"One
mantra you see regularly in the business and popular press goes something along
the lines of “the CEO and board have a fiduciary duty to maximize shareholder
value.”
That is untrue. Moreover, the widespread acceptance of that false notion has done considerable harm.
If you review any of the numerous guides prepared for directors of corporations prepared by law firms and other experts, you won’t find a stipulation for them to maximize shareholder value on the list of things they are supposed to do. It’s not a legal requirement. And there is a good reason for that.
Directors and officers, broadly speaking, have a duty of care and duty of loyalty to the corporation. From that flow more specific obligations under Federal and state law. But notice: those responsibilities are to the corporation, not to shareholders in particular.
And where do shareholders fit in this picture? Corporations have a host of obligations they are required to meet, contractual and regulatory, such as paying suppliers, honoring terms of warranties, complying with environmental, product, and workplace safety laws, paying creditors (bondholders, banks, owners of rental property), paying taxes, and for public companies, fulfilling their obligations under state and Federal securities laws. Shareholders are at the very back of the line. They get their piece only after everyone else is satisfied. If you read between the lines of the duties of directors and officers, the implicit “don’t go bankrupt” duty clearly trumps concerns about shareholders."
That is untrue. Moreover, the widespread acceptance of that false notion has done considerable harm.
If you review any of the numerous guides prepared for directors of corporations prepared by law firms and other experts, you won’t find a stipulation for them to maximize shareholder value on the list of things they are supposed to do. It’s not a legal requirement. And there is a good reason for that.
Directors and officers, broadly speaking, have a duty of care and duty of loyalty to the corporation. From that flow more specific obligations under Federal and state law. But notice: those responsibilities are to the corporation, not to shareholders in particular.
And where do shareholders fit in this picture? Corporations have a host of obligations they are required to meet, contractual and regulatory, such as paying suppliers, honoring terms of warranties, complying with environmental, product, and workplace safety laws, paying creditors (bondholders, banks, owners of rental property), paying taxes, and for public companies, fulfilling their obligations under state and Federal securities laws. Shareholders are at the very back of the line. They get their piece only after everyone else is satisfied. If you read between the lines of the duties of directors and officers, the implicit “don’t go bankrupt” duty clearly trumps concerns about shareholders."
