(Not) In the Interest of Shareholders

Law states that corporate executives must act at all times in the interest of their shareholders. Implicit within the law is that shareholders can only have one interest: more $$$. I offer two examples of where that implicit assumption falls apart:

1) Employee-Owners: I have a 401k and my company gives a 50% match in company stock, so I and other employees are shareholders. I do like it when the share price goes up. But beyond a certain price gain, I have other priorities. For instance, I would always like better health care: more coverage, lower co-pays, no networks, etc etc. I also wouldn't mind the company investing money on speculative, long-term R&D. Lastly, I'd like my company to set aside cash to weather the rough patches better and ensure longevity. These actions would suppress profits and therefore share price or dividend yields--but I'm a shareholder too! And this is in my interest!

2) Socially-Conscious Investing: I would fully support profit-reducing initiatives at my company and every company I own stock in to reduce CO2 footprints even when the business case for it is not clear. As an example, a business could buy carbon offsets for their business travel. The CEOs might even want to at a personally level, but they can't without that business case. Doing right for the public is not enough, even if the shareholders "say so".

I'm sure there are more examples. What irks me about this setup is that the concept of ownership interest is reduced to share price. What if the citizens of a city, in order to take back their rivers or communities, banded together to buy a controlling stake in the corporation with that factory up-river? Is the CEO of that corporation, against the will of the shareholders, required to continue maximizing share price even at the expense of that river? That should be changed. I believe that a business does not have to lose its moral sense when it incorporates, yet the law clearly states that it pretty much has to. The only check on this is government regulation that creates a compelling business case (by incorporating likely fines or loss of licenses) to not take the cheapest route at every turn.

So I say it's high time to review this law.

(Update) Consider this:



(link)