#Fiduciary Duty

[mostlysignssomeportents]

There’s no such thing as “shareholder supremacy”

On SEPTEMBER 24th, I'll be speaking IN PERSON at the BOSTON PUBLIC LIBRARY!

Here's a cheap trick: claim that your opponents' goals are so squishy and qualitative that no one will ever be able to say whether they've been succeeded or failed, and then declare that your goals can be evaluated using crisp, objective criteria.

This is the whole project of "economism," the idea that politics, with its emphasis on "fairness" and other intangibles, should be replaced with a mathematical form of economics, where every policy question can be reduced to an equation…and then "solved":

https://pluralistic.net/2023/03/28/imagine-a-horse/#perfectly-spherical-cows-of-uniform-density-on-a-frictionless-plane

Before the rise of economism, it was common to speak of its subjects as "political economy" or even "moral philosophy" (Adam Smith, the godfather of capitalism, considered himself a "moral philosopher"). "Political economy" implicitly recognizes that every policy has squishy, subjective, qualitative dimensions that don't readily boil down to math.

For example, if you're asking about whether people should have the "freedom" to enter into contracts, it might be useful to ask yourself how desperate your "free" subject might be, and whether the entity on the other side of that contract is very powerful. Otherwise you'll get "free contracts" like "I'll sell you my kidneys if you promise to evacuate my kid from the path of this wildfire."

The problem is that power is hard to represent faithfully in quantitative models. This may seem like a good reason to you to be skeptical of modeling, but for economism, it's a reason to pretend that the qualitative doesn't exist. The method is to incinerate those qualitative factors to produce a dubious quantitative residue and do math on that:

https://locusmag.com/2021/05/cory-doctorow-qualia/

Hence the famous Ely Devons quote: "If economists wished to study the horse, they wouldn’t go and look at horses. They’d sit in their studies and say to themselves, ‘What would I do if I were a horse?’"

https://pluralistic.net/2022/10/27/economism/#what-would-i-do-if-i-were-a-horse

The neoliberal revolution was a triumph for economism. Neoliberal theorists like Milton Friedman replaced "political economy" with "law and economics," the idea that we should turn every one of our complicated, nuanced, contingent qualitative goals into a crispy defined "objective" criteria. Friedman and his merry band of Chicago School economists replaced traditional antitrust (which sought to curtail the corrupting power of large corporations) with a theory called "consumer welfare" that used mathematics to decide which monopolies were "efficient" and therefore good (spoiler: monopolists who paid Friedman's pals to do this mathematical analysis always turned out to be running "efficient" monopolies):

https://pluralistic.net/2022/02/20/we-should-not-endure-a-king/

One of Friedman's signal achievements was the theory of "shareholder supremacy." In 1970, the New York Times published Friedman's editorial "The Social Responsibility of Business Is to Increase Its Profits":

https://www.nytimes.com/1970/09/13/archives/a-friedman-doctrine-the-social-responsibility-of-business-is-to.html

In it, Friedman argued that corporate managers had exactly one job: to increase profits for shareholders. All other considerations – improving the community, making workers' lives better, donating to worthy causes or sponsoring a little league team – were out of bounds. Managers who wanted to improve the world should fund their causes out of their paychecks, not the corporate treasury.

Friedman cloaked his hymn to sociopathic greed in the mantle of objectivism. For capitalism to work, corporations have to solve the "principal-agent" problem, the notoriously thorny dilemma created when one person (the principal) asks another person (the agent) to act on their behalf, given the fact that the agent might find a way to line their own pockets at the principal's expense (for example, a restaurant server might get a bigger tip by offering to discount diners' meals).

Any company that is owned by stockholders and managed by a CEO and other top brass has a huge principal-agent problem, and yet, the limited liability, joint-stock company had produced untold riches, and was considered the ideal organization for "capital formation" by Friedman et al. In true economismist form, Friedman treated all the qualitative questions about the duty of a company as noise and edited them out of the equation, leaving behind a single, elegant formulation: "a manager is doing their job if they are trying to make as much money as possible for their shareholders."

