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Statement on the Purpose of a Corporation

businessroundtable.org

201–210 of 211 posts

Re: Statement on the Purpose of a Corporation

#201

Earlier quoted context omitted.

No legal changes are needed. Companies are controlled by the shareholders. Shareholders can, at any time, decide to replace the CEO with someone who will "do good" or whatever. So if people want to change a company, what they have to do is simple. Buy out the shares, and get majority control, and then make whatever changes that they want.

The sp500 market cap is 24 trillion USD. It definitely sounds easier to legislate better corporate citizens than to spend at least 12 trillion buying them out, if it were even possible.

My only point that I am making is that this idea of "corporations have to maximize profits" is false.

Shareholders own the business. And they can do what they want with it.

It is a total lie to say that they "have" to maximize profits.

Re: Statement on the Purpose of a Corporation

#202

Earlier quoted context omitted.

Ok, you are nitpicking. The legal purpose is to advance the interests of shareholders. Sure, shareholders can give away all the money and earn zero returns ( presumably they would register a non profit if they wanted to do that ) but it would be illegal to do something that shareholders didn’t agree to. Did shareholders of the signatories agree to forego profits in order to make customers happy ? Of course not.

I'm not nitpicking, and the legal purpose of a company is not to deliver shareholder returns. IIRC, most company incorporation specify the legal purpose of the corporation to be to do the business that the corporation is made to do. Here's the excerpt from my certificate of incorporation: "The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaw…

You are nitpicking. The shareholders own the corporation. I concede that the purpose isn’t returns but the purpose is to further shareholders interests. The purpose isn’t in any way, shape or form to further employees interests.

Re: Statement on the Purpose of a Corporation

#204
post #140

From today's Money Stuff by Matt Levine[1]: > So when an association of big public-company CEOs gets together and declares that corporations should serve the community, take care of the environment, and be responsible to employees and customers, not just shareholders, that might be because the CEOs have thought it over and decided that employees and the environment are getting a raw deal, but it is also possible that…

Right.

I’d find it annoying if I exceeded expected earnings and my stock price falls because I didn’t hit my insane 20%+ growth expectation.

I’m not sure they will find employees any less annoying, but at least you can fire them...

Re: Statement on the Purpose of a Corporation

#205
post #17

This new purpose stated by the CEOs of America's largest corporations is a welcome change to the corporate ethos that has prevailed in the US since the "greed is good" days of the 1980's. It is also a preemptive response to the growing popularity of politicians like Bernie Sanders and Elizabeth Warren.

This reaction rings most true to me as well. I get the sense they are trying to get out in front of the dialogue of the 2020 elections.

Re: Statement on the Purpose of a Corporation

#206

Earlier quoted context omitted.

I'm not nitpicking, and the legal purpose of a company is not to deliver shareholder returns. IIRC, most company incorporation specify the legal purpose of the corporation to be to do the business that the corporation is made to do. Here's the excerpt from my certificate of incorporation: "The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaw…

You are nitpicking. The shareholders own the corporation. I concede that the purpose isn’t returns but the purpose is to further shareholders interests. The purpose isn’t in any way, shape or form to further employees interests.

[deleted]

Re: Statement on the Purpose of a Corporation

#207
So many of the reactions seem to be "I don't believe it, they don't care, they're evil", but that doesn't strike me as being particularly useful or realistic, because it misunderstands one very important fundamental human dynamic: the vast majority of villains think that they are the hero. Much harm is caused by those that don't understand that they are harming others. Many that knowingly do harm think that their doing harm serves a higher, more important purpose that, in fact, demands they continue that pattern of harm. Leaders of all stripes do things that are harmful, believing that the ends justify the means and that they are in fact doing good by doing harm.

This statement helps empower employees to say to illustrate to their corporate leadership that they are not, in fact, doing such a great job of being good guys. I have personally gone to managers that I work for and said "I think we need to invest in our employees more" and been told "we're not in the business of growing our employees". I've had managers that state that have demonstrated wanting the things that I want but refusing to act on those wants because they believe that those wants are selfish and immature, and that acting counter to their actual desires is a form of discipline that serves a higher purpose. Many believe this is good management like making your kid eat their vegetables in spite of their protest is good parenting.

For example, I have been in positions where I wanted to move on from old technologies and reported to engineering managers who also wanted to move on from old technology. I've even seen them demonstrate this by learning the newer tools and building side projects with them. Those same managers still could not be convinced to go to bat for the newer tools because they do not believe that they have a mandate to help their employees grow. I've personally seen leadership and especially middle managers make decisions based solely on the statement of shareholder value and ask how, for example, modernizing tooling helps shareholders.

This document strikes me as incredibly helpful to workers in the position that want to advocate for their own career growth. If you agree with these principles, do not look on it with skepticism. Instead, view it as a tool in your own arsenal that you can use to advocate for positive change in your own org.

Re: Statement on the Purpose of a Corporation

#208
post #101

Earlier 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…

When was this mythical time when "corporate governance worked"? Most countries are still dealing with the same problemss of long working hours, healthcare coverage, racial and gender discrimination, lack of pensions, etc.

> When was this mythical time when "corporate governance worked"?

When most shareholders were individuals instead of mutual funds and other financial institutions, and held shares on fairly long time horizons. Things gradually evolved away from that during the post-WWII boom.

Re: Statement on the Purpose of a Corporation

#209
post #75

Earlier quoted context omitted.

The statement is great, and meaningful. Hopefully it's a shot of ethics into a somewhat moribund patient. However there are competitive forces also at play. A company that doesn't boost it's stock price as much as its competitor is at a competitive disadvantage because now it has access to less capital. If we're really lucky, someone has found a way to objectively value the goodwill generated by taking good care of t…

It seems like you're approaching this as if businesses are maximizing a function, and that doesn't seem to be how managers make decisions in most places? Competition is important but there are a wide variety of strategies and they are already weighing intangible tradeoffs without necessarily quantifying everything.

Not all managers make good moral or financial decisions, but many do. The very best manage to make both at the same time.

Re: Statement on the Purpose of a Corporation

#210
post #114

Earlier quoted context omitted.

In the USA most companies and corporations are effectively feudal. This is a meeting of dukes and earls attempting to avoid a socialist revolution through coordinated PR, which has been quite effective for the last 75 years or so. Note that most public companies have institutional investors as the largest component of their ownership; such investors tend to own all the major competitors. GM: top 5 are Capital World I…

> but the right of ownership for a large percentage of the USA's economy is a thing that he directs. Umm, no. Unless you have a very different idea of what "large percentage" means.

https://duckduckgo.com/?q=vanguard+divests&t=ffab&ia=web

He does direct investment.

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