On the absurdity of "maximizing shareholder value"

Over on Crooked Timber, Daniel Davies has uncorked a hell of a rant on the fatuous absurdity of the old saw that "corporate officers have a fiduciary duty to maximize shareholder value." He starts off by pointing out that you could maximize the profits of the company for this quarter by, for example, firing everyone -- but that the next quarter would be pretty dismal. Then he gets into the meat of it, how every conceivable action can be justified as "maximizing value."
In real life, the business judgement rule protects more or less anything that the Creative Capitalism gang might want businesses to do. Even the paradigm example used by Posner – of a corporate chief executive making charitable donations and specifically saying that they weren’t doing it for PR purposes and that they didn’t run the company in the interests of the shareholders – doesn’t actually necessarily give rise to a situation which would fail the business judgement test, because that’s pretty much the story of Body Shop, and if the only way that a company can secure the services of a talented and energetic cosmetics executive like Anita Roddick is to give away money without regard for shareholders, then that’s in the interests of shareholders. There is, of course, a cottage industry in business school cases and the funnies pages of the Economist in proving that instances of corporate philanthropy are actually in the interests of shareholders in the long term.

And, of course, the long term is a terribly difficult thing to forecast. It would, we can presume, be pretty bad for the S&P500 index if the Antarctic ice cap melted and we all drowned. Conversely, if the continent of Africa were to develop a billion consumers in a first world economy, that would be pretty good for the share prices of most companies on the stock exchange. There is a general long time interest of all humanity in doing good (that’s why it’s called “good”) and corporations and their shareholders do, in fact, share in this general interest of humanity. If you want to argue in any particular case that an act of corporate philanthropy isn’t connected tightly enough to a specific benefit which can be appropriated by the company and that this is wrong, then go for it but don’t expect the courts to agree with you.

What obligation? Maximise what?


  1. How about an example?
    Should a Food Corp be under a fid. duty to use trans-fats…or to use corp. $ to Lobby against restrictions on trans-fat? As a Shareholder can I sue if they do not engage in the latter? What of tobacco cos.? Should they “max value” by fighting for laws allowing tobacco to be sold with no health warnings? Can a shareholder sue if they do not engage in politics with corp $ to reach that goal?
    And what of Bhopal? Should I sue to ensure that Union Carbide keeps its assets out of places that they can be seized to repay the victims’ families?

  2. If Posner wishes to make the Law he should run for Office not Legislate from the Bench…his job is to apply the Law not create it regardless of his own theories as to what his Job should entail…he’s under a Duty too but it’s not Fiduciary, there being no $$ involved…This is Judge R. Posner of the Illinois Bench, is it not? I personally think Judges ought to STFU except through their written decisions( which more senior judges can review and correct)…otherwise they are just using their position on the Bench as a propaganda/lobbyist soapbox, enjoying a privileged position in any debate vis-a-vis their citizen-interlocutors….and giving their views extra “weight” solely by virtue of his Office IMHO…such extra-curricular work by Judges ought to be frowned upon…if you want to be an Academic get off the bench…if you want to talk Law get back to the cases you are to decide let your Legal Wisdom shine through your decisions in hand, that’s what you are paid for after all……if you want a soapbox do not use your Appointed Position the Bench as such…I take it he’s not elected, this guy…

  3. Justin Fox of Time magazine has been discussing this on his blog and columns as well (I suggest you give it a look). Thankfully, Fox is a level headed fellow and doesn’t do silly rants such as the above. As anyone with a brain knows, successfully companies balance short term growth with long term growth as well as short term profits and long term profits.

    As Fox concludes: “One of the reasons that publicly traded corporations have been an economic success “on average” is because over the years they’ve veered back and forth between trying to maximize profits/shareholder-value and emphasizing other goals. They’re always trying to get the balance right and seldom succeeding for long….that there’s no simple, good-in-every-case answer for how a corporation ought to set its priorities.”

  4. #3 But that is not what Posner et al are emphasizing, is it? If it were what they say is unobjectionable and uninteresting…as to “silly rants” not all of us have been forced to swallow dictionaries and style books nor have we been taught to suppress our feelings…nor does our style give you the right to dump a bucket of shit on our heads. The counter-examples in #1 above are all real-life and without International Comity and US respect for the Indian Court System’s judgments there would indeed be a duty on Union to get its assets out of India as fast as possible once potential liability arose….under this theory of “fiduciary duty to max. profits”…Posner made this latter thing up, it ain’t in the Governing Statutes…and were the Tobacco & Food cos. actuall;y subject to Posner’s alleged “Duty” they would be under a positive legally enforceable duty to their shareholders to fight tooth and nail against the advancement of Science…IIRC “absurdity of result” is a principle used in the judicial interpretation of Statutes….

  5. So we can use the same when assessing Judicially imposed “statutes” …I mean “principles”…like not legislating from the Bench…or lobbying for changes in the Statute from the Bench..

  6. And you know a “fiduciary” duty is way more strict than say a “contractual” duty and in itself has significant Judge-made content…Posner’s trying to grab more power with this “principle”…has he ever purported to use it as a reason for his decision in one of his Cases decided? If so, anybody got a Cite?

  7. All the business judgment rule does is serve as a means to keep many, but not most, arguments about corporate governance out of the courts. A perfectly laudable goal, in my estimation.

    And, @2: Judge Posner sits in Chicago, but on the US Court of Appeals, 7th Circuit. Not on the Illinois state courts.

  8. Stiil, it would be a judge-made rule, “fiduciary” duty comes from the equitable side of the law, singularly inappropriate as a means or as a principle to govern the behavior of such pure creatures of statute as the modern corporation … as a “gatekeeper” principle , to control what cases will get heard, it’s even worse….OTOH there is no such thing as a friendly shareholder, and frivolous uses of the Courts time should be avoided, but not at the cost of (i) the primacy of the Legislature, especially in Corp Law, all done but Statute and Regulation properly-so-called; (ii) de-emphasizing the important non-financial aspects of these organizations which we by our Legislatures have permitted to arise.

  9. Also I find it charming that down in your bailiwick you would give the Judges such Power over what cases they will hear involving Corporate activities yet hold these same Judges incapable of being independently able to set appropriate penalties for criminal (really drug) cases, to the extent of the Legislatures actually dictating in detail the penalties to be exacted upon conviction in every such case, no exceptions….it seems this latter provision also serves to clog things in the Courts and beyond, it would be nice to see more Academic work by Judges published broadly concerning the latter, but there’s no money in it, and as Posner’s Principle would have it, that’s when Justice should be most attentive……
    Strange though to see the existence of a Fiduciary Duty cited as a reason to bar a suit from even getting through the courtroom door….the discovery of a Fiduciary Duty is usually a last-ditch Equitable way of protecting widows and orphans from otherwise getting Legally screwed by Trustees.Here it would be used as a first-line-of-defense by the Trustee against those whose interests the “Duty” is supposed to protect….a sort of “you shareholders’ don’t know yer own interests and the Judge agrees with me” Procedural Rule, to be used as a “Rule” (not a Law?) to keep the case out..( these Proc. Rules are usually made by Judges as part of controlling the Court’s own processes…that’s unobjectionable).
    I think it’s a tricky way for Posner to get Substantive Law made outside of the usual Judicial ways of doing so…a substantive change to the Law without input from the Legislature, disguised as a Procedural Rule, which Judges sympatico with Corps. can use to keep Lawsuits from even being heard much less decided upon the Merits…

  10. #9: Bah. Sub “by” for “but”.
    Finally I find it distasteful that sitting High Court judges should engage in politics, and that’s what Posner has long been doing..the he has been rewarded by promotion therefore is also distasteful…..

  11. PS All “Goals” of the Law are laudable but we must avoid and beware of pernicious Means to reach those Goals…

  12. pps In fact “pernicioussness” of “Legal” Means to otherwise laudable goals seems to be a common thread in Drug Law debate and Iraq war debate and Surveillance Law debate….interesting that it comes up here too….

  13. Judge Posner is one of the most highly regarded judicial minds in modern american legal thought

    you may not approve of his methods, but he is certainly not a hack who is engaging in this analysis only to further his own power. it’s an entirely unremarkable comment. Of course it doesn’t mean you have a duty to sell off your equipment and inventory on a quarterly basis. It means that you have to make a good faith effort to do everything you can to make money for your shareholders. That means not ignoring a corporate opportunity, but even if you do, if you can show that your actions were based on the the exercise of due diligence and knowledge appropriate for a reasonable person in like circumstances, then you will be protected by the business judgment rule…precisely because courts DON’T want to get involved with the running of a business enterprise.