Friedman's formulation was a hit. The business community ran wild with it. Investors mistook an editorial in the New York Times for an SEC rulemaking and sued corporate managers on the theory that they had a "fiduciary duty" to "maximize shareholder value" – and what's more, the courts bought it. Slowly and piecemeal at first, but bit by bit, the idea that rapacious greed was a legal obligation turned into an edifice of legal precedent. Business schools taught it, movies were made about it, and even critics absorbed the message, insisting that we needed to "repeal the law" that said that corporations had to elevate profit over all other consideration (not realizing that no such law existed).

It's easy to see why shareholder supremacy was so attractive for investors and their C-suite Renfields: it created a kind of moral crumple-zone. Whenever people got angry at you for being a greedy asshole, you could shrug and say, "My hands are tied: the law requires me to run the business this way – if you don't believe me, just ask my critics, who insist that we must get rid of this law!"

In a long feature for The American Prospect, Adam M Lowenstein tells the story of how shareholder supremacy eventually came into such wide disrepute that the business lobby felt that it had to do something about it:

https://prospect.org/power/2024-09-17-ponzi-scheme-of-promises/

It starts in 2018, when Jamie Dimon and Warren Buffett decried the short-term, quarterly thinking in corporate management as bad for business's long-term health. When Washington Post columnist Steve Pearlstein wrote a column agreeing with them and arguing that even moreso, businesses should think about equities other than shareholder returns, Jamie Dimon lost his shit and called Pearlstein to call it "the stupidest fucking column I’ve ever read":

https://www.washingtonpost.com/news/wonk/wp/2018/06/07/will-ending-quarterly-earnings-guidance-free-ceos-to-think-long-term/

But the dam had broken. In the months and years that followed, the Business Roundtable would adopt a series of statements that repudiated shareholder supremacy, though of course they didn't admit it. Rather, they insisted that they were clarifying that they'd always thought that sometimes not being a greedy asshole could be good for business, too. Though these statements were nonbinding, and though the CEOs who signed them did so in their personal capacity and not on behalf of their companies, capitalism's most rabid stans treated this as an existential crisis.

Lowenstein identifies this as the forerunner to today's panic over "woke corporations" and "DEI," and – just as with "woke capitalism" – the whole thing amounted to a a PR exercise. Lowenstein links to several studies that found that the CEOs who signed onto statements endorsing "stakeholder capitalism" were "more likely to lay off employees during COVID-19, were less inclined to contribute to pandemic relief efforts, had 'higher rates of environmental and labor-related compliance violations,”' emitted more carbon into the atmosphere, and spent more money on dividends and buybacks."

One researcher concluded that "signing this statement had zero positive effect":

https://www.theatlantic.com/ideas/archive/2020/08/companies-stand-solidarity-are-licensing-themselves-discriminate/614947

So shareholder supremacy isn't a legal obligation, and statements repudiating shareholder supremacy don't make companies act any better.

But there's an even more fundamental flaw in the argument for the shareholder supremacy rule: it's impossible to know if the rule has been broken.

The shareholder supremacy rule is an unfalsifiable proposition. A CEO can cut wages and lay off workers and claim that it's good for profits because the retained earnings can be paid as a dividend. A CEO can raise wages and hire more people and claim it's good for profits because it will stop important employees from defecting and attract the talent needed to win market share and spin up new products.

A CEO can spend less on marketing and claim it's a cost-savings. A CEO can spend more on marketing and claim it's an investment. A CEO can eliminate products and call it a savings. A CEO can add products and claim they're expansions into new segments. A CEO can settle a lawsuit and claim they're saving money on court fees. A CEO can fight a lawsuit through to the final appeal and claim that they're doing it to scare vexatious litigants away by demonstrating their mettle.

CEOs can use cheaper, inferior materials and claim it's a savings. They can use premium materials and claim it's a competitive advantage that will produce new profits. Everything a company does can be colorably claimed as an attempt to save or make money, from sponsoring the local little league softball team to treating effluent to handing ownership of corporate landholdings to perpetual trusts that designate them as wildlife sanctuaries.

Bribes, campaign contributions, onshoring, offshoring, criminal conspiracies and conference sponsorships – there's a business case for all of these being in line with shareholder supremacy.

