mattnewport comments on A Challenge for LessWrong - Less Wrong

16 Post author: simplicio 29 June 2010 11:47PM

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Comment author: mattnewport 02 July 2010 06:15:24PM 4 points [-]

This is a pretty inaccurate interpretation of what maximizing shareholder value actually means in practice. Generally corporate management are only considered to have breached their fiduciary duty to shareholders if they take actions that are clearly enriching themselves at the expense of shareholders, making an acquisition that is dilutive to shareholders for example.

It is highly unusual for corporate management to be accused of breaching their fiduciary duty by making business decisions that fail to maximize profit due to other considerations. For one thing this would generally be impossible to prove since management could argue (for example) that maintaining a reputation for ethical conduct is the best way to maximize shareholder value long term and this is not something that could easily be disproved in a court.

Activist shareholders may sometimes try and force management out due to disagreements over business strategy but this is a separate issue from any legal responsibility to maximize shareholder value. In the US this is also quite difficult (which is a situation that I think should be improved) and so is fairly rare.

Comment author: NancyLebovitz 02 July 2010 06:24:08PM 0 points [-]

Thanks. I was pretty sure that management wasn't getting sued for failing to maximize shareholder value through ordinary business decisions-- if that were possible it would be really common.