    So while you may have a duty ot maximize profits, this duty is unenforceable unless it is the result of 1) Inaction (the business judgment rule only covers affirmative acts), 2) Gross Negligence/ not done in good faith, or 3) a violation of the duty of loyalty (self-dealing)

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  14. ppps I agree that the Courts ought not to second-guess business decisions.
    I just don’t like Judges messing with Corp Law….they have already given us “Corps. as artificial persons”….shouldn’t the Legislatures be allowed to catch up with that bit of Judge-made Law first before the Judges hit ’em again….

  15. Without fiduciary duty there could be no free market. n thr wrds, t s nly <>bsrd t ths wh dn’t ndrstnd ts sgnfcnc.

  16. Yeah…there may be a fid duty from dir/man to shareholders but it would be wrong to “collapse” the scope of this so-called “Fiduciary” duty to just the $$$…which Posner’s principle of profit maximization effectively does…
    there is/may be a lot more to “the interests of the shareholders” beyond $$$ which this proposed “principle of liability under a fiduciary relationship” would, under the current Law as it relates to Fiduciaries, serve to protect….that’s why I think such a Fid duty does not exist, it’d be too broad, and would cut both ways…to say that such a Duty only covers the $$$ aspects is to pre-judge the facts in front of the Bench IMO…Posner can’t just set limits to such a Fiduciary Duty “cause he wants to”.The interests of those protected by a Fiduciary relationship (NB. usually in contrast to this situation protecting the less powerful ie in our case the shareholders – another reason this doctrine fits badly IMO) and the scope of the Fiduciary Duty are not limited in the Cases to $$$ considerations only, are they? Yet for some reason these are to be excluded at the outset in these Corp. cases? Why? If you’re going to find obligations existing outside of those enumerated in the Statutes, why limit it in advance? Isn’t that for the Legislature to decide once such a Duty has been discovered by the Courts?
    A fiduciary must in all cases put the interests of those to whom the Duty is owed, his Beneficiaries, ahead of his own, not sacrifice all other interests to max $$$…

  17. The idea of maximizing shareholder value is only absurd if it doesn’t have a definition. In practice, any corporation will define it as the NPV (net present value) of all future cash flows of the business. This means that firing everyone and having high profit for one month does not maximize shareholder value. It also means that corporations should take into account all externalities that could possibly effect their business in the future (including things like the melting ice caps).

    Of course, it is quite clear that most corporate officers do not uphold their fiduciary duty to shareholders and instead pursue short term goals that artificially inflate stock prices in the near term so they can get fat paychecks. This is what we in business call the principal-agent problem.

  18. Yeah my problem with this boils down to its seeming use of “fiduciary duty” as a club against dissenting shareholders…such duties may be built into Agency relationships but relations between shareholders directors and management are and ought to be established by the Statutes creating such organizations – there ought to be built into the Statute the clearly stated rights and obligations of each class, and I believe that it is in fact so.
    I don’t like Judges mixing the Equitable and Legal streams, and the Corp world should be governed by the Statutes, not the Cases….the Cases ought only to apply the Statutes…but without Judges willy-nilly finding “Fiduciary” Duties where the Legislature is silent, and then modifying/limiting the scope of those Duties so made…to differ from what they traditionally meant…from protecting all interests of the Weaker party to protecting only some interests, seemingly only those which happen to coincide agree with the Stronger’s interests.

  19. #17 : Defined like that it is uncontroversial. But the Judge is talking Legalities, and fiduciary duties are defined very broadly….usually…

  20. Let’s just kill capitalism and move to socialism. That way the “state” can make fiducially responsible decisions for us.

  21. #15 Don’t confuse “Fiduciary Duty” with Obligations arising through Contractual Agreement…or under Contracts of Employment…or Obligations under Regulation…or Terms Dictated by Statute… fiduciary duties are primarily found to exist outside the scope of the terms of the deal itself….usually imposed by the Courts, after the deal has gone bad…it’s a term of Art, and Layman ought not throw it about quite so cavalierly…..

  22. @21 I made no such confusion. I took the term from the original post, where it was called absurd. That is your example of a layman throwing it about cavalierly.

    I prefer judges and lawmakers to avoid trying to more clearly define maximizing shareholder value. Let shareholders do that. Remember, the whole mess we have with short-term focus and obscene executive compensation was largely caused by ill-considered US legislation trying to curb high salaries. New legislation rarely has a net positive effect on clarity.

  23. Anyway this is not about capitalism vs.socialism…at least I see it as a primarily Legal debate as to the scope of the duties of care owed between the people who by their combination under the Law create mange and own Corporations and when and how the Courts should step in to solve disputes between and amongst such people…these are matters of primarily Private Law, another reason I don’t like to see Judges get involved except when they really really have to…and that is always at the request of one of the Parties…
    As to the role of profit maximization in Corporate life well…that depends on the Objects of the Corporation, does it not?
    IIRC the first Corporations had to do with religious worship – in Pagan Rome! – and later in Europe Christian Dioseces(sp) and Hospitals….so profit-maximization as a goal can hardly be said to be “built-in ” to the Corporate Form…
    They should just set out the duties of Management in the Articles, a boilerplate “and shall be under a duty to maximize profits” if its so damned important to people, but the Courts should not do their work for them,and neither should any other Branch of the State…….

  24. Hey deviant you are right…no offense meant…having read some Law i sometimes get carried away with such topics…
    I’ll sum my position thus:
    If you want the Management to be under a Fiduciary Duty to the Shareholders to Maximize Profits then either:
    (i) Change the Corporations Act to state that such a Duty is in existence unless otherwise stated in the corporation’s foundation Documents; or
    (ii) Make the said Duty explicit in those Documents.
    Otherwise do not come crying to a Judge to find such a Duty, and as a corollary, Judges ought not find such a Duty, as to do so would be a Judicial usurpation of either the rights of the Incorporators(sp) (to leave it out) or the Legislature (to put it in), as the case may be.

  25. Yes, it is a silly article. When executive say that they have a duty to maximize value for their shareholders, you need to note two things:

    First, most companies DON’T pay dividends anymore. The value of a company comes from the weird perceived value that is represented by its stock price. Now yes, a company can increase its quarterly profits by firing half its staff. But, smart analysts who read their SEC-filed reports might say: “WTF? You’re busy and clearly need personnel. You’re not going to be able to do all the work!” And then your share price might plummet as all the savvy investors dump their shares. But who knows? The market at large might perceive that your company is overstaffed for various reasons and your share price might increase. It’s a mystery! Shareholder value is stock price and stock price is perceived value.

    Second, yes, it’s up the management to do their best to ensure that value. And yes, “ensuring value” is a concept whose execution is entirely undefined. But that’s humanity. If there was a way to bake a “perfect meal” or write the “perfect song” or make a “perfect house”, we would have one set of plans for each of those things and every house, song, and meal would be exactly the same. Management has to rely on their wits and what they THINK will happen in the marketplace.

    I’m not going to disagree that big corporations do a lot of shitty stuff in the name of “ensuring shareholder value”, but by the same token I feel its equally shitty when irresponsible corporate managers look after their own hides and insiders sacrificing innocent investors. In theory, that’s why public companies have to report everything to the SEC (and as such, the public), so government reviewers and independent analysts can make sure companies don’t screw over the average investor.

    But then, that never happens in American, right?

  26. Ugly Canuck: I hope you’re in the habit of having your clerks write your decisions for you. Paragraph-free, tl;dr, and randomly capitalized nouns? Painful.

  27. Yeah sorry too much tykila and a tiny keyboard for my horrifically fat stubby little fingers…all slick with fried chiken greese astheyare…

  28. Someday I will start a company, and it will explicitly by for profit but the metric of profit will extend beyond the shareholders. You can still set your own metrics, as long as you’re clear about it to the investors.

  29. A corporate officer’s primary fiduciary duty is to not get fired. Secondarily, to earn a higher salary next year than this year. These are the same duties shared by plumbers and barristas. All other considerations are tertiary at best.

    In the current climate, that means they focus on shareholder return. Should the climate change, they’ll focus on whatever is necessary to fullfill their primary and secondary duties.

    You want things to be different, change the climate. Dn’t whn bt smn dng thr jb.

  30. I prefer law coming from the bench. At least judges have credentials and the mental capacity to comprehend the Constitutional basis of law. There are no educational or intellectual requirements to become a legislator. Or President.

