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Laid-back and Passionate

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Re: Laid-back and Passionate

#11

Post by Nursie »

_pmf_ wrote: post #4
hkmurakami wrote: post #3

>Even then, though, we will stay a small team, with ‘satisfactory’ goals, and hopefully living ‘good enough’ lives. IMO, a realignment of corporate objectives from "maximizing shareholder returns" to "giving reasonable returns (to investors)" should ideally develop in tandem as well. We're all out of whack these days; hopefully we can regain some balance to society's expectation of our careers and lives one of these…

> IMO, a realignment of corporate objectives from "maximizing shareholder returns" to "giving reasonable returns (to investors)" should ideally develop in tandem as well. For publicly traded companies, not maximizing shareholder returns can be a criminal offense. This is the real problem.

Is it though?

I've not once heard of this actually being pursued. This line seems to me to be something of an urban myth.

Re: Laid-back and Passionate

#12

Post by gjm11 »

_pmf_ wrote: post #4
hkmurakami wrote: post #3

>Even then, though, we will stay a small team, with ‘satisfactory’ goals, and hopefully living ‘good enough’ lives. IMO, a realignment of corporate objectives from "maximizing shareholder returns" to "giving reasonable returns (to investors)" should ideally develop in tandem as well. We're all out of whack these days; hopefully we can regain some balance to society's expectation of our careers and lives one of these…

> IMO, a realignment of corporate objectives from "maximizing shareholder returns" to "giving reasonable returns (to investors)" should ideally develop in tandem as well. For publicly traded companies, not maximizing shareholder returns can be a criminal offense. This is the real problem.

Publicly traded companies (kinda) have to do what their shareholders want them to, but that doesn't have to be maximizing returns (still less maximizing returns in the short term).

Here's some comment on this with quotations from actual law, but note that (1) it's from the UK rather than the US and presumably the relevant laws aren't quite the same, and (2) the author's position is further to the left than is customary in the US. So discount it as you please. http://www.taxresearch.org.uk/Blog/2011/10/24/companies-do-n...

And a more US-centric discussion with some useful links: http://skeptics.stackexchange.com/questions/8146/are-u-s-com...

And a white paper whose main topic is executive compensation but that has a useful discussion of this issue (in section 2): http://www.neiinvestments.com/neifiles/PDFs/5.4%20Research/E... -- reading between the lines, it looks as if there's at least a case to be made that US case law requires corporations to act in the financial interests of their shareholders, but it's debatable, and in other jurisdictions there isn't even much of a case to be made.

(I am not, even slightly, a lawyer.)

Re: Laid-back and Passionate

#14

Post by RyanMcGreal »

hkmurakami wrote: post #7
_pmf_ wrote: post #4

Earlier quoted context omitted.

> IMO, a realignment of corporate objectives from "maximizing shareholder returns" to "giving reasonable returns (to investors)" should ideally develop in tandem as well. For publicly traded companies, not maximizing shareholder returns can be a criminal offense. This is the real problem.

Are you sure about this? The Johnson & Johnson credo which I posted above goes directly against your claim, and so does Costco's operations (where they have resisted multiple calls by Wall Street to increase prices and reduce employee pay and benefits) I can see that not maximizing returns can cause a storm in the shareholder meetings, but can you give a source for it being a "criminal offense" to refrain from doing…

> where they have resisted multiple calls by Wall Street to increase prices and reduce employee pay and benefits

They've been able to resist because they have demonstrated that shareholder returns are better when employees are well-paid and -treated.

Re: Laid-back and Passionate

#15

Post by vidarh »

_pmf_ wrote: post #4
hkmurakami wrote: post #3

>Even then, though, we will stay a small team, with ‘satisfactory’ goals, and hopefully living ‘good enough’ lives. IMO, a realignment of corporate objectives from "maximizing shareholder returns" to "giving reasonable returns (to investors)" should ideally develop in tandem as well. We're all out of whack these days; hopefully we can regain some balance to society's expectation of our careers and lives one of these…

> IMO, a realignment of corporate objectives from "maximizing shareholder returns" to "giving reasonable returns (to investors)" should ideally develop in tandem as well. For publicly traded companies, not maximizing shareholder returns can be a criminal offense. This is the real problem.

I'm not a lawyer, but I have been a director of a couple of companies, including one US corporation, though not of a publicly listed company, and have been a (tiny) investor in a number of listed corporations.

There is no explicit duty to maximize shareholder returns. In most jurisdictions there is a duty for directors and officers to act in the best interest of the company and its shareholders (as a whole; most places a director does not represent a specific shareholder even if selected by a specific shareholder).

This can be interpreted as maximising returns, assuming that is what shareholders ask for, and there's no charter etc. that set out other goals for the company. But it can also mean prioritising any number of other goals as long as investors are not misled about it.

In general the board and officers have quite wide latitude as long as there's at least a plausible subjective argument to be made that their actions are in the interest of the company and shareholders on the basis that shareholders can have them replaced if they're not doing the jobs shareholders want.

Anything else would be pretty much an impossible situation, as there's no objective best course of action to maximize returns.

Re: Laid-back and Passionate

#16

Post by TheCoelacanth »

_pmf_ wrote: post #4
hkmurakami wrote: post #3

>Even then, though, we will stay a small team, with ‘satisfactory’ goals, and hopefully living ‘good enough’ lives. IMO, a realignment of corporate objectives from "maximizing shareholder returns" to "giving reasonable returns (to investors)" should ideally develop in tandem as well. We're all out of whack these days; hopefully we can regain some balance to society's expectation of our careers and lives one of these…

> IMO, a realignment of corporate objectives from "maximizing shareholder returns" to "giving reasonable returns (to investors)" should ideally develop in tandem as well. For publicly traded companies, not maximizing shareholder returns can be a criminal offense. This is the real problem.

Utterly false. It could never be a criminal offense; it's entirely a civil matter. Additionally, courts have given companies broad latitude in determining what actions are in their shareholders best interests. In multiple cases courts have accepted arguments that a company's long-term interests were best served through socially responsible actions (e.g. charitable giving) even though this would decrease immediate profits.

In Dodge v. Ford Motor Co., the only reason the court found in favor of the shareholders was that Ford explicitly testified that he thought his company was making too much money and he felt obliged to use the money to benefit the public. Even this ruling, which is the one that established the "maximizing shareholder returns" precedent, stopped short of preventing Ford from taking the public-benefiting actions that the shareholders wanted to prevent, it merely required the company to continue paying dividends to the shareholders.

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