It feels an awful lot like the people putting out this statement want to position themselves as the actual driving force behind the focus on shareholder value in the 80s, and thus use that branding to also posit an authority to change future corporate governance in a way that accommodates the current political climate. It's absurd to think that they would have that kind of power, but that aspect of it is probably harmless in the long run; I think the bigger concern is how this statement can be used and incorporated as a bigger vision for governance that appears to address fundamental problems with the way our economy is run without actually addressing them, much the way a focus on plastic straws lets people feel like they're addressing ocean plastic without actually addressing it.
Statement on the Purpose of a Corporation
121–130 of 211 posts
Re: Statement on the Purpose of a Corporation
#122Wake me up when I can use such a statement as a means to legally coerce corporations into compliance with existing laws, to say nothing of the exigent environmental threats facing the world. Literally every CEO would laugh at this statement in the privacy of their office, while they engineer stock manipulation to trigger their stock options and retire in 5 years. It's like an ethics in business class at MBA schools.…
"Literally every". I don't think it's fair to tar every business owner and executive with this brush. Yes, there's unethical people, and it's way too common in this business environment. But there's also plenty of businesses that do their very best to treat customers, employees, suppliers, and shareholders with respect and fairness.
> Yes, there's unethical people, and it's way too common in this business environment.
It is survivorship filter, good guys have much smaller chances to climb the ladder.
Re: Statement on the Purpose of a Corporation
#123You can be cynical about this, and a healthy amount of skepticism is warranted given the authorship. That said, it would be interesting (healthy?) to discuss/debate the merits of the actual statements: * Delivering value to our customers. We will further the tradition of American companies leading the way in meeting or exceeding customer expectations. * Investing in our employees. This starts with compensating them f…
Soviet Union had show trials and U.S. has show letters. The legal purpose of a corporation is to generate returns for shareholders. If training employees and helping customers advances that goal, then corporations should do it. Otherwise - no. Goes without saying that corporations should maximize shareholder value using legal means only.
> The legal purpose of a corporation is to generate returns for shareholders.
This is legally incorrect. It's a meme that should die. This idea is based on the assumption that not acting to maximize shareholder value is defrauding investors. But this isn't at all true. Corporations are free to do whatever they want, as long as they're transparent about doing so.
Or to make the same point in the opposite direction: companies must act ethically, because not doing so ends up being securities fraud[0]. Since stock price is in a large part based on perception, things that negatively affect perception that aren't disclosed could be (and are) construed as defrauding investors.
[0]: https://www.bloomberg.com/opinion/articles/2019-06-26/everyt...
Re: Statement on the Purpose of a Corporation
#124Instead of effortless PR statements like this, let's have a Fortune -5/-10/-50/-100/-500 of the costs companies have incurred from pollution and resource consumption and let everyone claw to the top of the "least bad" pile.
Keep your propaganda, take action and let that speak for you.
(Yes, I'm aware that can be gamed like any other metric. At least it involves concrete changes, not just a fluff piece.)
Re: Statement on the Purpose of a Corporation
#125Earlier quoted context omitted.
> Most shareholders now, in terms of percentage of voting stock ownership, are not individuals but mutual funds, who don't care what the corporation's goals are as long as its stock price and dividends meet targets; and CEOs, even if their share holdings are small as a percentage of the total, can easily get themselves special compensation packages and golden parachutes regardless of whether they improve the corporat…
> Corporations these days are simply “financial paperclip maximizers”: amoral entities that do whatever is profitable, consequences beyond the bottom line be damned. I don't think "whatever is profitable" pins it down enough. They do what is profitable on a short time scale . They don't do what is profitable over long time scales like 30 or 50 or 100 years. If they did, they would not be able to get away with, for ex…
> They don't do what is profitable over long time scales like 30 or 50 or 100 years.
We’re facing down the imminent collapse of civilization due to climate change on a 30-50 year scale. Does it even make sense to consider the long term anymore?
Re: Statement on the Purpose of a Corporation
#126Earlier quoted context omitted.
Patagonia is also a B Corp [1], and it has a legal obligation to the mission statement that you've mentioned, not just maximizing shareholder value. I think the parent comment is just snidely remarking that the C Corps that have signed the letter are still required to maximize shareholder value, or they will face legal action. I am uncertain how this letter changes the established case law regarding C Corps. [1] http…
> C Corps that have signed the letter are still required to maximize shareholder value, or they will face legal action No corporation is required to "maximize shareholder value". In fact, they cannot be because there is no possible legal standard for what constitutes "maximizing value". B Corporations have no special legal standing. It's just a certification created by a group that tries to push corporations towards…
> B Corporations have no special legal standing
You're correct that B Lab's certification has no special legal standing. A "benefit corporation", however, is a recognized legal entity in many US states [1]. Patagonia is both a certified B Lab B Corp and a private benefit corporation. I should have made this point clearer.
