The purpose of a corporation is to make money!

[ksen]

Well, that's also the purpose of workers so stop trying to make it sound like the workers are ungrateful layabouts that are trying to take more than they are worth when they attempt to get wages raised.

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eta: can't wait for some of the "whoever said the purpose of a corporation is to make money?" comments sure to be forthcoming.

 

[untermensche]

Actually corporations must by law maximize share holder return.

They are by law required to try to pay workers as little as possible.

 

[ksen]

Actually corporations must by law maximize share holder return.

They are by law required to try to pay workers as little as possible.

No they're not.

But they'd like you to think so.

 

[ApostateAbe]

Actually corporations must by law maximize share holder return.

They are by law required to try to pay workers as little as possible.

Actually corporations must by law maximize share holder return.

They are by law required to try to pay workers as little as possible.

No they're not.

But they'd like you to think so.

I think ksen is right. There is a debate within the New York Times about whether or not corporations are legally required to maximize the profits of the shareholders, but the advocate of the affirmative does it by misquoting his source. The advocate of the negative accurately quotes her more-relevant source.

 

[SimpleDon]

Well, that's also the purpose of workers so stop trying to make it sound like the workers are ungrateful layabouts that are trying to take more than they are worth when they attempt to get wages raised.

Show

eta: can't wait for some of the "whoever said the purpose of a corporation is to make money?" comments sure to be forthcoming.

I was thinking about this the other day. As you know we have had a total deficit of examples of job killing regulations coming from those here who constantly list regulations as being an unneeded example of government overreach. This failure has remained as one of the larger blots on their less than impeccable records of empirical support for their economic ideas.

I have tried to help them in the past, listing local government zoning ordinances intended to boost property values as an example of undesirable expensive regulation, because they boost the cost of housing, infringe on property rights and prevent the best use of land. This suggestion was met with complete silence, leading me to think that most of the people here support these job killing ordinances.

Undeterred, I am ready to suggest another example of a job killing regulation. One inspired by this thread.

This is the law inspired by what Jack Welch, the retired CEO of GE, called 'the dumbest idea in the world.' And like many of the dumbest ideas of the end of the last century this idea seems to come from Milton Friedman, the economist who specialized in bad ideas and failure.

The idea is shareholder value. That the sole purpose of the corporation is to make money for its shareholders by any means possible. And that the best way to assure this is by the use of stock based executive compensation.

I list this as an example of job killing regulations because it is widely known that it is the law in the US. I couldn't confirm this and have always doubted it. But I had corporate attorneys who told me this. And as I said, it is widely known to be true.

The idea is of course ridiculous. A corporation has a lot more responsibilities than just one to its shareholders. Customers, employees, and the public in general would be on that list, arguably above the shareholders.

There is no doubt that the idea was and still is popular, especially with corporate executives who doubled and tripled their pay under it.

And there is also no doubt that this idea is behind the large amount of corporate maleficence that we have seen lately.

==================

I see that others found sources both for and against the idea that shareholder value is only purpose that a corporation has and that it is the law. I am slow to post my tomes, they die before they are posted sometimes.

 

[untermensche]

Actually corporations must by law maximize share holder return.

They are by law required to try to pay workers as little as possible.

No they're not.

But they'd like you to think so.

There is case law saying they are.

This is not an issue that comes up much though since most corporations see maximizing shareholder return as their PRIME purpose whether mandated by law or not.

 

[Axulus]

Actually corporations must by law maximize share holder return.

They are by law required to try to pay workers as little as possible.

[Citation needed]

 

[Kharakov]

http://www.nytimes.com/roomfordebat...rs/corporations-dont-have-to-maximize-profits

 

[untermensche]

Dodge v. Ford Motor Co.

A business corporation is organized and carried on primarily for the profit of the stockholders. The powers of the directors are to be employed for that end. The discretion of directors is to be exercised in the choice of means to attain that end, and does not extend to a change in the end itself, to the reduction of profits, or to the non-distribution of profits among stockholders in order to devote them to other purposes...

https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co.

People argue over the meaning of this case but this is a direct quote from the decision.

 

[ZiprHead]

Ninja'd by Untermensche.

 

[Axulus]

A business corporation is organized and carried on primarily for the profit of the stockholders. The powers of the directors are to be employed for that end. The discretion of directors is to be exercised in the choice of means to attain that end, and does not extend to a change in the end itself, to the reduction of profits, or to the non-distribution of profits among stockholders in order to devote them to other purposes...

https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co.