    1. Also, here’s an example of a fiduciary dilemma. When I was a Realtor, it was common for a buyer to consider a house that was priced ten or twenty thousand over market value. But the value would likely increase by a hundred thousand in a year based on current (by which I mean four years ago) conditions. As a fiduciary, how should I have counseled the buyer? There’s not exactly a correct answer, is there? In fact, I always told the buyers that, if they liked the house, they should buy it. Intangibles count.

  31. I thought judges came from the lawyers that were no good at making money or were so fond of power over others that they took the pay cut? Aren’t many of them just appointed cronies anyway? Really, the way the Court-Casino system operates (all other things being equal), shouldn’t they just be called Chief Croupiers?

    1. I thought judges came from the lawyers that were no good at making money

      You mean unwilling to lie, cheat, steal or kill to get their clients off?

  32. Also, where does the responsibility lay with a publically traded company vs. a privately capitalized company?

    I think you may lose some of the long-view when you have public shareholders, and your shares are traded on an exchange where the name of the game is that weeks numbers.

    We need a new exchange, one that values the social benefits of an enterprise and lets the long-view have a chance to work.

  33. #33:Law comes from the bench, legislation comes from the Legislature, and you can voluntarily enter into enforceable obligations (ob=under lige=law) at your own sweet will. Even better, it matters not for practical purposes if they are enforceable at Law, so long as you think they are and act accordingly.
    There are few qualifications to be a citizen and you even need less than that that to be a Subject of the Laws…so I prefer some however-indirect-it-may-be say in the Laws…
    #34: As some are born to drive buses and others to snark there are people born to the role of Judge, like the Hindu Brahmin caste, for eg were historically such…but a profession which has ever been well rewarded and held to be somewhat honorable will always attract some for the wrong reasons….they sometimes do good work despite themselves, and IIRC the USians elect some of their Judges…and Euro Judges can be more like investigating prosecutors, with powers of compelling testimony and laying charges, than the judges the US is familiar with – a much more professional cadre, so to speak.
    #35: Realtors usually work for the Vendor, or Seller…your duty to the seller outweighs your predicting the Future to the buyer…some Realtors contract with the Buyer, but it’s the Seller who ultimately hires the Realtor in most cases, and your Duty as the seller’s Agent is not to lie about the property for sale….but this duty is hardly imposed or read in by a Court, it is in the Contracts…
    Remember a Fiduciary duty covers much more than simply monetary considerations, and it is a court-imposed obligation (ie not arising from the terms of the Contract) where there is an imbalance of Power in a Legal Relationship.
    Sloppy talk, this “Fiduciary Duty to max profits” as “Fiduciary Duties” are owed to people not to objectives…to whom is the Duty owed?
    Finally I do not in any way work in the legal or justice business. I have read law. That is all. DO NOT RELY on my words for legal guidance. Discussion purposes only.
    And were I on the Bench I most certainly would not engage in any public legal debate whatsoever. I meant what I said before about Judges writing academic legal articles, I do not care what the accepted practice is in that regard it is bad form IMO…

  34. I prefer law coming from the bench. At least judges have credentials and the mental capacity to comprehend the Constitutional basis of law. There are no educational or intellectual requirements to become a legislator. Or President.

    I agree. I’ve long thought that a “Council of Elders” approach that chose its own members when one left the job would be proper for law, while a democratic approach is better for exectuive duties (meaning duties of execution, not the modern meaning of “being in charge.”) Let courts do the job of arbitrating facts and applying those facts to the law.

    But as to the article, the “fiduciary duty,” or any duty for that matter, is in the eyes of the stockholders. In a sole propietorship where the manager and the owner are the same person, no breach of duty can be conceived (unless it’s Sybil who owns the company). It should be no different in a corporation. Let the shareholders define their goals and if they don’t like the way management handles it, hold a meeting and change/clarify the goals. If they don’t, they’ve nothing to complain about. If minority stockholders don’t get their way, sell or shut up.

    I further agree that a company’s goals are entirely at the will of the owner(s). Profits may be secondary to providing jobs, serving the community, or the opposite–keeping losers in dead-end jobs and better businesses out. Or the owner(s) may want short-term profits at any cost. Point being, let the will, not the situation, dictate the outcome. That’s a good rule any time.

  35. Hey except for letting judges legislate I find myself agreeing with the Flaming Phonebook on this one…apply the Law to the facts, you mean…chisel to the stone,so to speak…give ’em legal shape…but the Legislature fashions most (but not all) of those carving tools…and the Legislatures always retains a veto on future use of those Judge-made tools…

  36. The Judges have the Constitutional Trump Card – I think they early noticed/found it in the “deck” – but that too is subject to Amendment by the People…

  37. oh c’mon! He’s a natural; old, white, English speaking, hetero, drunk, violent,armed, self-justified… what’s not to respect?

  38. #43 that guy sounds like he needs a lesson from Judge Posner on negative externalities.

    The most genius part is the final quotation the reporter gets from the lawnmower repair company.

  39. Most businesses, when run intelligently, can produce big, chunky profits for the interested parties whilst simultaneously making everyone who’s working for that company feel well-treated. This goes doubleplus especially for technology companies, where the single most vital resource is the creative brains behind it. Commodore-Amiga taught us this, a long, long time ago, first through positive ways, then finally – heartbreakingly – negative ways.

    It seems the world still has not learned that the only game that counts is the long game. You’re always doing business with people – and your employees are folk you’re doing business with, every bit as much as your clients and shareholders. You can make a quick buck from anyone. ONCE. But you can make many, many more bucks over the long term, by dealing with honour and skill.

    Yes, it’s important for the company to show a profit this year – but it’s vastly more important to know that it’ll show profit *next* year, and that your employees will still be with you next *month*.

    Maybe I’m idealistic, but I’m still making a lovely living and having buckets of fun by being reasonable both sides of the “Company Owner” line. I’m hoping a form of Corporate Darwinism will be ushered in by this age of ever-easier communication. People trust me for their animation work. Animators trust me to treat them well. *shrugs* You don’t get that by buying a company, you get that by building a company. The time of the slash-and-burn buyout will – hopefully – die given the global overwatch of the ‘net.

    Well. A boy can dream.

  40. If you don’t like what a company is doing, complain at your stockholder meeting. If they ignore you, sell your stock. If you lost money on the deal because they screwed your stock value, invest smarter next time. Why does the law need to get involved if the corporation is operating transparently? I don’t see why fiduciary duty to maximize profit should be codified in law. As has been said in the comments section of the article, in a true free market, you can be free to define success in any manner you choose, even in a way that is not monetary. People who agree with you can buy shares in it.

    1. in a true free market, you can be free to define success in any manner you choose, even in a way that is not monetary. People who agree with you can buy shares in it.

      Which would imply a contractual obligation to continue doing business in exactly the same way. Your description is breathtaking in it’s simplyness.

  41. Security! libtard rant froth in isle seven! Bring a mop and bucket.

    Personally, I think it is every company’s fiduciary duty to hire slaves where legal and lobby for legalizing slavery where it’s not. Child labor and 16 hour workdays too. And they should be beaten twice daily just because we can, the ungrateful proles.

  42. #52 Not idealism, wisdom….hopefully good business will drive out bad business..anyway, no harm and much good in trying…what you say is particularly so in tech where the people with the skills can be said to be the ‘assets’ ..although I personally dislike that way of describing my fellow beings…

  43. It’s called a corporate charter. The entire point is that the law should be amended so that corporations can have more goals than strictly monetary ones, and those goals can be enforced by contract law. Because there is often not a clear distinction between actions for long term financial gain and good corporate citizenship, and so the purported libertarian social benefit of corporations is actually being hamstringed by raw profit-seeking.

  44. @33 I prefer law coming from the bench.

    I find that terrifying. The last thing I want is a select few individuals who are often appointed and not accountable to voters making law as they please. Also, it reduces the equality in which the law applies to everyone. If a judge doesn’t like you, the interpretation of the law could change.

    @36 We need a new exchange, one that values the social benefits of an enterprise and lets the long-view have a chance to work.

    Our exchange values those in proportion to other considerations. What proportion? That’s up to the investor. The tough (yet great) thing about free countries and free markets is that you have to deal with the opinions of others.