Take Boeing: when the company smashed its unions and relocated key production to scab plants in red states, when it forced out whistleblowers and senior engineers who cared about quality, when it outsourced design and production to shops around the world, it realized a savings. Today, between strikes, fines, lawsuits, and a mountain of self-inflicted reputational harm, the company is on the brink of ruin. Was Boeing good to its shareholders? Well, sure – the shareholders who cashed out before all the shit hit the fan made out well. Shareholders with a buy-and-hold posture (like the index funds that can't sell their Boeing holdings so long as the company is in the S&P500) got screwed.

Right wing economists criticize the left for caring too much about "how big a slice of the pie they're getting" rather than focusing on "growing the pie." But that's exactly what Boeing management did – while claiming to be slaves to Friedman's shareholder supremacy. They focused on getting a bigger slice of the pie, screwing their workers, suppliers and customers in the process, and, in so doing, they made the pie so much smaller that it's in danger of disappearing altogether.

Here's the principal-agent problem in action: Boeing management earned bonuses by engaging in corporate autophagia, devouring the company from within. Now, long-term shareholders are paying the price. Far from solving the principal-agent problem with a clean, bright-line rule about how managers should behave, shareholder supremacy is a charter for doing whatever the fuck a CEO feels like doing. It's the squishiest rule imaginable: if someone calls you cruel, you can blame the rule and say you had no choice. If someone calls you feckless, you can blame the rule and say you had no choice. It's an excuse for every season.

The idea that you can reduce complex political questions – like whether workers should get a raise or whether shareholders should get a dividend – to a mathematical rule is a cheap sleight of hand. The trick is an obvious one: the stuff I want to do is empirically justified, while the things you want are based in impossible-to-pin-down appeals to emotion and its handmaiden, ethics. Facts don't care about your feelings, man.

But it's feelings all the way down. Milton Friedman's idol-worshiping cult of shareholder supremacy was never about empiricism and objectivity. It's merely a gimmick to make greed seem scientifically optimal.

The paperback edition of The Lost Cause, my nationally bestselling, hopeful solarpunk novel is out this month!

If you'd like an essay-formatted version of this post to read or share, here's a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:

https://pluralistic.net/2024/09/18/falsifiability/#figleaves-not-rubrics/a>

[matthewarcher]

prioritizing profit?

people i interview for my research on corporate sustainability and sustainable finance often tell me that they have a legal obligation to maximize financial value for shareholders. they don't normally use this obligation to justify a company doing patently bad things like illegally dumping chemicals in a river or murdering resistant locals (they would argue that this actually diminishing shareholder value by undermining a company's reputation and creating more risks of bad press and regulatory penalties), but they do often use it as a way of justifying a lack of what they consider "philanthropic activities." it's the ideology of milton friedman -- who famously argued that "the social responsibility of business is to increase its profits" -- retooled for an era of greenwashing.

i've been thinking about this "legal obligation" a lot lately as elon musk guts twitter. where are the other shareholders whose financial interests he is "legally obligated" to protect? the only case i could find was the orlando pension fund suing to delay musk's twitter takeover on the grounds that he is an "interested shareholder," which is apparently quite a difficult case to win.

it'll be interesting to see what happens as people who have big stakes in twitter start to push back against musk's chaotic mismanagement of the company, but for now i'm squirreling this story away as an easy rebuttal to future informants who say they have a legal obligation to the shareholder.

[cricketcat9]

Agree with all the above.

" How the economy works" should be taught in schools. I'm not aware of any country where it is ( correct me if I'm wrong). I had two semesters at the Uni, and being an artsy-fartsy art history student I did my best not to learn anything. Things were also muddled by the "economy of socialism", presented as better, when every single one of us could see - it did not work.

Whatever I know now, I've learned late. Don't be like me, learn ASAP.

While I'm writing things that I've been intending to write for a while... one of the things that I think that a lot of people who haven't been involved in like... banking or corporate shenaniganry miss about why our economy is its current flavor of total fuckery is the concept of "fiduciary duty to shareholders."

"Why does every corporation pursue endless growth?" Fiduciary duty to shareholders.

"Why do corporations treat workers the way they do?" Fiduciary duty to shareholders.