People argue over the meaning of this case but this is a direct quote from the decision.

From your link:

Among non-experts, conventional wisdom holds that corporate law requires boards of directors to maximize shareholder wealth. This common but mistaken belief is almost invariably supported by reference to the Michigan Supreme Court's 1919 opinion in Dodge v. Ford Motor Co.[5]

Dodge is often misread or mistaught as setting a legal rule of shareholder wealth maximization. This was not and is not the law. Shareholder wealth maximization is a standard of conduct for officers and directors, not a legal mandate. The business judgment rule [which was also upheld in this decision] protects many decisions that deviate from this standard. This is one reading of Dodge. If this is all the case is about, however, it isn’t that interesting.[6]

Not only that, but your case only applies to the state of Michigan.

 

[untermensche]

https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co.

People argue over the meaning of this case but this is a direct quote from the decision.

From your link:

Among non-experts, conventional wisdom holds that corporate law requires boards of directors to maximize shareholder wealth. This common but mistaken belief is almost invariably supported by reference to the Michigan Supreme Court's 1919 opinion in Dodge v. Ford Motor Co.[5]

Dodge is often misread or mistaught as setting a legal rule of shareholder wealth maximization. This was not and is not the law. Shareholder wealth maximization is a standard of conduct for officers and directors, not a legal mandate. The business judgment rule [which was also upheld in this decision] protects many decisions that deviate from this standard. This is one reading of Dodge. If this is all the case is about, however, it isn’t that interesting.[6]

Not only that, but your case only applies to the state of Michigan.

Ford lost the decision. He was forced to reduce the pay of workers.

And precedent in Michigan can be used as direction in other jurisdictions.

 

[Metaphor]

This is the law inspired by what Jack Welch, the retired CEO of GE, called 'the dumbest idea in the world.' And like many of the dumbest ideas of the end of the last century this idea seems to come from Milton Friedman, the economist who specialized in bad ideas and failure.

In each of these cases, the corporate exec*utive would be spending someone else's money for a general social interest. Insofar as his actions in accord with his "social responsi*bility" reduce returns to stockholders, he is spending their money. Insofar as his actions raise the price to customers, he is spending the customers' money. Insofar as his actions lower the wages of some employees, he is spending their money.

Friedman is confused here. The corporate executive isn't 'taxing and spending the customer's money'. Taxes are extracted by force; voluntarily handing over money for a good or service is not a tax, even if the price is higher than it would have been if the corporation had not engaged in any 'social responsibilities'. If I pay more for 'fair trade coffee' I'm voluntarily paying for a product that accords with my ethical expectations.

Nor is the corporate executive 'taxing' and spending the money of employees, since if an employee objected to the 'social' spending of a corporation, she is free to leave that corporation.

Nor is the corporate executive 'taxing' and spending the money of shareholders, since an owner can surely fire employees who do not perform the way they wish.

 

[barbos]

The purpose of corporation is to do what shareholders want it to do, usually it means make money but not always.

 

[DBT]

The reason shareholders invest is to make money and/or see their investment grow in value over time....the latter means a better return on their investment in the future (more money) yet keep their current income in lower tax bracket.

 

[SimpleDon]

In each of these cases, the corporate exec*utive would be spending someone else's money for a general social interest. Insofar as his actions in accord with his "social responsi*bility" reduce returns to stockholders, he is spending their money. Insofar as his actions raise the price to customers, he is spending the customers' money. Insofar as his actions lower the wages of some employees, he is spending their money.

Friedman is confused here. The corporate executive isn't 'taxing and spending the customer's money'. Taxes are extracted by force; voluntarily handing over money for a good or service is not a tax, even if the price is higher than it would have been if the corporation had not engaged in any 'social responsibilities'. If I pay more for 'fair trade coffee' I'm voluntarily paying for a product that accords with my ethical expectations.

Nor is the corporate executive 'taxing' and spending the money of employees, since if an employee objected to the 'social' spending of a corporation, she is free to leave that corporation.

Nor is the corporate executive 'taxing' and spending the money of shareholders, since an owner can surely fire employees who do not perform the way they wish.

Friedman isn't confused. He is just wrong.

He understands that a corporation is an artificial entity. And he understands that a corporation can be set up for any purpose. And he seems to understand that the authority that defines what a corporation is can define how a corporation can accomplish its purpose. Then he goes off into full blown wrong.