  45. there is such a thing as freedom of association, and people have formed groups with aims objectives and means truly various…if you can’t do it by Charter under one statute or another, one can get a Private Act or Bill setting forth your Charter, a la Harvard or the City of New York….as stated above, the Law should encourage human associations and organizations by enabling the widest possible, the most divers objects and aims, cause that’s what Freedom is…the Law should not and I believe does not require “maximization of profit” or any such thing to be some “unwritten” object of the Corporation’s activities.
    Also this “Fiduciary Duty” if owed to the Corporation, rather than to the Shareholders, becomes a little difficult to enforce against Management since they are the “mind” of the Corporation after all…and are unlikely to commence legal proceedings…
    I think a more pressing problem for the Law and the judiciary is how to enforce the criminal liabilities of these artificial persons without harming the innocents ( shareholders, managers “out of the loop”, Directors not involved in the criminality,etc ) involved, so to speak…perhaps the Managers can be charged as accomplices? While the “Corp” per se while charged and convicted has sentence “suspended”?

  46. #61- 63: That’s right you gotta watch ’em like a Hawk…like all the people with actual governmental power over others their actions ought to be examined in the light of day…they are after all part of your Government….

  47. #63: that site has a dead link for their “list of bad judges” …a shame, a cryin’ shame…

  48. #57, AAAGGHH! “The entire point is that the law should be amended so that corporations can have more goals than strictly monetary ones, and those goals can be enforced by contract law.”

    I couldn’t disagree more, until I find a way. Anyway, I can’t think of anything worse than using legislation to demand ethics from corporate action. Let them maximize profit and leave it at that. The way to control excess is to have externalities included in the bottom line. That way, they won’t be externalities. The only problem with this though, is defining an externality.

    I give up.

  49. As i’ve tried to point out the Law does not require profit maximization, nor does it rule it out, as an Object of a Corporation…of course it depends which Corporate Statute you’ve incorporated under, but in general…whether or not those Objects are meaningfully enforceable against anybody, well, at least informed investors knew what they were stated to be at any rate…

  50. MISSION: At (name of company) it is our conviction that (to do the stuff we want to do) and to increase shareholder value are not merely complementary activities – they are inextricably linked.

    PURPOSE: To increase shareholder value by (doing stuff)

  51. The way to control excess is to have externalities included in the bottom line.

    The way to control excess is to regulate their ass. They’re incapable of doing it themselves. The mess we are currently in can be laid squarely at the feet of the deregulatory fervor of the Reagan era. The lie they told everyone was that the magic hand of the market would balance everything all out.

    I agree with James Hanson. The CEOs of the energy companies should be tried for crimes against humanity and when found guilty hung by the neck until they are dead. Then we’ll see some corporate responsibility.

  52. #59 – Deviant, the primary reason that judges are appointed, as opposed to elected is so that they will be shielded from political influence. Mostly, this works.

    In court opinions, you will find that the vast majority of judges strive to follow the law and be fair in their decision-making – supposedly “conservative” judges often come out with positions against their ideology, same with “liberal” ones.

    The exceptions to this trend tend to come, in fact, from opinions by elected judges.

    #64 – Re: punishing corporations for criminal acts – a corporation, as an entity, is controlled by its managers (officers & directors), and the corporate structure is no shield for illegality (“piercing the corporate veil”). So, when a corporation commits a crime, there is almost always an equivalently liable manager behind it…that some corporate indictments have harmed shareholders and innocent managers is a specific result of those managers’ and shareholders’ failure to dismiss the bad eggs under ordinary corporate procedures, or perhaps a lack of judgment on the shareholders’ part (to the extent of directors, anyway) in electing corruptible people. So I don’t believe there’s much of a problem here.

  53. @76 Clearly. I’m not suggesting they be all be elected. I just don’t want appointed judges (or judges of any kind) making law, as was suggested.

    @75 The CEOs of the energy companies should be tried for crimes against humanity and when found guilty hung by the neck until they are dead.

    What about all of their shareholders, including teachers and government employees with pensions? What about everyone who uses their products, including the raw materials that went into making your computer? hv yt t hr n nfrmd, rtnl rgmnt that supports this type of animosity toward energy companies.

  54. Deviant
    Judges don’t make law, they interpret it. Some people don’t like those interpretations so they made up some BS about “original intent”, Federalism and state’s rights. It was more about not letting their daughters go to the same school as ths dmn n**rs thn t f ny “rspct” fr th cnstttn. W knw hw th rght fls bt tht, “t’s nthng bt Gd dmn pc f ppr.”

    My animosity was mostly hyperbole. But the CEOs are the ones responsible. They chose to engage in a propaganda campaign that they knew was based on lies. As a result millions will die. The world will flip to a new climate. One where conditions favorable for life exist only at the poles.

  55. but practically they do what they please in their courtrooms since the people in front of them have already used all their money,time and resources to get even that far.

  56. “He starts off by pointing out that you could maximize the profits of the company for this quarter by, for example, firing everyone — but that the next quarter would be pretty dismal.”

    That’s every bit as much of a straw man as “open source=communism” ever was.

  57. remember “Chainsaw so-and-so”?, some hired gun so called CEO that would be brought in to gut companies so the assets could be sold for quick profits and thousands thrown out of work? The eighties? Straw man? Try history lesson.

  58. Albert J. Dunlap
    From Wikipedia, the free encyclopedia
    Jump to: navigation, search

    Albert John Dunlap (born July 26, 1937, in Hoboken, New Jersey) is a professional corporate downsizer popularly known as “Chainsaw Al” and “Rambo in Pinstripes”.

    Dunlap is a West Point graduate who apprenticed under Sir James Goldsmith and Kerry Packer before taking the reins of Lily Tulip Cup and Scott Paper.

    By firing thousands of employees at once and closing plants and factories, he has drastically altered the economic status of such corporations as Scott Paper and Crown Zellerbach; however, when he attempted to use his methods to increase the share price of the Sunbeam-Oster Corporation, this backfired dramatically, as Sunbeam’s stock rose from $12 a share to $53, and then within four months plummeted to $11 1/4.

    Industry insiders revealed that Sunbeam’s revenues had been padded because Dunlap had given large discounts to retailers who bought far more merchandise than they could handle; the excess merchandise was shipped to warehouses to be delivered later, but the sales revenue was booked immediately. With the stores hopelessly overstocked, unsold inventory piled up in Sunbeam’s warehouses. Investors grew edgy, then panicky, and Dunlap himself was fired. He agreed to pay $15 million to settle a shareholder lawsuit [1].

    A documentary film was made about Dunlap in 1998 called Cutting to the Core—Albert J. Dunlap [2]. In 2001, he was caricatured in Titans of Finance (Alternative Comics, 2001, ISBN 1-891867-05-9)[1] by R. Walker and Josh Neufeld.[2] The comic book is a collaboration between a cartoonist and a finance columnist, which casts wall street executives and traders as heroes and villains. The lead story features Ronald O. Perelman, and Mike Vranos and Victor Niederhoffer are among those included.

    Dunlap and his second wife Judy maintain homes in Ocala, Florida and Northern Wisconsin. They are major benefactors of the Munroe Regional Medical Center in Ocala. Dunlap also has a son.

  59. “He starts off by pointing out that you could maximize the profits of the company for this quarter by, for example, firing everyone”

    Pls lv th bsnss cmmntry t ppl wh, y knw, ndrstnd bsnss. If the entirety of the article is based on one quarter’s profits being a good proxy for shareholder value, this is a shallow analysis indeed.

  60. Daniel Davies knows a thing or two about economics Pez. Have you even bothered to read it? Just so people know, there is a previous post by John Quiggin.

    Fiduciary obligation vs creative capitalism

    “The creative capitalism blog blog has been set up to examine the idea that corporations could do a job of promoting social goals like improving health in poor countries (that is, better than they do now and better, in at least some ways, than governments or NGOs). Richard Posner objects to this on the ground that corporate managers have a fiduciary obligation to maximise profits. I don’t find this convincing (reposted over the fold).”

    The whole point missed by th wngnt rntrs hr is that corporations could be doing some of the things above and that these would very likely be “good things” that would prove beneficial for everyone in the long run.

  61. Deferred compensation! Deferred compensation! Deferred compensation!

    Taking a large chunk of executive compensation and making it mandatory that it be deferred on a graduated scale starting at 5 years out solves it all.

  62. ‘fatuous absurdity of the old saw that “corporate officers have a fiduciary duty to maximize shareholder value.”‘

    1. The old saw is “corporate officers have a fiduciary duty _to try and_ maximize shareholder value _within the bounds of laws and morality_ to the best of their ability_”

    The bits you left out are so self-evident, thy tnd t b cnvnntly lft t whn sm tw-bt ntllctl wnts t blg bt t.

