AnimusRex
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Joined: 5/13/2006
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quote:
ORIGINAL: willbeurdaddy
Federal fiduciary law relates to specific transactions, state law to general director and corporate officer's fiduciary obligations.
google is your friend. try "duty of care" and "duty of loyalty",
As you wish. I googled "Do shareholders have a duty to maximize profits?"
and in 0.11 seconds found this:
In a recent speech at the Netroots Nation, Senator Al Franken tried to frighten the crowd by trotting out the corporate bogeyman that greedily makes decisions without regard to anything other than profit. Franken told them: “it is literally malfeasance for a corporation not to do everything it legally can to maximize its profits.” Individuals across the political spectrum share this common canard. Those on the right, like Milton Friedman, argue that the shareholder-wealth-maximization requirement prohibits firms from acting in ways that benefit, say, local communities or the environment, at the expense of the bottom line. Those on the left, like Franken, argue that the duty to shareholders makes corporations untrustworthy and dangerous. They are both wrong.
While the duty to maximize shareholder value may be a useful shorthand for a corporate manager to think about how to act on a day to day basis, this is not legally required or enforceable. The only constraint on board decision making is a pair of duties – the “duty of care” and the “duty of loyalty.” The duty of care requires boards to be well informed and to make deliberate decisions after careful consideration of the issues. Importantly, board members are entitled to rely on experts and corporate officers for their information, can easily comply with duty of care obligations by spending shareholder money on lawyers and process, and, in any event, are routinely indemnified against damages for any breaches of this duty. The duty of loyalty self evidently requires board members to put the interests of the corporation ahead of their own personal interest.
Under this legal regime, it is not malfeasance for boards or corporate chiefs to make decisions that do not maximize shareholder value. Boards are protected by the so-called “business judgment rule” from claims that their decisions were the wrong ones. The business judgment rule protects corporate decisions unless the plaintiffs can show a breach of one of the two duties. In other words, unless there is a plausible story the board’s decision was woefully uninformed or was tainted by self interest, a shareholder challenge to a corporate decision will fail.
The business judgment rule means that decisions that turn out badly for firms are protected. This encourages risk taking and avoids the hindsight bias of litigation in cases where well-meaning and rational decisions do not maximize shareholder value. It also gives boards wiggle room to take more than just profit into consideration when setting corporate policy. As such, firms can tailor their decisions to the demands of the marketplace. One company might believe that employees, customers, and shareholders (the three big constituencies of any firm) prefer a decision to keep open a more expensive factory in Michigan, while another company might believe these stakeholders prefer a decision to move its manufacturing base to Mexico. Both are lawful.
Posted by Todd Henderson on July 27, 2010
Maybe it is because I am an asshole, but I thought it amusing that Wilbeur and Al Franken were saying the same thing.
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RE: what those billionaires are spending $$ on - 
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