What do you mean? My experience with law is minimal, but I did a course on business law and I am almost certain there is a legal element to the concept.
When living in North America, I did get the impression the phrase was overused in NA and didn’t fully reflect reality (like with most things in life with enough high level connections, such rules don’t really apply).
Legally, CEOs have a duty of loyalty — they are legally liable if they are working on behalf of their company’s competitor to sabotage their company. They also have a duty of care — they can’t just withdraw the company’s cash and light it on fire.
There’s no law saying that a CEO must “maximize shareholder profit.” None. It’s not a law. It doesn’t even make sense. Non-profits have CEOS and they don’t maximize profit. How would you even legally prove a CEO failed to do that? Should Tim Cook be sued because he didn’t buy NFTs when they were on the ascent to maximize short-term profit?
As a practical matter, if a board doesn’t like the direction a CEO is taking or the CEO’s efficacy, then they can take steps to remove the CEO. But there’s essentially zero legal recourse for shareholders.
This myth comes from a paper from Milton Freedman (or one of his acolytes) that argued a CEO should be paid principally in stock to align the CEO’s interests with shareholders. But studies by actual economists show that leads to looting the company. E.g., fire all the employees, stock goes up, CEO cashes out before the shit hits the fan.
Friedmanites can get fucked, it would be good give them a taste of their own medicine, it don’t think they will like it.
Perhaps shareholder value maximisation can be seen as a function of loyalty and duty of care?
That being said I do believe the exact terminology may not have been used in country where I was doing my masters. But I believe there were legal cases that pointed to concept somewhat similar to shareholder value maximisation, even if it was in a roundabout way (we covered some US content too in thag course).
“Shareholder value maximisation” is indeed a polemical construct and that on some level doesn’t make sense, because no one has even defined timeframes and next 12 months, 1-2 years out, 10 years out can require different approaches.
That being said my sixth sense / BS meter did often go off when I heard that specific phrase used in the US. But that was also true of freedom of speech polemics; I didn’t find them convincing and the framing was often extremely ostentatious.
Keep in mind, I haven’t done any extensive, serious (or even semi-serious) work around business law since doing my Masters. So maybe I completely wrong.
What do you mean? My experience with law is minimal, but I did a course on business law and I am almost certain there is a legal element to the concept.
When living in North America, I did get the impression the phrase was overused in NA and didn’t fully reflect reality (like with most things in life with enough high level connections, such rules don’t really apply).
Legally, CEOs have a duty of loyalty — they are legally liable if they are working on behalf of their company’s competitor to sabotage their company. They also have a duty of care — they can’t just withdraw the company’s cash and light it on fire.
There’s no law saying that a CEO must “maximize shareholder profit.” None. It’s not a law. It doesn’t even make sense. Non-profits have CEOS and they don’t maximize profit. How would you even legally prove a CEO failed to do that? Should Tim Cook be sued because he didn’t buy NFTs when they were on the ascent to maximize short-term profit?
As a practical matter, if a board doesn’t like the direction a CEO is taking or the CEO’s efficacy, then they can take steps to remove the CEO. But there’s essentially zero legal recourse for shareholders.
This myth comes from a paper from Milton Freedman (or one of his acolytes) that argued a CEO should be paid principally in stock to align the CEO’s interests with shareholders. But studies by actual economists show that leads to looting the company. E.g., fire all the employees, stock goes up, CEO cashes out before the shit hits the fan.
Friedmanites can get fucked, it would be good give them a taste of their own medicine, it don’t think they will like it.
Perhaps shareholder value maximisation can be seen as a function of loyalty and duty of care?
That being said I do believe the exact terminology may not have been used in country where I was doing my masters. But I believe there were legal cases that pointed to concept somewhat similar to shareholder value maximisation, even if it was in a roundabout way (we covered some US content too in thag course).
“Shareholder value maximisation” is indeed a polemical construct and that on some level doesn’t make sense, because no one has even defined timeframes and next 12 months, 1-2 years out, 10 years out can require different approaches.
That being said my sixth sense / BS meter did often go off when I heard that specific phrase used in the US. But that was also true of freedom of speech polemics; I didn’t find them convincing and the framing was often extremely ostentatious.
Keep in mind, I haven’t done any extensive, serious (or even semi-serious) work around business law since doing my Masters. So maybe I completely wrong.