    2. The principle of shareholder value maximization is not fatuous or absurd. It is not even a ‘lesser evil’ or ‘bad, but the best we have’. It can maximize the economical benefits to all stakeholders of a company, provided:

    a. the regulatory framework does not distort economic incentives in unwanted ways, e.g. no tax that penalizes socially responsible behavior,

    b. all externalities that stakeholders care about are incorporated into the economic system, e.g. a carbon tax if greenhouse emissions are important,

    c. other stakeholders ‘reward’ or ‘penalize’ companies for their behavior in line with their principles, e.g. buy less from a company that pollutes more, or prefer to work for a company that is more energy efficient even if the pay is less.

    3. As others have pointed out, the value maximization is done with NPV, which takes into account all future cashflows. Anyone thinking that is the same as “maximizing profits this quarter by, for example, firing everyone” s nncmpp.

  63. Maximizing profit is only one of the possible objectives of a company. A company may be incorporated with other objectives in mind.

    A corporation is obligated to follow the wishes of it’s shareholders. Whatever they want. Posner should not substitute *HIS* wishes, for those of all shareholders, of all corporations, everywhere.

    Supposed a company running a nuclear plant has all it’s shareholders living in the same town. Would they want nuclear waste be dumped in the river, saving the company $2M/year, and raising it’s share price by 0.1%, and at the same time shortening their own lifespan by 50%? I think not.

  64. interesting point.

    fr mrktrs wld sll yr kds nt sx slvry r fr rgn “dntn” f fr n scnd thy thght thy cld gt wy wth t by syng thy wr smply mxmsng shrhldr vl.

  65. #88, make that “some” free marketeers, especially the cardboard cut-out charicature kind that we all love to target for our two minutes hate. I’m in that mix too…so irrational, but I still get worked up.

    The prob with hating free market types is that the ones we point at usually aren’t free marketers at all, they just claim that their favorite distortion is in fact an example of FREE MARKETS IN ACTION!

    Hey #75, I used to think that, now I’m not so sure. The problem with regulation is enforcement from without. Regulatory systems have a real tendency to end up regulating the regulators, not the target. That’s why I think it’s better to have the cost of externalities as part of the bottom line. I can’t understand why external costs should be foisted on non-shareholders anyway. I’m guessing though that there would need to be ironclad accounting practices, and good luck on that one.

    #86 is spot on to my thinking.

  66. Would they want nuclear waste be dumped in the river, saving the company $2M/year, and raising it’s share price by 0.1%, and at the same time shortening their own lifespan by 50%? I think not.

    The area where I live was terribly devastated by mining and smelting. Yet the people who lived there and worked for the mining company often owned shares. And many of the major shareholders lived in the region, despite the fact that they were breathing poison almost all the time. Cancer rates are still very high here.

    Even with some improvement in environmental policies, it’s still extremely damaging to the area to do this kind of work. But it makes some locals very very very rich and it drives the local economy. So they continue to poison the land. At least I don’t have to breathe it since they built a stack – I think it heads south to the USA…

  67. Maximizing profit is only one of the possible objectives of a company. A company may be incorporated with other objectives in mind.

    A private company may be. A public company may not. Publicly-traded companies exist only to maximise profit.

    But all of this is quite irrelevant. “Fiduciary duty” is just a big word for “we’re filing a lawsuit that is going to reduce the book value of your company to the point where we can make a hostile takeover bid”. Nobody files these suits to win (since ultimately they just further reduce the value of your investment), they’re always tactical, and usually part of a power grab.

  68. @78: Noen, your characterization of the right seems, wll, dlsnl t sy th lst. Strct cnstrctnsm, whch y bzrrly chrctrz s rcst, s th nly frm f jdcry prcss tht s lgcl. We should expect legislatures to be precise. If it doesn’t say it, it doesn’t mean it.

    Also, you might want to actually consider who compose the “right”. Real conservatives (i.e., those who interpret the Constitution as conservatively as possible) consider that document the foundation of American society. True conservatives don’t resemble Bush or so-called neo-cons in any way, shape or form. Turn off Rhodes, Shultz, et al.–they are as insane as Limbaugh and Hannity.

  69. Strict constructionism, which you bizarrely characterize as racist, is the only form of judiciary process that is logical.

    Antonin Scalia says that he is “not a strict constructionist and no-one ought to be,” and has called the philosophy “a degraded form of textualism that brings the whole philosophy into disrepute.”

    “Constitutional scholar John Hart Ely opined that it was not really a philosophy of law or a theory of interpretation, but a coded label for judicial decisions popular with a particular political party.”

    Th lttr bng wht sd bfr lkng t p n Wk.

    True conservatives don’t resemble Bush


  70. Hm. I favour free markets, and I dislike the notion of government regulation of most businesses – come to that, in general, I distrust governments most of the time. I’ve yet to see any compelling argument that there’s any government, anywhere, which actually puts the interests of it’s normal citizens first.

    I don’t think “Capitalist” is a dirty word, and I think profit is a lovely, wonderful thing. Come to that, I believe in intellectual property rights, reasonable copyright terms (generally the Lessig “annual renewal” format would suit me to the ground) and I believe in charging all the market will bear – especially for creative works.

    I don’t see these beliefs in any way conflicting with ethical working practises, the decent treatment of employees and making sure all my clients receive splendid value for their money. For a publicly traded company, surely that’s also a model for success – to enhance shareholder value by increasing the reputation and thereby level of trade and cashflow of the business they’ve invested in?

    Maybe I’m taking too simplistic a viewpoint on this.

  71. @84 wrote:

    “The whole point missed by the wingnut ranters here is that corporations could be doing some of the things above and that these would very likely be “good things” that would prove beneficial for everyone in the long run. ”

    Um, do you really want this? So the next time you got McDonald’s nd thr’s n nt-brtn mssg prntd n yr Bg Mc wrppr, you’re really going to think “thank goodness McDonald’s has started doing something other than simply maximizing profits??”

    The reason this sort of nonsense always sounds like a good idea is that the person advocating this assumes that corporations will push the agenda that the person pushing this shares. Right. Good luck with that.

  72. Um, do you really want this?
    You mean working for “social goals like improving health in poor countries”? Yes. I want them to achieve real goals, not fake ones. But I don’t believe that left to their own devices in the so-called “free market” that they ever will. That’s why I want to regulate business. Because if it were left to them we would still have lead in our gas, we’d still be working 6 days a week and 16 hours a day and living in corporate owned towns.

    Those who are claiming that corporations cannot do more, they can only maximize profits, are in fact making my argument for regulation for me. Business left unrestrained by law can only lead to the horrors we’ve seen in the past. The only force powerful enough to do that is government, i.e. the collective will of the people. Therefore government must restrain and set the limits for corporations. They cannot do it themselves but left to themselves they will destroy us.

    That is why the corporations have been working hard to take your government away from you. Or have been working to sabotage effective regulations and programs in order to convince you that government is weak and ineffectual. No Child Left Behind is designed to destroy public education so that corporations can then point to it and claim that publicly financed education doesn’t work. That leaves the business all to themselves, which was the whole point in the first place.

  73. “ethics” of trade
    “Central China Goldfields (CCG) is the only British miner operating in Tibet. Despite the recent protests against Chinese rule, it is adamant it has made the right decision.

    “We’re not a political organisation – we don’t take sides. But whoever is in charge will develop these deposits,” Jeff Malaihollo, the managing director of CCG, told The Sunday Telegraph. “It is how you do it that is important – whether you do it in an environmentally sustainable way and by working with the local community. Ultimately, though, if we don’t do it, someone else will.”

  74. @94,

    Then I think you’re a little confused, because intellectual property rights are *exactly* a government regulation that is in direct conflict with real property rights and free markets. Are you sure that you’re a Capitalist? Because you sound like a mere Rentier.

