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?

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...

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."

"silly rant"?; you sure?

#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....

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..

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?

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.

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.

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...

#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.....

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

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....

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)

th vtrl n ths cmmnts s ffpttng t b sr, spclly snc t sms lk mst ppl hv n d wht thy'r tlkng bt nd jst s ths s n pprtnty t bsh bsnss frndly rl.

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....

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

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 $$$...

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.

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.

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

Let's just kill capitalism and move to socialism. That way the "state" can make fiducially responsible decisions for us.

#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.....

#20 Fiducially? Sadly even Dictatorships need Lawyers and Laws...

@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.

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.......

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.

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?

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.

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

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.

Here's a curious twist from the NYTimes on Davis' theme of "ficuciary duty":

Apple's Culture of Secrecy
http://www.nytimes.com/2008/07/26/business/26nocera.html

When you are Ultimate Supreme Guru of your company, where does the fiduciary duty of your life begin and end?

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.

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 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?

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.

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.

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?

nah, just incompetent

#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...

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.

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...

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...

OT:
http://news.bbc.co.uk/2/hi/americas/7526628.stm
Think the Judge should give him 6.5 years? Think there's a minimum sentence here?

put him on the bench

the garden bench

or maybe under the bench

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

#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.

#48 Yeah excellent journalism, that. Seriously.

#47 If it was still under warranty his judgment truly is suspect....

I blame John Adams.

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.

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.

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.

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.

#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...

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.

https://www.ethicalfunds.com/en/Investor/Pages/default.aspx

@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.

coming from the bench
http://www.thesmokinggun.com/archive/0121051judge1.html

http://www.judgewatch.org/

http://www.judicialwatch.org/5862.shtml

http://judgewatch.ourfamily.com/

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"?

#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....

#63: that site has a dead link for their "list of bad judges" ...a shame, a cryin' shame...

gee,wonder what happened?

#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.

must have been judged to be wanting...

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...

http://www.globalexchange.org/campaigns/fairtrade/coffee/

http://www.unpri.org/

http://www.socialinvestments.com/catalyst_si/index.jsf

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)

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.

#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.

@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.

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.

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.

"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.

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.

Albert J. Dunlap
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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.

"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.

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.

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.

'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.

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.

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.

#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.

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...

Maximizing profit is only one of the possible objectives