Who's in charge of a company, anyway?
April 2, 2010 1:10 PM Subscribe
The myth of shareholder capitalism. It's commonly believed that a company's primary duty is to maximize shareholder value. Anything that might reduce the returns to shareholders is questionable, including giving employees good wages and benefits. According to a recent article in the Harvard Business Review, this is a misconception, and corporate management is being taught the wrong lessons based on obsolete case law.
…we conducted a systematic analysis of a century’s worth of legal theory and precedent. 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.Another HBR article advocates shifting from shareholder capitalism to what they call customer-driven capitalism.
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.
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