  75. #91 : “Only”? That would be in the Governing statute? or in the cases?… I suppose a “business corporation” incorporated under a Business Corporations Act is, well, a business corporation, which is commonly understood to be a means to maximize profit, but IIRC the articles can be as general or not, as limited or expansive, as the incorporators may wish….public corp.s are not only traded on exchanges IIRC…nor should it be up to the Judge to limit the duties, owed to the Corporation, by its Management & Directors, nor the duties owed by those three to the Shareholders, if such duties are found to exist, to solely the item here under discussion (that is, profit maximization).
    There can be little doubt that the highest management and the Directors have a fiduciary duty to the Corporation, but also that such a duty has a content that goes beyond mere maximization of profit to actually forbid some courses of conduct which would or could (arguably to be sure) maximize profit, for example self-dealing, or by a scheme by savvy trading in the Corporations’ shares to inflate the share price beyond what the co. is actually worth…the Management must in all cases and in every instance put the interests of the Corporation – not the Shareholders’, not the Directors’, or any group of them, but the Corporation’s, above their very own… even though the Manager would pay the best price for one of the Corporation’s assets on the open market, his hands may well be tied due to the stringent nature of his “fiduciary Duty” , only is only imposed by the Law where otherwise “legal” (ie otherwise irremediable) injustice would result…as the Upper Management are in total control of the Corporation and of all of its activities it can hardly be argued that the Power relationship vis-a-vis the Upper Management and the Corporation itself is “balanced”…and judges are then justified in stepping in to protect the interests of the Corporation. The Directors may be under an even more stringent duty towards the Corporation…being the ones who hire the Management…
    So who gets to make the allegation in Court that they have failed in their Duty to the Corporation to maximize profits? The Corporation is itself in the Managers’ Power so it won’t…The Directors? They could fire the Management and then sue the old guys with the new guys running the Corp., so it cannot be said that they need the courts’ help at the outset… The Shareholders? Why wouldn’t they just vote in new Directors who in turn would, etc.etc. instead of suing?
    Nope, you’ll need a cadre of professional Invetigating Magistrates to ensure that Upper Management is fulfilling their Fiduciary Duty to the Corporation to, amongst other things, maximize profits…because in my opinion Corporations are no better than mindless idiots without their Directors and Management, infants really and therefore the State ought to protect the helpless little darlings against those who otherwise have them in their power, the Management, the Shareholders, and the Directors….
    As to the rest of your comment I agree 100%…business is business, after all, I just really wanted to make 2 points: (a) differing types of corporation exist having many different objects and such things are within the jurisdiction of the legislature; and (b) judges are not the ones to “read in” those objects, absent the input of the Legislature (via the governing Act) or the Incorporators, (ie those drafting the Articles of Incorporation)…except and only where Justice herself demands it…even given these duties and their content their enforcement is problematic. Who gets to file the Lawsuit?

  76. #98 You are right if you want big business you will have to have big government to restrain it…there’s just too many of us wanting too many things for it to be different for now…and remember the Government is a democracy however imperfect .( At least where i’m at hope yours is too! A Democracy that is…)
    A corporations do not even pretend to be democracies. They are quite exclusive…

  77. Noen, the distinctions made by Scalia and Ely between the various terms that essentially mean textualism are conceptually minor–unless of course you are a law scholar. Your wiki quotes are far less effective when you know the context under which they were said (i.e., their authors’ judicial philosophy).


    Thnks fr ddng th bv. t lst nw n n wll mstk yr psts fr thghtfl dscssn.

  78. It should perhaps be remembered that the creation of corporations is wholly a matter of a statute, passed by some legislature…Corporations come into existence at the stroke of a pen, and can just as easily cease to be…but their “skeletal structure”, the relations amongst its parts, is under the complete and utter definitional control of your legislators…so do not go whining to the Business Class about this stuff expecting a sympathetic hearing…they have other fish to fry (maximizing profits and doing Gov-dictated paperwork, amongst other things)….once again,( and this may be painful to hear, especially for us ugly ones in this u-tube age) this is a matter of Public Policy, that is, Politics, and must be changed, if it is indeed to be changed, by those same means…hence my expressed distaste for the Honorable Judge’s “straying” from his appointed ( and difficult) position on the Dias down into “scholarly debate” (aka “politics for wordy nerds”)…go to it, my Fellow-citizens…and you, Mr. P., back to your Bench & “Lathe”…we’ve had quite enough from you for now…and from me too I’m afraid.

  79. @98

    “Um, do you really want this?
    You mean working for “social goals like improving health in poor countries”? Yes. I want them to achieve real goals, not fake ones.”

    Rddng th wrld f brtn pprs t b rl gl. I’m surprised you don’t want our corporate overlords setting aside their effort at maximization of profit so they could focus on a worthy social goal.

    1. I’ll take that as a legitimate, if inflammatory, example of how corporate social involvement is a double-edged sword.

  80. Now if we only could prove that shareholders have value enough to justify maximizing profits.

    Take care of the workers and the customers and the profits will take care of themselves. Start worrying overmuch about shareholder value and you develop an ever tightening death spiral that is best epitomized by SCO.

  81. I come to Boingboing for the interesting takes on pop culture, the witty TSA commentary and the Unicorn pics.

    I go to Administrative Science Quarterly, Management Science and Journal of Political Economy for my reading on corporate affairs.

    They don’t publish funny Youtube flicks, so why not leave corporate comment to them?

  82. Daniel Davies is a very smart writer and analyst. We hereby issue a Writ of Embarrassment which shall be applicable to everyone who failed to notice that Cory (legitimately) used as descriptive shorthand a standard demonstration of short-run profit taking which Davies didn’t use; likewise to everyone who then cited the use of that example as a reason to dismiss Davies.

    Booooooooo! Embarrassment upon you! Booooooooo!

    Anonymous @14, Willimancer @76, Seamus Andrew Murphy @89: I’ve been thinking about a new rationale for why corporations need to be tightly regulated: there’s no effective counter to the “I was stupid and incompetent” defense. Over and over, we see highly placed corporate officials testifying that they had no idea that their firms were behaving as badly as they did. Unless we want to start busting people for making stupid decisions, regulation is going to have to fill in the gap left by the disappearance of personal accountability.

    MarkHB @52:

    Most businesses, when run intelligently, can produce big, chunky profits for the interested parties whilst simultaneously making everyone who’s working for that company feel well-treated. This goes doubleplus especially for technology companies, where the single most vital resource is the creative brains behind it. Commodore-Amiga taught us this, a long, long time ago, first through positive ways, then finally – heartbreakingly – negative ways.

    I nearly snarfed my soda when you brought up Commodore-Amiga. It was listening to old Amiga hands telling stories late at night at Dave Haney’s that finally forced me to recognize that Adam Smith-derived economic models don’t apply to everyday corporate life.

    Amiga was scrod long before the end. It was controlled by dolts who didn’t understand what they had, understood even less what they could have had, and were primarily concerned with minimizing their own liability and taxability. What kept it going as long as it did was the love Amiga enthusiasts had for a platform they didn’t own and couldn’t control.

    If you’re doing business better than that, good on you. I’d love to think we might see the end of the kind of “management” that ate the Amiga alive.

    Four Naught Four @74: I see you’ve met a lot of corporate mission statements.

    Noen @75, please remember to make your threats of physical violence less plausible.

    Deviant @77:

    What about all of their shareholders, including teachers and government employees with pensions? What about everyone who uses their products, including the raw materials that went into making your computer?

    And which decisions, exactly, were they responsible for making, as opposed to the executives of energy firms?

    Berix @89, please learn how to do proper HTML italics. Also, be nicer.

    Blitz @111, it’s a pity that someone as obviously intelligent as yourself has never learned to use a scrollbar.

  83. this is the song of mehitabel
    of mehitabel the alley cat
    as i wrote you before boss
    mehitabel is a believer
    in the pythagorean
    theory of the transmigration
    of the soul and she claims
    that formerly her spirit
    was incarnated in the body
    of cleopatra
    that was a long time ago
    and one must not be
    surprised if mehitabel
    has forgotten some of her
    more regal manners

    i have had my ups and downs
    but wotthehell wotthehell
    yesterday sceptres and crowns
    fried oysters and velvet gowns
    and today i herd with bums
    but wotthehell wotthehell
    i wake the world from sleep
    as i caper and sing and leap
    when i sing my wild free tune
    wotthehell wotthehell
    under the blear eyed moon
    i am pelted with cast off shoon
    but wotthehell wotthehell

    do you think that i would change
    my present freedom to range
    for a castle or moated grange
    wotthehell wotthehell
    cage me and i d go frantic
    my life is so romantic
    capricious and corybantic
    and i m toujours gai toujours gai

    i know that i am bound
    for a journey down the sound
    in the midst of a refuse mound
    but wotthehell wotthehell
    oh i should worry and fret
    death and i will coquette
    there s a dance in the old dame yet
    toujours gai toujours gai

    i once was an innocent kit
    wotthehell wotthehell
    with a ribbon my neck to fit
    and bells tied onto it
    o wotthehell wotthehell
    but a maltese cat came by
    with a come hither look in his eye
    and a song that soared to the sky
    and wotthehell wotthehell
    and i followed adown the street
    the pad of his rhythmical feet
    o permit me again to repeat
    wotthehell wotthehell

    my youth i shall never forget
    but there s nothing i really regret
    wotthehell wotthehell
    there s a dance in the old dame yet
    toujours gai toujours gai

    the things that i had not ought to
    i do because i ve gotto
    wotthehell wotthehell
    and i end with my favorite motto
    toujours gai toujours gai

    boss sometimes i think
    that our friend mehitabel
    is a trifle too gay

  84. @ 113:
    1. What can be possibly ‘legitimate’ about use of a patently wrong statement to illustrate the thrust of the linked piece? As they say, who needs enemies when you have friendly bloggers (or trigger-happy moderators)?

