> “United States corporate law does not, and never has, required directors of public corporations to maximize either share price or shareholder wealth… State statutes similarly refuse to mandate shareholder primacy… As long as boards do not use their power to enrich themselves, the [business judgment rule] gives them a wide range of discretion to run public corporations with other goals in mind, including growing the firm, creating quality products, protecting employees, and serving the public interest. Chasing shareholder value is a managerial choice, not a legal requirement.”
Such firings will be because management chose to make them, not because they were forced to by the threat of lawsuits by a non-existent legal doctrine.
1: https://www.amazon.com/Shareholder-Value-Myth-Shareholders-C...
[0] 'The Social Responsibility of Business Is to Increase Its Profits', Friedman
[1] https://openscholarship.wustl.edu/cgi/viewcontent.cgi?articl...
[2] https://www.amazon.com/Shareholder-Value-Myth-Shareholders-C...
It's strange to me that Friedman is viewed (at least by economists and "business" folk) as a paragon of logical reasoning and empiricism, all the while his views reek so strongly of ideology. There are tons of reasons why the quoted statement might be false whether you're a policy maker (negative externalities) or even the most cold-hearted capitalist (short-term incentives).
Perhaps relatedly, it's actually not true that corporate responsibility to profit is codified in the law. See e.g. https://en.wikipedia.org/wiki/Shlensky_v._Wrigley (discussed further in https://www.amazon.co.uk/Shareholder-Value-Myth-Shareholders...)
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"Stout traces the birth of this “fable” to the “oversized effects of a single outdated and widely misunderstood judicial opinion.”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, Corporations, and the Public" by Lynn Stout http://www.amazon.co.uk/The-Shareholder-Value-Myth-Sharehold... [2] http://arizonastatelawjournal.org/book-review-the-shareholde...
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
††† http://delcode.delaware.gov/title8/c001/sc04/index.shtml
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...
The actual book is:
"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...
but linking to a review to get an idea.
Fortunately there is now (since 2012 in fact) a book that explains it very well in terms that almost anyone can understand, certainly anyone here on HN:
The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public http://www.amazon.co.uk/Shareholder-Value-Myth-Shareholders-...
Don't even need to read it all, the first few chapters are more than enough IMHO
