Games

It isn't. If it were, that would mean that in practice, board members act to maximize shareholder value because they are legally obligated to do so, and that simply isn't true.

In practice, board members and C-suite employees are incentivized to maximize shareholder value. They are not legally obligated to do so.

Fiduciary duty is a legal requirement, meaning that if you don't fulfill your fiduciary duty, you're liable. But nobody has been successfully sued for not maximizing shareholder value when their actions were in line with the business judgment rule ("made (1) in good faith, (2) with the care that a reasonably prudent person would use, and (3) with the reasonable belief that the director is acting in the best interests of the corporation"). Successful lawsuits regarding breach of fiduciary duty (in the context of corporate law) require the defendant to have acted with gross negligence, in bad faith, or to have had an undisclosed conflict of interest.

The closest instance of legal precedent that I know of (aside from "" of course) that eBay v. Newmark (Craigslist), which Max Kennerly took as meaning that corporations are legally required to maximize profits. In this case, Craigslist was found to have violated their fiduciary duties to eBay because Craigslist, in Max's words, "tried to protect the frugal, community-centric corporate culture that was a hallmark for their success."

Except, if you actually read the case notes, it's clear that the issue wasn't that Craigslist wasn't maximizing their profits, but that they were diluting the percentage of stocked owned and flexibility of selling those stocks of other stockholders. The issue wasn't that Craigslist wanted to spend half their profits supporting charities or anything like that - no, it was that they were trying to artificially limit, thus directly devaluing, the shares they had already sold. In other words, I agree that this was a case about minority shareholder oppression as opposed to being an edict to maximize profits / shareholder value.

And other than people threatening legal action, the most recent case we have (other than eBay v. NewMark) in favor of shareholder primacy is 124 years old - Dodge v. Ford. But the opposite is true:

Shareholder primacy is clearly unenforceable on its own term because the business judgment rule would defeat any claims based on a failure to maximize profit. 40 Corporate managers formulate business strategy. A rule‒sanction is antithetical to the core concept of the business judgment rule. In over one hundred years of corporate law, there is not a case where a state supreme court imposed liability for breach of fiduciary duty on the specific ground that the board, in managing operational matters, failed to maximize shareholder profit, though it made the decision informedly, disinterestedly, and in good faith.41 That case does not exist. In fact, many cases show just the opposite. Courts have held that shareholders cannot challenge a board’s decision on the specific grounds that, for example: the company paid its employees too much; 42 it failed to pursue a profit opportunity;43 it did not maximize the settlement amount in a negotiation;44 it failed to lawfully avoid taxes.45 There are classic textbook cases where courts have rejected attempts of shareholders to interfere with the board’s decisions on the argument that their views of business or strategy would have maximized shareholder value.46

The belief that a corporation is legally obligated to maximize shareholder value isn't just wrong; it also:

• Implies that no other model is feasible
• Removes accountability for the negative effects of such policy from the people who are responsible for perpetuating them
• Reinforces the fallacy that this should be resolved through legislation
• Completely disregards that fiduciary duty to a company includes several other stakeholders: employees, customers, suppliers, local communities, the environment