Are Corporations Legally Required To Maximise Profits Above All Else?
On the subject of whether or not a limited liability company or corporation is required by law to maximise profits (usually at the expense of individual, social, & environmental responsibility)
This is a fascinating topic, one that is debated quite a bit. We like to think that we are socially responsible, and perhaps we are on a one-to-one basis. People care about people, that is. But when the chips are down, faced with profit over social responsibility, corporate leadership decision making is, I would argue, almost always towards the needs and concerns of shareholders. The need for profit is a fundamental requirement from which it is very hard to escape.
Joel Bakan, Professor of Law and the University of British Columbia and author of The Corporation and The New Corporation, seems convinced that it is a corporation’s duty under company formation laws to maximise shareholder value. So too does Leo E. Strine, Jr., Chancellor of the Delaware Court of Chancery, in his ruling in eBay vs Craigslist 2009.
Strine goes further in an essay for the Wake Forest Law Review in April 2012 where he wrote;
“Although I am sympathetic to many of the sentiments and policy concerns that motivate these dismayed reactions [that is, our shock at corporate unethical behaviour], I confess to being weary of the naïveté they manifest. More importantly, the continued failure of our societies to be clear-eyed about the role of the for-profit corporation endangers the public interest. Instead of recognizing that for-profit corporations will seek profit for their stockholders using all legal means available, we imbue these corporations with a personality and assume they are moral beings capable of being “better” in the long-run than the lowest common denominator. We act as if entities in which only capital has a vote will somehow be able to deny the stockholders their desires, when a choice has to be made between profit for those who control the board’s reelection prospects and positive outcomes for the employees and communities who do not.”
Corporate greed and the absence of moral and ethical standards are alive and well, not only in the US but across the globe. Corporate greed fuelled the European Fascist movement one hundred years ago and all wars before and since. Environmental disasters, slavery, financial crises, famine, mountains of third world debt, war, and the annihilation of ethnic communities in the US, Australia, Africa, and my own country — the list goes on. Humanity’s pursuit of profit, power, and control has brought untolled expense to human beings and the planet.
I can’t accept that the advances in technology we currently covet could not have been achieved under a social agenda. How could universal concern for one another not yield advances in society to the same extent that concern for a select minority has already achieved? It’s inconceivable to me. In fact, it seems more accurate that advances would be greater and more evenly balanced. Instead of the so-called third world paying for our comfort, they might enjoy the same advantages we do.
We might not wish to entertain the prospect that our precious, well-conceived, and apparently socially responsible business venture is part of the problem — I certainly didn’t. But it just may be. The truth is, every one of us contributes to the problem when we identify the need, urge, or desire in another, commoditise it, and turn over the competition will effective marketing. Every human frailty and darkest desire can be catered for these days. Nothing is off the menu, and business is the means to deliver it.
I hadn’t meant this to be an exhaustive account of the issue, so I’ll just finish with this… In its current neo-liberal guises, capitalism is a stain on our existence as far as I’m concerned. It’s an obscene manifestation of all that is flawed with the human condition.
(Side note: I gathered the above links from this 2010 article)
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