprise you because you've also probably also heard that shareholders own the corporation. That's not true either."
And finally, to make things ever more interesting [innov8social.com]:
"In case law speak, judicial commentary articulating an opinion and not decisive to the case is known as "dicta" and is not binding in the court of law. The comments that have made Dodge v. Ford the single-most known case for defining a corporation's duty to maximize shareholder growth...comes in, well, dicta."
Re: (Score:2)
It's just how the whole stock market/analyst reports/etc are reported/portrayed in North America.
Meet the numbers that a bunch of random guys have made up as to how much you "should" have sold this quarter, or your stock price drops because a bunch of hedge funds have decided that the random guys know more about running your business than you do.
Re:Object lesson (Score:4, Insightful)
Your refutal of the maxime shareholder profit argument may be technically correct, but it's probably simplistic....whenever an officer of a company makes a decision that can be questioned as not maximizing profit, he is opening himself up to the possibility of a shareholder lawsuit. If the officer is the CEO, the risks are even greater.
So guess what happens...the ceo is advised by his lawyer how to behave, the ceo advises his subordinate managers how to behave, and the a new culture trickles down...
No one is to blame but the system here.
Re: (Score:1)
But from an economic perspective, it is, and should be, the major driving force behind everything a company does.
Of course not. Corporations can be established for many purposes. But ma
Re: (Score:1)
It's not really true. It's not completely false to talk about the need of public companies to take into consideration , but there are significant problems with the argument most of the time you see someone trot out that line. Shareholder wealth maximization is a consideration, but is by far need not be be-all, end-all goal from a legal perspective.
To be fair to people making that argument, this is something which varies between jurisdictions. Under English law, for instance, directors are fiduciaries of the shareholders and are required to always act in the shareholders' best interests, regardless of the interests of the ``company'',its employees, or society at large. Even under American law, it's fairly common for a company's articles of incorporation or stockmarket prospectus to say that it'll always act to maximise shareholder profits, and those