I seem to recall reading somewhere that companies, or possibly just corporations, are required by law, somewhere to take the most profitable actions.
So if a corporation is looking at, say, renting out apartments, it would have to charge the maximum rent it could, rather than charging a lower rent to, say, help homeless families get back on their feet, or something.
Now I can imagine that the desire of shareholders for profit might easily push the corporation in the direction of maximum short-term profit. My question is, is there anywhere where taking the maximum profit is required by law?
I don’t think it’s quite required by law per se, but, IIRC, unhappy shareholders could sue controllers for costing them profits due to such “costly” actions.
However, there are always mitigating actions. Charging too high a rent could make it difficult to keep the units rented, thus losing profits. Helping out low-income renters could be subsidized by Section 8 or something similar.
Corporations are run by people for the shareholders. They do have a legal duty to shareholders to run the company well. People do go to jail if they are shown to be grossly mismanaging the companies. To my knowledge this generally involves things like embezzling corporate money not failing to drive the hardest bargain.
It is very hard to determine the most profitable way to do things since there is an almost infinite number of ways to do things. To narrow things down to something relatively simple how do you determine if it is more profitable to have $10 now or $12 in a year? There are a few common ways to decide this which one should be the law?
I can’t answer your question, but it seems to me your example is a bit misaligned to your question. The example seems to be about short-term profit vs. long-term profit, or, if you will, about profit vs goodwill.
If there are such a law, I can’t imagine it excluding goodwill actions from profitable actions.
I agree that the answer is complicated but the question is false as stated. Most corporations give large amounts of money to various charities. You could argue that is an indirect form of advertisement but that wouldn’t be allowed if corporations were required to direct every possible dollar back to the business and shareholders.
As garygnu said, ISTM it’s not so much that they are required by law to take the most profitable action, as that the directors are liable to the shareholders if they can’t justify why they wilfully decided to lose their money.
One situation wherein this issue may be raised as a question by the outsider/layman is in a corporate-takeover bid, wherein folks wonder how come the object of the takeover can’t just say *“sorry, we’re not for sale, and if we were, we wouldn’t sell to YOU for all the options in Wall Street”. * It would be very valuable for the discussion if someone with greater knowledge of corporate-governance issues would provide illustration as to what the deal is.
ETA: Darn your succinctness , Gfactor (shakes fist)
I think it is a lot of talent wasted. He could have been the next Gary Larson of the Farside fame if he just modified his subject matter just a tiny bit. He cracks me up anyway. I have never seen a physical Chick tract but I would look at finding one just like I would finding an Easter Egg (not that I am a Satanist pagan).
Aside from the fiduciary duty to shareholders, large corporations are generally prohibited from taking a loss in local markets for the purpose of driving small competitors out of business to gain a monopoly in that market. I can’t cite a specific law but it may fall under federal anti-trust law.