"Why do corporations make such bass-ackwards decisions about what's 'good for' the company?" Fiduciary duty to shareholders.

The legal purpose of a corporation with shareholders -- its only true purpose -- is the generation of revenue/returns for shareholders. Period. That's it. Anything else it does is secondary to that. Sustainability of business, treatment of workers, sustainability and quality of product, those things are functionally and legally second to generating revenue for shareholders. Again, period, end of story. There is no other function of a corporation, and all of its extensive legal privileges exist to allow it to do that.

"But Spider," you might say, "that sounds like corporations only exist in current business in order to extract as much money and value as possible from the people actually doing the work and transfer it up to the people who aren't actually doing the work!"

Yes. You are correct. Thank you for coming with me to that realization. You are incredibly smart and also attractive.

You might also say, "but Spider, is this a legal obligation? Could those running a company be held legally responsible for failing their obligations if they prioritize sustainability or quality of product or care of workers above returns for shareholders?"

Yes! They absolutely can! Isn't that terrifying? Also you look great today, you're terribly clever for thinking about these things. The board and officers of a corporation can be held legally responsible to varying degrees for failing to maximize shareholder value.

And that, my friends, is why corporations do things that don't seem to make any fucking sense, and why 'continuous growth' is valued above literally anything else: because it fucking has to be.

If you're thinking that this doesn't sound like a sustainable economic model, you're not alone. People who are much smarter than both of us, and probably nearly as attractive, have written a proposal for how to change corporate law in order to create a more sensible and sustainable economy. This is one of several proposals, and while I don't agree with all of this stuff, I think that reading it will really help people as a springboard to understanding exactly why our economy is as fucked up as it is, and why just saying 'well then don't pursue eternal growth' isn't going to work -- because right now it legally can't. We'd need to change -- and we can change -- the laws around corporate governance.

This concept of 'shareholder primacy' and the fiduciary duty to shareholders is one I had to learn when I was getting my securities licenses, and every time I see people confusedly asking why corporations try to grow grow grow in a way that only makes sense if you're a tumor, I sigh and think, 'yeah, fiduciary duty to shareholders.'

(And this is why Emet and I have refused to seek investors for NK -- we might become beholden to make decisions which maximize investor return, and that would get in the way of being able to fully support our people and our values and say the things we started this company to say.)

Anyway, you should read up on these concepts if you're not familiar. It's pretty eye-opening.

[courtclonenews]

Morgan Stanley's Barry Garapedian Accused of Unsuitable Recommendations Causing Millions in Damages

With nearly $1.8 million in settlements and judgments to his name, former Morgan Stanley (Westlake Village, CA) broker Barry Lee Garapedian stands accused of misconduct in another customer complaint filed in August 2021 alleging unsuitable recommendations totaling an additional $1.4 million in damages.

Prior to the August 2021 dispute, Barry Garapedian (CRD #1039257)'s most recently settled customer dispute involved allegations of excessive fees, unsuitable investments, and overconcentration.

Although Morgan Stanley permitted Garapedian to resign from his managing director position in January 2021, Garapedian's file indicates a laundry list of customer complaints, settlements, and arbitration awards dating back 1992.

For example, an auction rate securities-related complaint alleging that Garapedian failed to follow client instructions ultimately resulted in a published settlement of $1.5 million. Various claims of unsuitable recommendations and overconcentrated positions also netted settlements in the six-figures.

Prior to joining Morgan Stanley at its Westlake Village, California, branch, Garapedian served as a broker at Citigroup Global Markets in Glendale. Garapedian is also listed as a board member of the Pomegranate Foundation in Encino, CA.

If you invested with ex-Morgan Stanley broker Barry Garapedian or with any financial adviser or representative whose unsuitable recommendations, overconcentration, or misrepresentations have proven harmful to your investments or interests, please call an experienced FINRA arbitration attorney at The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.

[dc-probate-attorney]

Removing the Personal Representative of an Estate

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[aiolegalservices]

Section 177 of the Companies Act 2006 requires directors of companies to declare any interest they have in a proposed transaction or arrangement involved with the company. This is to ensure not fall biased as a director in taking related decisions and that other directors be aware of any potential conflicts of interest to make informed decisions about the ongoing transaction. Section 177 applies…

[thumbprintus]

[egipci]

[fenmere]

The problem: Fiduciary duty is the legal requirement of any corporation. The interests of the investors legally must come before the interests of the corporation (or it's customers).