    2. I refuse to use HTML in email-like stuff by principle; it distracts. (In case of your quote style, subjecting your readers to it could even be considered unusual and cruel typographical punishment.)

    3. On being nice. Good advice; I think your posters could start it by being nice to the ideas they are supposed to be supporting, and moderators by not trying to hide behind a heap of disemvoweled comments. The fact that you find a comment discomforting doesn’t make it inappropriate.

  85. I’ll always be nicer to people than to ideas….and I would appreciate my support not to be supposed…and they seem to disemvowel the savage and malicious, by and large, hurtful and false comments are often “successful” in political debate but not because of the truth-value of their content….although discomfort may not be sufficient it seems necessary as by and large ’tis the Rude Spiteful and Disrespectful (and not the clueless or mistaken) who have their vowels spilt all over the cyberfloor…of course some have thicker hides than others…
    Moderators may defend themselves and hardly need my ‘support” but I have seen little to which to object in the Mod policy here…but the rules and fora of political debate in the trad spheres (ie non-cyber) have been thoroughly polluted by those who wish to win the debate (and then pass the Laws) by psychological & emotionally manipulative means (hi politico/relig Bully Boys ) rather than by reason.
    I find the dismvowelling of canned comments and attempts to divert discussion into the “debate lanes” created by the Powerful (abortion /guns/”Islamo-fascism” [fascis=flag or standard…”my country right or wrong” is way more “fascist” than “there is one god” if you ask me…the latter in fact precludes the worship of the State [fascism properly-so-called]…sorry for the digression) very refreshing as I have seen so many Blog discussions ruined by robots…sometimes can’t help but think someone is trying to throw sand in the internet’s gears…seems to have started in earnest with the Wars & Surveillance around Late Spring 2002…….political actors acting on info obtained through their “vacuuming” of the Net? Gov paid directly or indirectly to spread certain views?

  86. Of course the CIA (quite properly from a USian viewpoint) does that quite ‘openly’ (ie spread ideas and ways of thinking) outside America’s borders…but the cyber age has eliminated borders for ideas…
    I am concerned about secret motives influencing any given debate…usually kept secret because illegitimate – I sometimes wonder “Why this debate, why now?” …of late such “spontaneous” debates in the Mass Media usually serve to open the door to some previously-unthinkable gov action…or to drown out another more important debate..and the debate never stops the Army from marching anyway…thank heavens for the Internet but some do not share my attitude…and I suspect that some of them have and will continue to attempt to do something about it…

  87. Berix:

    1. Take a closer look at Davies’ piece.

    2. I mentioned the italics because comments are displayed on the page.

    3. Ah. You’re the sort that thinks deprecated comments or phrases must needs have made me uncomfortable.

  88. TNH,

    And which decisions, exactly, were they responsible for making, as opposed to the executives of energy firms?

    First, very few teachers, government workers, etc. realize how much power they have to influence corporate social behavior through pensions and organizations like Institutional Shareholder Services. But that’s not really the issue.

    The energy companies are a manifestation of our culture. They didn’t create our need for oil. We created them in every way, shape, and form. We built increasingly sprawling cities. We wanted convenient plastic grocery bags. There’s nothing more rotten about their executives than those of any other industry. I suspect that: 1) most people who think they are villains have never actually sat down and talked with any of them; and 2) if they did, they would be disappointed to find them not at all like their characterization. This, of course, is how most things are in life. It’s easy to hate the paparazzi, the politicians, the corporate big-wigs, the stock-traders, and everything else about our society that doesn’t fit with our ideals. But it’s also disingenuous. They are scape-goats. If we change ourselves, they will change.

  89. Excellent point, although I believe it has been said before:

    “‘But you were always a good man of business, Jacob,’ faltered Scrooge, who now began to apply this to himself.

    “‘Business!’ cried the Ghost, wringing its hands again. ‘Mankind was my business. The common welfare was my business; charity, mercy, forbearance, and benevolence, were, all, my business. The dealings of my trade were but a drop of water in the comprehensive ocean of my business!'”

  90. @TNH, 113 –

    I hope I made it sufficiently clear that the majority of the lessons I’ve learned from C/A were negative ones. Oh, they had it all and managed to waste it all away. Heartbreaking!

    Still, the best mistakes to learn from are other people’s, if at all possible.

  91. Ok, I’m going to see if I can summarize the articles in question here, partially for my own benefit, and partly because I think a lot of people have quite a lot of misunderstanding about what is being said.

    It seems to all start with an article by Richard Posner which, if I am reading it correctly, basically says this: That simply giving away corporate money without regard for how it affects the financial future of the corporation is a bad idea. He uses the fiduciary responsibility of corporate management as the basis of his argument.

    Next, a blogger named John came along and wrote a response arguing that this “fiduciary obligation to maximize profits” is not a good argument. He bases this on a disagreement over where this “obligation” comes from.

    Then Daniel makes a response to that post saying that further more, the idea of “maximising profits” is also misleading and mercurial.

    Next, Cory engages in a bit of hyperbole to call attention to and engage discussion of the previous article.

    And finally, the comments section erupts in a chaos of discussion about judges legislating from the bench and other tangentially related topics from the original topic at hand.

    Does that seem about accurate? Feel free to correct me if I’ve misunderstood something, as I’m genuinely trying to understand what exactly the big commotion is. Because from my point of view, all I can see is that a judge thinks that it’s OK for a corporation to engage in socially responsible practices so long as there is some percievable benefit to the company. And a couple of bloggers think that companies should engage in MORE socially responsible practices without regard for whether or not it ends up harming the company. And if either of those two statements is incorrect, then I must have misread more than I thought.

    Personally, I am fully on the side of Judge Posner. It is the duty of corporate management to maximize the profit of the corporation. However, I think that the confusion that is felt by the two bloggers is understandable and warranted. There really is no good way to put a measure on exactly what “maximizing profit” means. This concept is really only something that can be applied retroactively to determine the good-faith motive of a corporate executive when it is determined that he may not be acting with the best interests of the corporation in mind. If it is found that a corporate executive has squandered corporate funds and had no reasonable expectation that his squandering would eventually bring positive consequences to the company, then that executive did not fulfil his fiduciary duty.

    So while it may seem that this “fiduciary duty of maximizing profits” may be an “absurd” concept that could be applied to any decision that a corporate manager could make, it is really not meant to be applied literally to each and every decision with some sort of formula that returns a number that says “this gives us a profitability of 6 while that gives us a profitability of 7”. Rather, it’s a concept that applies more in a big picture sense of the overall guidance of the company. Individual decisions can be made that negatively impact the company’s bottom line, which will eventually synnergize into something that strengthens the company in the long term. As long as an executive can point to an overall goal of profit to the company and its shareholders, he is exercising his fiduciary duty. I think there is a lot of misunderstanding about that here, which is generating a lot of negative feeling toward this idea, on both sides of the fence.

    And I’ve probably done nothing to help. :D

  92. #121 Dng dng dng, y ht th nl n th hd. Ppl wnt scp-gts, thy nd crdbrd ct t vllns t ht. Tht’s why ths whl “crprtns r rqrd by lw t nly cr bt prfts” mm s s hrd t stmp t, dspt bng s bvsly stpd. Ppl wnt thr crtn bd gys nd dnt wnt t hv t thnk mch.

  93. how many here can honestly say they work/have worked for a business that was primarily concerned with them as human beings?

  94. TNH
    please remember to make your threats of physical violence less plausible.

    Don’t be silly, I’m not capable of threatening anyone.

    …companies are a manifestation of our culture.

    Not strictly true. Beginning in the mid-twentieth century corporations made a conscious and deliberate choice to encourage the modern cult of individuality. Mass media creates demand where it never existed and drives culture not the other way around. Capitalism demands an atomized society of individuals in order to sell to them.

    Does that seem about accurate?

