# is it really true that corporations are legally required to maximize shareholder profit? **URL:** \ **Category:** Factual Questions\ **Created:** [October 23, 2015, 4:03am UTC](https://boards.straightdope.com/t/is-it-really-true-that-corporations-are-legally-required-to-maximize-shareholder-profit/735507 "2015-10-23T04:03:18Z")\ **Posts on this page:** 8\ **Page:** 2
**Author:** ![UDS](https://avatars.discourse-cdn.com/v4/letter/u/ecae2f/32.png) [@UDS](https://boards.straightdope.com/u/UDS)\ **Post date:** [October 26, 2015, 1:24am UTC](https://boards.straightdope.com/t/is-it-really-true-that-corporations-are-legally-required-to-maximize-shareholder-profit/735507/21 "2015-10-26T01:24:57Z")
> [@jtur88](#): > > It was obviously not true when some fashionable companies were divesting from apartheit South Africa. Socially-conscious investors were electing to accept unmaximized profits in exchange for geo-political leverage. They weren’t necessarily seeking “geo-political leverage”. They may simply have been trying to protect the value of their brand, which in “fashionable companies” is often a key asset. Their judgment may have been that the increase profits resulting from investment in apartheid South Africa was likely to be more than offset by the dimination in profits resulting from consumer reaction to investment in apartheid South Africa. ---
**Author:** ![md2000](https://avatars.discourse-cdn.com/v4/letter/m/73ab20/32.png) [@md2000](https://boards.straightdope.com/u/md2000)\ **Post date:** [October 26, 2015, 4:04am UTC](https://boards.straightdope.com/t/is-it-really-true-that-corporations-are-legally-required-to-maximize-shareholder-profit/735507/22 "2015-10-26T04:04:35Z")
> [@jtur88](#): > > It was obviously not true when some fashionable companies were divesting from apartheit South Africa. Socially-conscious investors were electing to accept unmaximized profits in exchange for geo-political leverage. > [@UDS](#): > > They weren’t necessarily seeking “geo-political leverage”. They may simply have been trying to protect the value of their brand, which in “fashionable companies” is often a key asset. Their judgment may have been that the increase profits resulting from investment in apartheid South Africa was likely to be more than offset by the dimination in profits resulting from consumer reaction to investment in apartheid South Africa. Exactly - “goodwill”, an actual line item in the Balance Sheet, values the brand and public perception of a company. Defying strong social trends could have an immediate effect on the bottom line if the company becomes associated with tacit approval of an unpopular side of a social cause. Just ask Nestle. From Google > [@](#): > > A Delaware judge rejected the settlement of a shareholder lawsuit against Hewlett-Packard Co. , saying the welter of litigation challenging corporate mergers has become a systemic problem. > > The lawsuit stemmed from H-P’s $2.7 billion purchase of Aruba Networks. > … > H-P agreed to buy Aruba, a provider of network software, in March for $24.67 a share, a 34% premium to the stock’s closing price the day before the deal was announced. Seven lawsuits were ultimately filed, alleging the price was unfair and that process wasn’t robust enough. The parties reached a settlement in April. The various articles suggest nothing attracts lawsuits (and vulture lawyers) like a merger. The average large merger now attracts at least 5 lawsuits. 80% result in only payment to the lawyers. _Quelle surprise_…! > [@](#): > > A federal judge on Thursday narrowed several lawsuits against American International Group Inc by shareholders who opted out of the $970.5 million class-action settlement that she approved in March over the insurer’s 2008 bailout Another example - AIG famously screwed up like the rest of Wall Street in spectacular fashion, and the taxpayers ended up funding the bonuses and executive conferences in foreign locales - but that didn’t stop the shareholders - who should have had zero residual value in their stock holdings - from suing for more money. Again, fortunately, most such lawsuits fail unless there is outright criminal fraud in management. ---
**Author:** ![dracoi](https://avatars.discourse-cdn.com/v4/letter/d/90db22/32.png) [@dracoi](https://boards.straightdope.com/u/dracoi)\ **Post date:** [October 26, 2015, 11:35pm UTC](https://boards.straightdope.com/t/is-it-really-true-that-corporations-are-legally-required-to-maximize-shareholder-profit/735507/23 "2015-10-26T23:35:00Z")
> [@up\_the\_junction](#): > > Not sure it’s a meme. While you set out the legal position, in practice it’s about profits - what is it that gets reported on the news and what is is that the board’s bonuses and dividends are based on? It sure isn’t fulfilling the fiduciary duty. > > It’s what goes in pockets that counts. I’ve seen people argue “Corporations must maximize profits. Therefore, corporations are antisocial personalities. Therefore corporations are bad.” It’s a deeply flawed chain of logic that stems from confusing “often” with “must” and so I think we really do need to emphasize the difference between “must maximize profits” and “reasonably fulfill duty to the shareholders.” As long as we emphasize the duty to the shareholders then we can put any blame where it belongs. If the jerk down the street trains his dog to attack little kids, it’s not because dogs are evil. If there is bad behavior, you blame the owner. The owners of corporations are shareholders, and if you’re like most Americans\*, that’s actually _you_. \*(52% in 2013, down from 65% in 2008 [cite](http://www.gallup.com/poll/162353/stock-ownership-stays-record-low.aspx)) ---