He then defines a natural occurring entity of a "business," his quotes, a sure sign that he is going to redefine the word. An entity that defies all of the previous understandings. That this naturally occurring "business" has as its only purpose making profits for its owners, that a corporation's owners are its shareholders, that most corporation's purpose is "business," that the executives of the corporation are "businessmen," my quotes, and that the executives of the corporation are employees of the shareholders. All of this is wrong.

He is dogged in the pursuit of his misbegotten theme. Any "businessmen" who pursue anything other than profits are “unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades.” They are guilty of “analytical looseness and lack of rigor.” They had even turned themselves into “unelected government officials” who are illegally taxing employees, shareholders and customers.

So yes, you are right, a corporate executive isn't taxing the shareholders, his customers or his employees, all of them enter into their roles voluntarily, and can leave their roles the same way.

But I don't think that Friedman is for a moment confused about this or anything else in his article. He intended to start this ill conceived idea that spawned shareholder value as the sole purpose of "business." It fits in with all of the other bad ideas that he had, all summed up as his Chicago, freshwater economics. The rabid free market.

 

[SimpleDon]

The reason shareholders invest is to make money and/or see their investment grow in value over time....the latter means a better return on their investment in the future (more money) yet keep their current income in lower tax bracket.

Yes, you are right. But the question is if the sole purpose of a corporation is to make money for the shareholders and, good catch, to act as a tax shelter for them. What is now under the label of "shareholder value."

I only mentioned him to be able to use his quote of Milton Friedman's idea of shareholder value as "the dumbest idea in the world," but Jack Welch was a believer in shareholder value when he was the head of General Electric. He pursued maximum profits by turning GE into a huge, completely unregulated bank, a key part of the so-called shadow banking system. He recognized that Clinton's deregulation and the Bush II administration's reluctance, their failure, to regulate, made finance a much more profitable business than producing electrical equipment. That is until the 2008 financial crisis threatened to bankrupt GE and required the government to bail them out.

Welch became an opponent of shareholder value as the purpose of the corporation not because he grew a social conscience. It is because he recognized that it is a terrible way to run a business. That you have to produce something more than paper, financial instruments. That you have to pay attention to the needs of your customers and your employees.

 

[ronburgundy]

A business corporation is organized and carried on primarily for the profit of the stockholders. The powers of the directors are to be employed for that end. The discretion of directors is to be exercised in the choice of means to attain that end, and does not extend to a change in the end itself, to the reduction of profits, or to the non-distribution of profits among stockholders in order to devote them to other purposes...

https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co.

People argue over the meaning of this case but this is a direct quote from the decision.

Except that short of deliberately and directly trying to reduce company sales or throwing revenues into the ocean, almost anything a CEO would do, especially in relation to employee compensation can be claimed to be done in the long term profit interests of the company, and cannot be proven otherwise.
Thus, it is a mute point and an unenforceable law outside of rare extreme circumstances of direct deliberate efforts to ruin the company.

This is supported by the same Wiki:

[P]

More recent cases such as AP Smith Manufacturing Co v. Barlow[2] or Shlensky v. Wrigley[3] suggest that the business judgment is very expansive, i.e., that management decisions will not be challenged under almost any circumstances where one can point to any rational link to shareholder benefits.

[/P]

This is not an issue that comes up much though since most corporations see maximizing shareholder return as their PRIME purpose whether mandated by law or not.

This is the key. The law is irrelevant. The corporate and Wall Street culture views profit maximization as the sole objective of any corporation and sole acceptable duty and concern of directors, CEOs and managers. Not only is generosity unacceptable unless it clearly maximizes long term profits, but avoiding harm to others is unacceptable if the profit gains from doing what harms them outweigh any profit losses due to discovery and any legal or consumer reactions.
It is tough to become the CEO for a major corporation without demonstrating pathological lack of empathy.

Of course none of this does not undermine the point of the OP. The conservatives and "libertarians" that support this myopic profit motive should fully support an equal selfish adversarial stance by the workers, and support their doing everything including unionizing to benefit themeselves no matter how they might think it could harm the larger economy, etc.. Only if workers and Unions do things that clearly harm the future income of those workers themselves should they be frowned on by anyone that supports the "companies exist to make profit" mentality.

 

[ksen]

ron gets me :hug:

 

[dismal]

The purpose of corporation is to do what shareholders want it to do, usually it means make money but not always.

Yeah, that's what I would have said.