Originally Posted by anantksundaram
The author of the article is being disingenuous. Corporate law in the US (which, btw, is at the state level; except for Sarbanes-Oxley, there's not much at the Federal level) is quite clear. The earliest, and watershed, articulation of the role of shareholder primacy goes back to a famous Michigan Supreme Count decision in 1919, called the "Dodge v. Ford" case, where the Court ruled (in a terrifically pithy decision): "...a business corporation is organized primarily for the profit of the stockholders, as opposed to the community or its employees. The discretion of the directors is to be exercised in the choice of means to attain that end, and does not extend to the reduction of profits or the nondistribution of profits among stockholders in order to benefit the public, making the profits of the stockholders incidental thereto."
Since then, just about every state has accepted some version of this as the standard, with the caveat that "business judgment" can allow firms to make some short-term trade-offs (but not go against long-term shareholder value creation)..
The most current version of this can be found in Section 2.01 of the "ALI Principles" (The American Law Institute's principles of corporate governance, which is the basis of corporate law in every state in the US). It says:(a) Subject to the provisions of Subsection (b) and § 6.02 (Action of Directors That Has the Foreseeable Effect of Blocking Unsolicited Tender Offers), a corporation [§ 1.12] should have as its objective the conduct of business activities with a view to enhancing corporate profit and shareholder gain.
...but that....(b) Even if corporate profit and shareholder gain are not thereby enhanced, the corporation, in the conduct of its business:
(1) Is obliged, to the same extent as a natural person, to act within the boundaries set by law;
(2) May take into account ethical considerations that are reasonably regarded as appropriate to the responsible conduct of business; and
(3) May devote a reasonable amount of resources to public welfare, humanitarian, educational, and philanthropic purposes.
As the previous poster pointed out, some exceptions are allowed (such as those noted in (b) above), but fundamentally, the Board and the Officers of a corporation are required by the law to maximize shareholder value (and be able to show that their decisions, in fact, reflect the furtherance of that objective.).
This is generally correct. The salient point, however, is that most states' corporations laws define fidiciary duties as being limited to shareholders only.
Some states, with California leading the way, have adopted special corporate forms (the "B" Corp) that may consider societal stakeholders and communities as well.
Most importantly, however, is that nearly all states permit the Corporation to narrow its fiduciary duties even further in their governing documents. Therefore, in many cases, the officers of the corporation are only liable to the shareholders, and even then, only in cases of gross negligence or fraud.
What I am getting at is that it is not a Company's job to protect society, it is society's. It is rediciulous and not fair to an executive of a company to charge him with preserving society. How the hell is he supposed to weigh the benefit to his shareholders of producing a magnificent, shiny new product that will earny $1,000,000's against the potential of increasing air pollution by .0000001% in the production of the product?
He can't. His duty is to his shareholders.
The duty of protecting society is the government's. That is where environmental regs and labor regs come into play.Edit
Before people jump down my throad, I realize that an exception (as stated above) exists for companies that are able to profit off of their image
of being socially friendly. Ben and Jerries, and more recently, Apple, have begun to "market" their concern for society and to actually create value for their shareholders by doing so. In other words, Apple can use this media fiasco to justify higher prices on the theory that the consumer is helping to finance improved working conditions in China, which in turn provides the consumer with value and causes the consumer to pay more for the product.