Lexica (lexica510) wrote,
Lexica
lexica510

The myth of shareholder capitalism

It's fairly common to hear people argue that a corporation's highest, if not sole, duty is to maximize profits for the corporation's shareholders. This is used as the excuse for why the executives really want to do the right thing, but their hands are tied by the law and their responsibilities to their shareholders... so don't blame us!

According to a recent article in the Harvard Business Review, The Myth of Shareholder Capitalism, this is not true:
It turns out that the law provides a surprisingly clear answer: Shareholders do not own the corporation, which is an autonomous legal person. What’s more, when directors go against shareholder wishes—even when a loss in value is documented—courts side with directors the vast majority of the time. Shareholders seem to get this. They’ve tried to unseat directors through lawsuits just 24 times in large corporations over the past 20 years; they’ve succeeded only eight times. In short, directors are to a great extent autonomous.

And yet, in an important 2007 article in the Journal of Business Ethics, 31 of 34 directors surveyed (each of whom served on an average of six Fortune 200 boards) said they’d cut down a mature forest or release a dangerous, unregulated toxin into the environment in order to increase profits. Whatever they could legally do to maximize shareholder wealth, they believed it was their duty to do.
The article goes on to say that not only do directors not understand their legal obligations and protections, they're being taught the wrong things based on bad/obsolete case law.

I would love to see this excuse done away with. Heck, I'd be glad just to know that the head of Costco was no longer getting criticized for paying employees decently.
Tags: capitalism, corporations, economics
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