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by trepanne
2391 days ago
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Corporate charters don't generally include clauses requiring that profits be maximized, profits be disbursed, and executive pay be approved by shareholders. Rather they tend to include maximally expansive language such as "all business activities legal in the state of XXX". It's a placeholder, delegating responsibility to the directors to the greatest extent permitted by law. This is the standard, for good reason. Are the charitable donations of the Fortune 500 evidence of widespread violation of fiduciary duties? |
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This is false.
Corporate law requires that Board members faithfully represent the interest of stakeholders, and the corporate bylaws define who those stakeholders are. Generally they will he creditors, holders of preferred shares followed by holders of common shares. By defining the stakeholders, the corporate charter is defining who owns what and whose interest the board must represent. This is where all the activists who insist that corporations have stakeholders like "the environment" hit a road block -- they aren't going to get shareholder approval to list the environment as a stakeholder.
Corporate bylaws, which must be voted on and approved by shareholders, do spell out voting rights for shareholders, approval of executive pay, approval of debt issuance. This is very common.
People misunderstand how heavily regulated corporations are, because it is a funny ownership structure, where the owners -- the shareholders -- are distributed and don't actually run the company. This creates all sorts of principle agent problems and thus corporate law grants shareholders many rights and imposes many obligations on corporations. Shareholders can audit the books. Shareholders can sue. All the ways that the business does anything from make a decision to issue debt must be spelled out in bylaws that shareholders must approve. Corporations must have a board. The board must be elected by the shareholders. The board has to act in their interest. The board gets to appoint the CEO, etc.
State law also defines the liability shield, that as long as board members are acting faithfully in the interests of shareholders, they can't be sued, but as soon as they are not they can be.
Things like corporate donations are generally justified as helping the bottom line by improving the brand. But you do need to show how they are helping shareholders, otherwise it would be a breach of fiduciary duty and the liability shield would be lost at which point shareholders could sue.
But even apart from this, when the shareholders turn against you they can sell, and if someone buys a majority of the shares the company becomes theirs, they own it, they can take it private, they can throw out management, etc. This ensures that the board be focused on keeping shareholders happy above all other concerns.