In order to solve the problem we have to change the system in which corporations function.

We have to change the law, and the way that business is done at its very core.

[cithaerons]

half of you already know this but I have it on good info from a redacted but highly reliable source that the entire season of succession was written on the fly. it was decided at the very last minute, from what I heard virtually just before shooting, that it would be four seasons instead of five. they had to write the scenes / episodes as they went. they were chucking the actors scripts day-of. at at least one point they had to send everybody home, cast and crew, because the scriptwriters hadn’t written any scenes and there was nothing to film. it was a complete and utter shitshow.

[jamaicahomescom]

Essential Guide to Jamaican Real Estate Law and Agency Principles

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[procrastinatingfeminist]

But also: WHY do we have to throw the old model out when the new is getting established? I know so many people who bemoan the lack of owning books and movies physically, instead constantly being steered towards streaming services, where you buy a membership and can't have any expectations what you will get in return, you just hope like hell that they have that one niche series from ten years ago and haven't purged it from the library. I am one of those people. I remember reading up a decade ago about why there won't be a Cagney&Lacey dvd collection because some dude got his feelings hurt and the series had already been dated at that time and with every year there was less and less potential in the market. And at the time you could still reasonably find dvd collections. I used to buy so many of them. Even those that I haven't watched, bc I didn't have access to a tv reliably and preferred to binge watch them, and anyway, any older series are pain in the ass to find.

I get that it might not exactly be feasible for a movie/series produced by a streaming service, because of the nature of their revenue, but they also don't have the high upfront threshold of working with cinemas. But if a studio produces a movie and puts into a contract that it is locked out of selling the streaming rights for the next, lets say five years, and instead produces a smaller batch run of physical copies. Do you think people who loved it in cinema won't be chomping at the bit own it, rather than renting it? Esp if it doesn't cost an arm and a leg? And those who would rather stream it - well, after five years, it still can be put up on Amazon prime or Netflix.

I am still so glad that I managed to buy the Firefly and Babylon 5 series as a disc-set, no matter how much space it takes up, and sad that i lost my window of opportunity to buy a complete Gargoyles series. And all those series that jumped networks - like Lucifer. I signed up for Netflix in part because I hoped to watch it, but it never streamed in my region, so that was a bust; but also i am pretty sure that they only streamed the seasons that they themselves produced. You think I wouldn't have bought that shit immediately, despite having a subscription just because I didn't want to jump through a series of convoluted loops to watch it completely? Why isn't this revenue model still a thing???

(But of course it would rob the studios and networks of their ability to fuck with the creators if they can't simply yoink something several people have put their blood, sweat and tears into, from existence and retcon it being produced from reality. That has absolutely nothing with profit making. That is a psychopath mindset.)

Matt Damon explains why they don’t make movies like they used to. Pls watch.

[thegraftonfirm]

[dc-probate-attorney]

Preventing Inheritance Theft in Your Family

If you suspect that someone is stealing from a parent or a loved one, it’s important to take action as soon as possible. The best defense in this situation is a good offense. Even if you file a lawsuit, it may not be possible to undo the transfer of property, get items that were gifted to a person returned to the estate. Additionally, it might not be possible to get property back from someone who…

[elalmadelmar]

Yeah no, you ABSOLUTELY DO NOT want to kill the entire concept of fiduciary duty.

This particular interpretation of fiduciary duty in this particular relationship of fiduciary to beneficiary is a problem, yes, but fiduciary duty as a whole is much, much broader and is an important component of ethics in the modern world.

In a nutshell, fiduciary duty is the ethical requirement that, when managing business or financial decisions on behalf of someone else, you (the fiduciary) are obligated to place their interests above your own and to make the best decisions you can with their needs and priorities in mind. Don't kill that.

Question about fiduciary duty: under US law, are the officers held to not uphold their duty if the shareholders direct them to follow a course that is not eternal growth(to simplify let us say this was done by obviousr majority) and they obey?

I am not qualified to answer this question.