clarry: There are plenty of parties in whose interest the directors must act, not just shareholders; this includes the corporation itself, its creditors, etcetra, along with the shareholders. And working in shareholder's interest isn't necessarily synonymous with maximizing profit or shareholder value. For example, people may decide to invest in "green" or "socially responsible" companies. If the company suddenly decided to turn dirty and start acting unethically, that would work against shareholder interests.
Magnitus: Shareholders, the corporation (whatever that means), its creditors, all people who want money out of the corporation, either right now (short term profits) or later (long term profits, usually via growth).
Also employees, customers, and more.
Investing "green" for a business is just part of the profit equation.
Umm no. While you can be "green" for profit reasons, there are plenty of initiatives for socially responsible investing and it's not just about profit. There are people (and investors) who do in fact care about doing the right thing and not destroying the planet. Acting in the best interest of said investors is not just about maximizing profit.
Anyway, I mentioned the business judgement rule for a reason: a director would not have to show in court that whatever they are doing is motivated by profit (long or short term). Instead, the plaintiff would have to show that the directors are not acting in good faith (fraud / illegal activity / working to deliberately harm the corporation for self interest or otherwise, etc.).
If directors thought that being green or socially responsible or doing security right were good (for profit or just for the heck of it), they can do that, and if shareholders wanted to sue, they would have to show that the directors are doing something illegal or against the interest of the corporation. There's absolutely no need to demonstrate a theory of how doing those things would lead to customer goodwill or long term profit.
The directors have plenty of leeway... when justifying short-term vs long-term profit decisions. Anything that is clearly counter-current to profits (short-term AND long-term) even if the company remains more than viable, they are getting sued or ousted.
It's complicated, because it's hard to demonstrate bad business judgement. What you could demonstrate is fraud, self interest and such. Also keep in mind that there's profit for the company, and then there's profit for the shareholders, which are different things. Furthermore, shareholder profit is not well defined (each shareholder makes a different profit depending on how they invest).
Still, I hold that there is no legal obligation to generate profit, so none of this even matters.
Bruce Scheiner once wrote ..
Cool story but hardly relevant.
I've looked many times over, and I always arrive at the same conclusion: there is no law requiring publicly traded companies to maximize investor revenue. F*iedman d*ctrine and s*areh*lder p*imacy are just theories that ec*nomists came up with (and which are in turn parroted by invest*rs, f*nancial i*stitutions, ...). In reality a corporation can be established for any lawful purpose.
Unfortunately I cannot prove a negative. But if you happen to have legal precedent for your claim, I'm more than happy to be proven wrong! You could also fix this paragraph while at it
https://en.wikipedia.org/wiki/Shareholder_value#Legal_criticisms EDIT: jfc was it hard to get this message posted because of GOG's word filters :P I still don't know which of the censored words triggered it..