**Author:** ![Really\_Not\_All\_That\_Bright](https://avatars.discourse-cdn.com/v4/letter/r/e8c25b/32.png) [@Really\_Not\_All\_That\_Bright](https://boards.straightdope.com/u/Really_Not_All_That_Bright)\ **Post date:** [October 28, 2015, 2:14pm UTC](https://boards.straightdope.com/t/is-it-really-true-that-corporations-are-legally-required-to-maximize-shareholder-profit/735507/24 "2015-10-28T14:14:37Z")
> [@md2000](#): > > The various articles suggest nothing attracts lawsuits (and vulture lawyers) like a merger. The average large merger now attracts at least 5 lawsuits. 80% result in only payment to the lawyers. _Quelle surprise_…! The majority of shareholder suits are brought by large institutional investors, rather than individual cranks. ---
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [October 29, 2015, 5:00am UTC](https://boards.straightdope.com/t/is-it-really-true-that-corporations-are-legally-required-to-maximize-shareholder-profit/735507/25 "2015-10-29T05:00:49Z")
> [@dracoi](#): > > It’s a deeply flawed chain of logic that stems from confusing “often” with “must” and so I think we really do need to emphasize the difference between “must maximize profits” and “reasonably fulfill duty to the shareholders.” As long as we emphasize the duty to the shareholders then we can put any blame where it belongs. If the jerk down the street trains his dog to attack little kids, it’s not because dogs are evil. If there is bad behavior, you blame the owner. > > The owners of corporations are shareholders, and if you’re like most Americans\*, that’s actually _you_. It’s widely understood that there’s a separation of ownership and control with corporations. Boards may hire and fire CEOs, but aside from that managers are given free reign. Those owning less that 1/10th of 1% of a corporation have no rational incentive to provide proper oversight, which explains why the board of directors are mostly self-perpetuating organizations. And while most Americans have some exposure to the stock market, the distribution of wealth is far more unequal than the distribution of income. Which has risen over the past 30 years. So, no. If Exxon lies to the public and btw their shareholders, blame the managers: the owners don’t control squat. ---
**Author:** ![Robert163](https://avatars.discourse-cdn.com/v4/letter/r/4af34b/32.png) [@Robert163](https://boards.straightdope.com/u/Robert163)\ **Post date:** [October 29, 2015, 5:16am UTC](https://boards.straightdope.com/t/is-it-really-true-that-corporations-are-legally-required-to-maximize-shareholder-profit/735507/26 "2015-10-29T05:16:19Z")
> [@Measure\_for\_Measure](#): > > It’s widely understood that there’s a separation of ownership and control with corporations. Boards may hire and fire CEOs, but aside from that managers are given free reign. Those owning less that 1/10th of 1% of a corporation have no rational incentive to provide proper oversight, which explains why the board of directors are mostly self-perpetuating organizations. > > And while most Americans have some exposure to the stock market, the distribution of wealth is far more unequal than the distribution of income. Which has risen over the past 30 years. > > So, no. If Exxon lies to the public and btw their shareholders, blame the managers: the owners don’t control squat. And how often do shareholders sell their stock, when the stock is still profitable, when they hear something bad (immoral) about the company? ---
**Author:** ![up\_the\_junction](https://avatars.discourse-cdn.com/v4/letter/u/f1d935/32.png) [@up\_the\_junction](https://boards.straightdope.com/u/up_the_junction)\ **Post date:** [October 29, 2015, 7:07am UTC](https://boards.straightdope.com/t/is-it-really-true-that-corporations-are-legally-required-to-maximize-shareholder-profit/735507/27 "2015-10-29T07:07:22Z")
> [@dracoi](#): > > I’ve seen people argue “Corporations must maximize profits. Therefore, corporations are antisocial personalities. Therefore corporations are bad.” > > It’s a deeply flawed chain of logic that stems from confusing “often” with “must” and so I think we really do need to emphasize the difference between “must maximize profits” and “reasonably fulfill duty to the shareholders.” As long as we emphasize the duty to the shareholders then we can put any blame where it belongs. If the jerk down the street trains his dog to attack little kids, it’s not because dogs are evil. If there is bad behavior, you blame the owner. > > The owners of corporations are shareholders, and if you’re like most Americans\*, that’s actually _you_. > > \*(52% in 2013, down from 65% in 2008 [cite](http://www.gallup.com/poll/162353/stock-ownership-stays-record-low.aspx)) Sure, some Americans absolutely financially profited from Volkswagons increase in sales on the back of their killing of Americans via additional air pollution. Some Americans absolutely benefited from the sub prime crisis, inc. Partners and shareholders in Goldman Sachs. It is not just totally legal to fuck over all of society as long as some benefit, but your shareholders will usually choose to interpret that as a _duty_ i.e. show us the money or we’ll look for a new Board. ---
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [October 29, 2015, 7:18am UTC](https://boards.straightdope.com/t/is-it-really-true-that-corporations-are-legally-required-to-maximize-shareholder-profit/735507/28 "2015-10-29T07:18:17Z")
> [@Robert163](#): > > And how often do shareholders sell their stock, when the stock is still profitable, when they hear something bad (immoral) about the company? Well it happens, but fair point. Except… most people own stock via a mutual fund company. They aren’t making the direct decisions. If you are saying that stock holders shouldn’t be given a free pass, fine. But the top managers have the most culpability, mainly because they have the most power to set policy. Someone who sell shares is merely causing a temporary dip in the price at most. [Previous page](https://boards.straightdope.com/t/is-it-really-true-that-corporations-are-legally-required-to-maximize-shareholder-profit/735507.md?page=1)