well I read the paper and a pretty good theoretical analysis by someone who has never run a company or been on the board of a publicly traded company. I have, a few times and can state it's wildly incorrect.
Nor does the law require, as many believe, that executives and directors owe a special fiduciary duty to the shareholders who own the corporation. The director's fiduciary duty, in fact, is owed simply to the corporation, which is owned by no one, just as you and I are owned by no one-we are all "persons" in the eyes of the law. Corporations own themselves.
that is not entirely incorrect. There is no "law" stating what the executive or directors fiduciary duties are but there are corporate documents that do. The Board and the Executive are governed by those corporate guidelines as they are approved by the shareholders. So this is just a strawman argument. The Board and the executive are required to serve the shareholder because of the corporation's governance documents. If they don't they can be voted out at a shareholders meeting or sued by the shareholders (which has happened on numerous occasions)
What shareholders possess is a contractual claim to the "residual value" of the corporation once all its other obligations have been satisfied-and even then the directors are given wide latitude to make whatever use of that residual value they choose, just as long as they're not stealing it for themselves.
OK, that's just a load of bunk. The shareholders own all the shares in the corporation, the market capitalization of a corporation is the number of shares times the share price and it is that number that determines the value of a company at a particular point in its history. This person has a strange understanding of how corporations handle budgets, debt etc. All of that affects the overall value of a company and it is that value that determines the share price. A shareholder can decide to sell at any point in time and they are not responsible for whatever debt the company might have acquired other than how the perception of that debt affects the share price. The shareholder's value is based on share price and nothing else.
It is true, of course, that only shareholders have the power to elect the corporate directors. But given that directors are almost always nominated by the management and current board and run unopposed, it requires the peculiar imagination of corporate counsel to leap from the shareholders' power to "elect" directors to a sweeping mandate that directors and the executives must put the interests of shareholders above all others.
Obviously written by someone who has some sort of anti-corporation bent and, once again, has never been involved in a corporation. This isn't what happens at all. Directors are not nominated by management the Chairman of the Board generally is brought in along with several other candidates for that spot by the founders or the CEO of a company as it is forming. The general edict nowadays is that the board must be independent and as a consequence, the Chairman is a non-executive appointment. It is the role of the Chairman to appoint independent directors and the management or executive has zero say in the matter other than the rights for voting they have like any other shareholder (the Chairman proposes appointments to the Board and they are voted on at a shareholders meeting). I've been to some pretty contentious shareholder meetings and a couple where proposed directors were refused and one where an activist shareholder actually got a different director appointed. It isn't anywhere near as controlled as this person suggests. And he/she seems to disregard how many votes are actually put forward as proxies by non-attending shareholders.
Milton Friedman, the University of Chicago free-market economist, is often credited with first articulating the idea in a 1970 New York Times Magazine essay in which he argued that "there is one and only one social responsibility of business-to use its resources and engage in activities designed to increase its profits." Anything else, he argues, is "unadulterated socialism."
Like everyone else of my generation who studied some economics at University, we learned from Friedman's text and my best friend ended up being one of his graduate students. What he says is exactly what drives corporations. That is why people invest in companies. If you have no intention of increasing their value and intend instead of doing whatever the hell you want why would they invest? The answer is simple....they wouldn't. There are obviously rogue elements out there that try to feather their own nests but that is a very small minority amongst corporations, there are just too many controls. In the era of whistleblowers and numerous independent audits, this happens very infrequently. But folks think it happens all the time because it is the only time they see something in the press (when was the last time a paper reported on a company doing everything right and being good guys?).
