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View Diary: Abbreviated Pundit Round-up (57 comments)

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  •  What is required by law (0+ / 0-)

    is fiduciary responsibility, in which a corporate Board of Directors has a legal responsibility to manage the stockholders' assets in the company.  In today's world, that responsibility has come to be interpreted as ensuring a reasonable rate of return on investment, comparable to or better than the average rate of return in the market.

    I'm not certain about the case law, but I do believe shareholders have an actionable claim if the board's decisions, on workers' salaries or environmental protection for example, have a negative impact on profitability -- when those decisions are not mandated by law.

    When the union's inspiration /Through the workers' blood shall run /There can be no power greater /Anywhere beneath the sun /Solidarity Forever!

    by litho on Sun May 26, 2013 at 07:01:54 AM PDT

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    •  I doubt it, except in the extreme case, but ... (0+ / 0-)

      ... your point is a very important one, both as for what the corporate law is and what wise policy would say it should be.

      Management cannot act in ways obviously inimical to share holder interests, and return on their investment is a key measure over time. And Yes, the Board has a fiduciary duty to share owners, but i think it's not as specific as you would have it.

      My understanding - based on some, albeit limited and dated, experience - is that corporate law does not impose specific requirements on RoR, and certainly not that any particular corporation must meet or exceed an average market return or the board and/or management violates its fiduciary duty.

      Yes, there probably would be legit cases where a board squandered corporate assets, exceeded the charter, tolerated repeat violations of state corporation statutes, etc. but the board doesn't make day-to-day operational decisions and is expected only to keep informed about major ones. I don't think a good faith choosing of a particular path to profitability or maximizing ROR is actionable.

      2014 IS COMING. Build up the Senate. Win back the House : 17 seats. Plus!

      by TRPChicago on Sun May 26, 2013 at 09:45:02 AM PDT

      [ Parent ]

    •  True, but (0+ / 0-)

      a claim for breach of duty based on excessive worker benefits would have little appeal, even in Delaware.  Indeed, in light of Chancery's desire to defer to boards on colossal exec salaries and parachutes, it wouldn't look so sweet to find liability for subsidized lunchrooms.

      In any event, under the business judgment rule, it is very easy to justify pro-worker/pro-environment policies as providing a stable workforce, strengthening the brand, etc.  That is why corporations are able to make charitable contributions, which otherwise might be seen as waste.

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