    More or less, yes. However, you may wish to believe that maximizing value “applies more in a big picture sense of the overall guidance of the company” but history shows otherwise. Corporations left to themselves will always compete with each other in a drive to the bottom. Numerous examples have already been provided.

  95. I was referring more to the fiduciary duty itself, rather than the actual practice. I agree that a large number of companies look strictly at the bottom line and if they can’t rationalize a direct profit from an action, they don’t take it. However, there are many corporations, such as Microsoft, and really most of the ones that people usually accuse of being “heartless monsters” that do practice social responsibility. They may do this BECAUSE it gets them good press, and therefore more money, or they may do this DESPITE the fact that they won’t get as good a return on their money as, say, investing in direct PR or R&D. Either way, the charities and social programs they invest in don’t bring a direct measurable dollar return, and so one could say they’re not meant to “maximize profit”. But the executives of those companies can still show that they are fulfilling their fiduciary duty if they can show even the cynical link that they only did it to generate positive PR.

    As a counter example, if a corporate executive gave themselves a 3000% pay rase and fired a whole department to make up for it, they would be hard pressed to show how that was a fiscally responsible move. And as Judge Posner points out, investing a lot of money into African areas where the government intercepts most of the incoming funds is not likely to result in a future market base for a company’s products (unless the company is planning on having an exclusive deal with the corrupt government, and is only making “charitable donations” with the specific intent that they reach the corrupt officials, but you’d really have to sell me on that scenario).

    And one further point to note: Just because a lot of companies “compete with each other in a drive to the bottom” does not mean that they are automatically fulfilling their fiduciary duty to their investors. There are plenty of examples of companies that try to cut corners for the sake of reducing costs, and have that come back to bite them in the ass, causing the company to tank. There are also plenty of examples of companies that “do the right thing” despite the higher cost, and end up doing better because of it. And yes, there are also too many examples of companies that cut corners and are rewarded for it, or do the right thing and end up tanking. In the end, the concept of fiduciary duty really boils down to “did we try to make money for the company?” You can do good things while maintaining your fiduciary duty, and you can do bad things. I understand that Creative Capitalism wants companies to choose to do good things. But I don’t think that John, Daniel, and Cory understand that what Judge Posner is saying is that if your company does good things but ends up ruining the company, then your executives have failed in their fiduciary duty, and they have risked ruining the company for their own social goals. Which really doesn’t end up helping anyone in the long run.

  96. Takuan,

    how many here can honestly say they work/have worked for a business that was primarily concerned with them as human beings?

    “Primarily concerned” would be problematic. Businesses are started to provide products and services, not jobs. “Sufficiently concerned” is sensible.


    You give corporations and mass media credit for intelligence that they simply don’t have. There is a chicken-and-egg aspect to it, but remember that most new business ventures are failures. What you call demand creation is really just incremental response to market conditions. Any new product that you absolutely must have in some way is a reflection of you, your value system, and your self-image.

  97. @120:

    1. N. Dctrw knd klld ny dsr mght hv hd t rd tht n.

    2. dn’t ndrstnd tht sntnc.

    3. Srry fr ssmng tht thr ws rsn fr dsmbwlng my cmmnts. f hd knwn tht t ws rndm ct f mdrtn, wldn’t rs th ss. (S wht s t? Mnthly qt f dsmvwlng t b mt?)

    n cs y r wndrng, ys hv prblm wth th cnsrng cmmnts n gnrl. t s qt bt mr dsrspctfl thn bng clld nms. cn dl wth tht, r gnr t. cnnt dl wth bng cnsrd.

    1. Berix,

      You don’t seem to be enjoying your stay here in BB comments. Perhaps another blog would be more suited to your need for unfettered freedom of expression. Perhaps your own blog, where you may, of course, say whatever pleases you.

  98. Deviant @121, the executives of energy companies are neither an unconscious emanation nor an emergent property of our society. They’re human beings who hold jobs, draw salaries, make decisions, and have moral agency. Their shareholders don’t have the same expertise, access to information, or authority, and they don’t share equally in the decisionmaking process. It’s not the shareholders’ fault that they failed to psychically divine what the power companies were doing and force them to stop it. The ones who were in a position to stop it were the executives.

    I’m sure some power company executives are decent fellows. However, quite a few of them are complete rotters, going by the evidence: much worse, on average, than executives in comparable industries. I expect that’s why so many of them have been busted. There’s widespread corruption in the power industry, and serious irresponsibility in the pursuit of profits. There’s also a far-too-consistent pattern of companies pushing deregulation on the grounds that “free market forces” will somehow bring down the price of power — and then, as soon as the lid’s off, raising prices like crazy.

    This systematic abuse of public trust started out as a Thatcherite scheme. Since then, it has spread to other parts of the country and the world. But the disaster that’s burned into everyone’s memories is the deregulation of the California power system and what followed: the cynical manufacture of a fake energy shortage and a multi-billion-dollar raid on the bank accounts of California energy users (a.k.a. the California Electricity Crisis) by a group of malfeasant power companies.

    Enron took the lead in the creation of California’s fake power shortage. They were taking power plants offline while the state was having rolling blackouts. If you want to zero in on the point where power company executives started to be genuinely loathed, I nominate the release of tape recordings of Enron energy traders gloating about manipulating the market, and laughing callously about the suffering it was causing consumers. Later tapes and memos detailed additional premeditated market manipulation. This was such an integral part of Enron’s operations that they had openly used in-house slang terms for their various frauds.

    Enron wasn’t alone. An incomplete list of other power companies that were gouging the public for all they could get during this period: Duke. Reliant Energy. Sempra. Portland General Electric. Mirant. Dynergy. NRG. PNM Resources. Et cetera. They caused a great deal of needless suffering, which as usual fell hardest on the poor, sick, and needy. Some people died.

    In case the question comes up: none of this has anything to do with environmentalists.


    In addition to gouging consumers, deregulated power companies have been noticeably reducing their spending on infrastructure maintenance. This is affecting the entire continental power grid, making it more prone to power failures and outages, and less reliable overall. For example, on 14 August 2003, FirstEnergy Corp. of Ohio — an ill-maintained and chronically unsafe wheeler-dealer of a power company — was heavily implicated in setting off the Northeast Blackout of 2003, a massive four-day power outage that cost the United States and and Canada roughly ten billion dollars, and killed at least a dozen people. (Also, speaking personally, it was damned unpleasant.)

    The power companies that are letting the infrastructure decay are aware that if a comparable power failure were to hit the Southwest during the worst of the summer heat, or the Northeast or Northern Midwest during a winter cold snap, the body count would be a lot higher.

    Frankly, I don’t care what it’s like to socialize with power company executives. That’s irrelevant to everyone but their friends and family. I also don’t imagine them as caricatures. I’ve met plenty of high-end executives. Almost all of them have been quite presentable.

    Like everyone else who criticizes power company execs, I care about what they do. There’s nothing personal about it.

  99. @129: “sufficiently concerned” in my book means the humans come first. IE: “primary”.

  100. BB Ate My Name @125: If you’re confused about why you lost your vowels, read up on ad hominem arguments.

  101. All this, for saying that he might try to be nicer? Heaven help us all if I’d said something genuinely critical. He’d probably have been carried off by an apoplexy.

  102. @134:
    Commenting about censoring here and having my own blog are not mutually exclusive.

    Let’s see if I can get this right:

    Pls stp cnsrng rsnbl cmmts y dn’t lk. t dsn’t hlp yr cs.

    See, low maintenance commenter. And I cannot think of anything more critical than gratuitous censoring, so no need to be concerned about my health.


    1. Berix,

      If you have any more comments about disemvowelling, please take them to the Moderation Policy thread, in gray just above Recent Comments. And feel free to read the Policy and the thread while you’re there.

  103. Hey TNH, about energy execs, don’t forget the oil companies inroads into special treatment regarding Iraq prior to any justification to invading Iraq. I believes that there has been the slightest bit of obstruction by the VP as to the details of those meetings…electricity ain’t the only source of CEO ill will.

    and re: your #135 posting: Whatsa matta’ with being carried off by an apoplexy. It’s the only manner in some of us are regular! (save the occasional bout of Drambuie, Guinness, Bailey’s…etc. I’m regular that wise too)

  104. ugh…in “which” some of us are regular…that’s the result of strong drink friends…

  105. Berix, I am sublimely impartial in all matters concerning your gender. In the meantime, it’s clear that you haven’t read the moderation guidelines. Let me add my recommendation to Antinous’.

  106. #76 when have corporate indictments have harmed shareholders and innocent managers in regular veil-piercing scenarios?

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