Corporate ethics

[dougo]

In a discussion at lunch today, luckylefty quipped that Google's motto should be changed to "Don't be evil (except as required to maximize shareholder value)." I've heard this notion before, that a public company is legally required to do whatever is necessary to maximize its profits, and could be sued by its shareholders for not doing so. This reminded me of a quote I ran across recently by costikyan (from a couple years ago, in the context of computer game companies and the overabundance of licensed games):

Tom Peters, the business guru, echoes the sentiment: No successful business exists to produce a profit. Yes, you need to produce a profit; in a capitalist system (and thank god we have one), profit is the condition of survival. But profit isn't the goal; no one other than the stockholders get excited at that. A corporation is one way or organizating a group of people to strive toward an objective—but that objective, the vision they share, is always, for successful businesses, something other than mere profit.

It seems unlikely to me that a corporation does not have the freedom to reject certain highly profitable avenues if it chooses—pornography is one of the most lucrative industries these days, so can shareholders sue Google for not launching Google Smut? Or is the only defense that it might tarnish their public image enough to hurt the rest of their business model?

Comments

[mshonle.livejournal.com]

I think it's dangerous to expect corporations to do anything *other* than make the shareholders happy. For example, suppose we all had a big love fest and agreed that corporations should also care about certain human welfare aesthetics. What would happen? Well, they'd start to take that role, but some would do it poorly. Then, institutions which *should* care about these other nice things would weaken and dissolve away, because "corporations are supposed to do that."

Life is much simpler, and it's in every respect better for all of these other goals, if we assume corporations are only concerned about profits.

Where does this lead us? Well, we'll say "corporations aren't going to care about the environment, so let's create pollution contracts" or "let's create these regulations to protect it." Typically, when you set yourself up to get something (from either corporations or the government) you'll get the worst one that meets the requirements. Thus, it's better for planning if you assume it will always be the worst.

But you also need to think about why investors buy stocks in different sectors. I invest in everything in the economy. I don't focus only on one of technology, energy, healthcare, real estate, finance, services, consumer goods, utilities or industrial materials.. I focus on *all* of them. It's called diversification. If energy goes up, I get a nice profit. But if it goes up too far, I'll re-balance it into all of the other investment sectors, so I won't be outweighed in it. Then, if energy goes down, at least it wouldn't have been my whole portfolio.

That's probably one reason companies set up charters, to signal to investors what kind of investment they are really making. It's not really a question at all that X is more profitable, because it isn't always. It's more about following what was planned, and the investment getting priced accordingly by the market. Because, suppose X always was more profitable: then people would be willing to pay more for shares in it. More expensive shares reduce your returns, so it actually becomes less profitable to investors.

So, no, that isn't Google's only defense. It wasn't in their charter to be that, and shareholders didn't expect it. In fact, shareholders would probably be miffed if Google ever tried to do that. (Though, porn is not a good example for Google, it probably gets a large percentage of its visits from people searching for it.)