> No corporation is required to "maximize shareholder value"
The rise in benefit corporation legislation was in part caused by the 2010 eBay v. Newmark decision in Delaware, which included the statement, "Promoting, protecting, or pursuing nonstockholder considerations must lead at some point to value for stockholders." [2] Note that this is still a vague statement, not using "profit" or any specific timeframe. I know that this case is still hotly debated, and I don't know enough to comment on all its implications.
Outside of a legal framework, it can be argued that all corporate directors that are non-majority owners of their public companies do have a requirement to "maximize shareholder value", or, to radically oversimplify the process, they will be replaced by shareholder vote.
So I should drop the "legal" modifier to my comments, and just refer to "obligations" to the shareholders and "action" by the shareholders.
Again, I do not know what significance the recent letter has on any of this.
[1] https://en.wikipedia.org/wiki/Benefit_corporation [2] https://www.delawarelitigation.com/uploads/file/int51%281%29...
Re: Statement on the Purpose of a Corporation
#127I've never been a fan of the idea that "the company's only purpose to deliver value to its shareholders."
So I'm glad that they call out additional stakeholders and put customers and employees at the top of the list. Customers who are willing to pay for some useful good or service and employees who are willing to do a good job delivering it also seem like pretty essential ingredients for a successful business.
Externalities are a real thing, so I'm glad they mentioned local communities and the environment.
However, there may be external effects on global communities as well. For example, Facebook delivers value to its customers (advertisers) but causes harm to Facebook users.
There are also companies that harm their customers directly, in spite of customers paying for the "value" that they deliver.
Re: Statement on the Purpose of a Corporation
#128Earlier quoted context omitted.
> Corporations these days are simply “financial paperclip maximizers”: amoral entities that do whatever is profitable, consequences beyond the bottom line be damned. I don't think "whatever is profitable" pins it down enough. They do what is profitable on a short time scale . They don't do what is profitable over long time scales like 30 or 50 or 100 years. If they did, they would not be able to get away with, for ex…
> They don't do what is profitable over long time scales like 30 or 50 or 100 years. We’re facing down the imminent collapse of civilization due to climate change on a 30-50 year scale. Does it even make sense to consider the long term anymore?
> We’re facing down the imminent collapse of civilization due to climate change on a 30-50 year scale.
No, we're not. We have lots of ways to adapt, just as humans have adapted to climate change in the past.
Re: Statement on the Purpose of a Corporation
#129I took a look at the signatories. Surprisingly, Amazon and Apple are on there. Microsoft, Facebook, Google, Intel, Nvidia, AMD, and IBM are not. https://www.businessroundtable.org/business-roundtable-redef... (edit: removed text accidentally pasted in)
I didn't know who Business Roundtable was. https://en.wikipedia.org/wiki/Business_Roundtable They're a group of CEOs that has lobbied against union protections, against antitrust legislation, and against increased powers for shareholders over CEOs and boards. So this seems like a bit of a departure from their usual policy, unless the real goal is to transfer power from shareholders not to the general public but to th…
In that case, it may reflect well on a business if their CEO didn't sign because they weren't member in the first place.
They have a list of members here:
https://www.businessroundtable.org/about-us/members
So far, I've just found one company among the non-signatories I listed whose CEO is a member (Virginia M Rometty of IBM).
Micro, Qualcom, Oracle, Comcast, and Texas Instruments' CEOs are also member-signatories.
Re: Statement on the Purpose of a Corporation
#130Earlier quoted context omitted.
"Self-regulation" like this always fails. The marketplace is unforgiving: a company which does not push externalities onto wider society will be put at a competitive disadvantage to one which does. This statement is a bunch of malarkey designed to present the appearance of reform in order to avert the reality of reform.
I think this can explain why individual companies don't go out of their way to behave better when it hurts their bottom line. But why don't companies come together to advocate for better standards overall, so that no one in particular is put at a disadvantage? Seems like a culture issue, not just the iron laws of economics and competition.
Voluntary groups coming together like that creates a prisoner's dilemma, and thus an unstable alliance.
Only externally enforced rules, evenly applied, create a level playing field where individual companies can have confidence that they are not harming themselves by adhering to the rules.