There is no legal requirement to maximize shareholder value. The very idea is an economic theory popularized by Friedman and his students.
It gained popularity in corporate governance since then but it’s not a legal requirement it’s a shareholder preference. But that preference is violated all the time.
People often cite a 1919 era case from Henry ford because it has a pithy statement but the court in that case explicitly upheld many of the decisions Ford made that violated the principle.
That is, there is no law or precedent that requires corporate officers to only consider shareholders.
I was under the impression the application was more akin to 'fiduciary duty provides an executive shield for morally reprehensible corporate choices' rather than 'it provides an ability to sue someone for not following it.'
Legal defense instead of offense. IANAL, correct me please.
I don’t think “morally reprehensible” is a legal standard (but i’m not a lawyer either).
But to the point of this thread, there is no legal requirement that makes it so a boards fiduciary duty is in conflict with broader moral decisions, nor one that requires them to forget about their humanity when applying their duties as corporate officers.
If they are assholes, its because they are assholes, not because they are required to do so by their obligations to the corporation.
It depends on your legal jurisdiction but it means COs need to act in the corporation's best interest and not their own. In some places, that requires them to take shareholders' interests into account (especially for mergers or takeovers) but also the employees, consumers or creditors. In the US and notably Delaware, courts generally value shareholder value over anything else.
Considering the vast majority of US corporations are incorporated in Delaware, I think it's accurate to say most US companies only aim to maximize shareholder value.
No, Delaware does not in fact require corporations to "maximize shareholder value". That simply isn't a real thing.
"Fiduciary duty" is a duty to operate in good faith, without self-dealing, in whatever (1) you believe to be (2) the best interests of the company. Both (1) and (2) are totally subjective. You can believe the best interests of your company reside with employee welfare, or with customer satisfaction. You will not find a Delaware case that says otherwise.
So far as I know, the only time the actual value of a company's equity comes into the picture is if there are multiple competing offers to acquire the company.
It definitely is a thing in the eyes of Delaware courts:
In eBay vs Newmark:
>Having chosen a for-profit corporate form, the craigslist directors are
bound by the fiduciary duties and standards that accompany that form. Those
standards include acting to promote the value of the corporation for the benefit of
its stockholders. The “Inc.” after the company name has to mean at least that.
Thus, I cannot accept as valid for the purposes of implementing the Rights Plan a
corporate policy that specifically, clearly, and admittedly seeks not to maximize
the economic value of a for-profit Delaware corporation for the benefit of its
stockholders—no matter whether those stockholders are individuals of modest
means or a corporate titan of online commerce.
In the Trados case:
>It is, of course, accepted that a corporation may take steps, such as giving charitable contributions or paying higher wages, that do not maximize profits currently.
They may do so, however, because such activities are rationalized as producing greater
profits over the long-term. Decisions of this nature benefit the corporation as
a whole, and by increasing the value of the corporation, the directors increase the share of
value available for the residual claimants. Judicial opinions therefore often refer to
directors owing fiduciary duties ―to the corporation and its shareholders. This formulation captures the foundational
relationship in which directors owe duties to the corporation for the ultimate benefit of
the entity‘s residual claimants. Nevertheless, ―stockholders‘ best interest must always,
within legal limits, be the end. Other constituencies may be considered only
instrumentally to advance that end.
Legally, sure. (there's a citation, a case between craigslist and a minority shareholder (ebay I think?), that backs up your argument about the common trope).
But when stock valuations are completely disconnected from fundamentals like earnings, then regardless of the legality we're kind of circling back to the market pushing that dynamic, aren't we? It's like the market is no longer even optimizing for short term gains per se (eg quarterly earnings), but rather for whatever memes might boost their meme stock. Sometimes this is [still] quarterly earnings, and sometimes it's about the perceived size of the market or how they're cozying up to the fascists in power. So for public companies, it's not like major shareholders, the board, or management really have the ability to work towards longer term plans that go against this dynamic.
But note that the quote does call it out as a myth.