Unembarrassed CEOs Have More Freedom

Oh Elon.Why should public companies be run for the benefit of their shareholders, anyway? It’s not the law, not really. Corporate directors do normally have certain fiduciary duties to shareholders, and shareholders do normally have certain governance rights, but the idea that the sole purpose of a public company is to maximize the stock price for shareholders is mostly a myth. Like many myths, though, it works because it commands widespread belief. If the shareholders believe it, and the directors believe it, and the managers believe it, and the public believes it, then companies will maximize the stock price for their shareholders, and for practical purposes the myth will be true.There are some enforcement mechanisms, though, to keep the people who don’t believe it in line. If a company’s management doesn’t act in the shareholders’ interests, an activist shareholder can launch a proxy fight and appoint her own directors and change the company’s direction. Or another company can mount a hostile takeover and extract value by running the company in a more shareholder-friendly way. These are blunt instruments, though. They are expensive, and legally complicated, and require way more of the activist’s or bidder’s time and attention and money than most regular shareholders… Read full this story

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