Chapter Content
Okay, so let's talk about whether companies *have* to maximize profits. It's a really interesting question and, you know, it's not as straightforward as you might think. See, we're not really talking about economics here, we're talking about the law. And that's a, like, *huge* difference.
Because, you know, whether or not shareholders actually *own* the company, that's almost beside the point. The legal duties of directors and executives, they come from the law of the country they're operating in. And guess what? Corporate law is different all over the place. It even changes from state to state in America. And, I mean, come on, even if you could figure out the legal stuff, any director who isn't, like, totally clueless knows they have to be aware of the culture and what people expect from them. And those things? Yeah, they're different all over the world, too.
So, let's look at the UK for a second. There's this thing called Section 172 of the Companies Act. And it says, basically, that a director has to act in a way that they honestly think will, um, help the company succeed, for the benefit of the shareholders. But *while* they're doing that, they also have to, like, *consider* a bunch of other stuff. Like, what are the long-term consequences of their decisions? What about the employees? What about the relationships with suppliers and customers? And, you know, what about the environment and the community? Oh, and they should probably try to keep a good reputation, and be fair to everyone involved.
It's, like, a total balancing act. You know?
It's almost *too* vague. The law says the company should succeed, and the shareholders will benefit from that success. But if the point was *just* to benefit shareholders, they could've just said that, right? They didn't. They specifically mentioned the success of the *company*. And that was on purpose. They thought about it for years!
So, the law says you have to consider all these stakeholders, like employees, customers, suppliers. I mean, honestly, how can a company *really* succeed if it's screwing over those people? It wouldn't be a very smart, or *sustainable*, way to do business.
Now, the law *does* mention shareholders specifically. But it *doesn't* say they're the *most* important. It lets managers do things that help shareholders, even if it hurts employees, and, potentially, the other way around. It's not really clear if directors can, you know, actively choose to help employees *at the expense* of shareholders... That would be a really hard sell, I think. It's kind of a compromise between making everyone happy and putting shareholders first. But, the thing is, a lot of managers in the UK *think* the law says shareholders are the top priority, even if they haven't actually *read* the law. Which, by the way, is, like, most of them.
Okay, now let's go to Germany. German law is way less fuzzy. The commercial code basically says the management board is in charge of running the company in a way that's best for the company, and that *includes* shareholders, employees, *and* other stakeholders, and the goal is to create value that lasts. So, very clearly, it's a stakeholder kind of approach. And, it's, you know, *the law* in Germany.
Okay, switching gears to the United States now. There's this old case called Dodge versus Ford. And Henry Ford, way back when, he wanted to make cars that everyone could afford. So, he kept dropping the price of the Model T. Which was great for customers, right? But not so great for the Dodge brothers, who owned some of Ford's stock. Ford stopped paying special dividends. The Dodges sued.
And Ford, well, he didn't exactly help his own case in court. He basically said he thought the company had made *too* much money and that he wanted to share the wealth with the public by lowering prices. So, the court ordered Ford to pay a special dividend. They said a company is supposed to be run for the profit of the stockholders.
That ruling's been pretty influential in the US ever since.
Fast forward to Craigslist and eBay. The founders of Craigslist, they weren't really motivated by money. They kept most of the listings free. Then eBay bought a stake in Craigslist, and things got messy. The Delaware court basically said that Craigslist had to try to maximize value for its stockholders, meaning eBay.
Basically, it said, like, a company can't just decide it's *not* going to try to make money for its shareholders.
Now, obviously, a company has to make a profit to stay afloat. And, yeah, shareholders are stakeholders, and they deserve to get something out of it. But does that mean they have to *maximize* profit? The court kind of implied that, but it didn't actually *say* it. Just because we breathe to live doesn't mean we live to breathe, right?
Okay, there's also this case with Hobby Lobby, the craft store chain. They didn't want to provide health insurance that covered contraception, because of the owner's religious beliefs. And the Supreme Court said that, yeah, corporations actually *do* have a right to religious freedom. Which is kinda wild, right?
Okay, so, that brings us to this bigger idea of corporate personality. Can a corporation, like, have a personality? Can it have intent? It's a tricky question. In some cases, executives have gotten off the hook because the bank was too big and complicated to have a "directing mind".
Personally, I think corporations do have personalities. I mean, think about the successful ones, or even the ones that fail. They all have different cultures and ways of thinking. That's what makes them different and what makes them contribute to society.
Now, just because corporations have personalities doesn't mean they should have all the same rights as people. Freedom of speech is important, but corporate lobbying can be dangerous. And a corporation having "religious freedom"? That's just weird.
So, where does all this leave us? German law is pretty clear: stakeholders are important. American law is a bit of a mess, but it leans towards shareholders. And the UK? Well, the UK is somewhere in the middle, as usual.
But here's the thing: the law isn't the most important thing. What really matters is the business climate and what people expect. Businesses are social organizations, and they have to operate within society.