In the US, there are multiple Supreme Court precedent cases that force profit-maximizing. Shareholders can sue the CEO and board to maximize profit seeking.
So yes, increasing shareholder value is enshrined in US law. Only private corporations can get around that rule. Also, a corporation cannot be forced to break the law to maximize profits, that’s just something most CEO’s are willing to do for fun.
So yes, increasing shareholder value is enshrined in US law. Only private corporations can get around that rule.
This is true, with one exception.
There are non-profit corporations. They have to declare that they are non-profit at the time of foundation, though. They have to write that in the statute (idk what it’s called in English, it’s “Satzung” in German).
It’s not that they can’t still be profit driven, it’s that they can’t be sued by investors for not being ruthlessly profit driven. Private just means that they have the choice at all
Publicly traded companies are, by law, driven to make as much money as possible for shareholders. Privately held companies are not held to this same limitation. So while a company like Valve could be highly profit-driven (let’s be honest, all for-profit companies in a capitalist system are driven by this motivation), it doesn’t seem to be driven to maximize profits in the short term. This means that they can focus on things other than profit if they so choose.
There is a common belief that corporate directors have a legal duty to maximize corporate profits and “shareholder value” even if this means skirting ethical rules, damaging the environment or harming employees. But this belief is utterly false. To quote the U.S. Supreme Court opinion in the recent Hobby Lobby case: “Modern corporate law does not require for-profit corporations to pursue profit at the expense of everything else, and many do not.”
For-profit vs. Non-profit is an entirely different distinction under US law, with specific legal definitions for each. This is entirely separate under US law from publicly traded vs. privately owned, which has separate specific legal definitions.
Valve is a for-profit privately owned company. That is what allows it to not maximize shareholder value, and is the unstated distinction that allows your quote to be true.
For-profit publicly traded companies do have a legal responsibility for such.
I don’t want to quote dump multiple paragraphs, but Stout explicitly explains that’s not correct in the following paragraphs, citing relevant case law where appropriate.
I’m not a lawyer, but that article reads pretty clearly to me; I’d be interested to hear if you read it and get a different interpretation.
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In the US, there are multiple Supreme Court precedent cases that force profit-maximizing. Shareholders can sue the CEO and board to maximize profit seeking.
So yes, increasing shareholder value is enshrined in US law. Only private corporations can get around that rule. Also, a corporation cannot be forced to break the law to maximize profits, that’s just something most CEO’s are willing to do for fun.
deleted by creator
I think your original comment has a typo on “isn’t”, hence the confusion.
This is true, with one exception.
There are non-profit corporations. They have to declare that they are non-profit at the time of foundation, though. They have to write that in the statute (idk what it’s called in English, it’s “Satzung” in German).
It’s not that they can’t still be profit driven, it’s that they can’t be sued by investors for not being ruthlessly profit driven. Private just means that they have the choice at all
Publicly traded companies are, by law, driven to make as much money as possible for shareholders. Privately held companies are not held to this same limitation. So while a company like Valve could be highly profit-driven (let’s be honest, all for-profit companies in a capitalist system are driven by this motivation), it doesn’t seem to be driven to maximize profits in the short term. This means that they can focus on things other than profit if they so choose.
– Lynn Stout, professor of corporate and business law, Cornell University
For-profit vs. Non-profit is an entirely different distinction under US law, with specific legal definitions for each. This is entirely separate under US law from publicly traded vs. privately owned, which has separate specific legal definitions.
Valve is a for-profit privately owned company. That is what allows it to not maximize shareholder value, and is the unstated distinction that allows your quote to be true.
For-profit publicly traded companies do have a legal responsibility for such.
I don’t want to quote dump multiple paragraphs, but Stout explicitly explains that’s not correct in the following paragraphs, citing relevant case law where appropriate.
I’m not a lawyer, but that article reads pretty clearly to me; I’d be interested to hear if you read it and get a different interpretation.