Is The Only Purpose Of A Corporation To Maximize Profit?

Ted

FYI: Abstract: Historically, corporations were expected to serve some public purpose as justification for the benefits and privileges they receive from the state. But since the 1970s, the view has become widespread that corporations exist solely to maximize profits and for no other purpose. While the shareholder-first doctrine was supposed to solve the agency problem, in fact it has gotten worse as corporate executives enrich themselves at the expense of shareholders. Moreover, the obsession with current share prices as the only measure of corporate success may be destroying long-term value as companies cut back on investment to raise short-term profits. Tax policies designed to raise after-tax profits have done nothing to reverse these trends.
Regards,
Ted
http://www.ritholtz.com/blog/2015/05/corp-purpose-maximize-profit/print/

Jim0445

Would the answer be the same if you changed the word "corporation" to a sole-proprietorship? I ask this because the majority of corporations are small businesses and often are owned by one person, making the corporation merely an extension of the person owning the business.

Now, taking it down to the employee level, is the only purpose of an employee to maximize his or her personal earnings? Would that be evil?

In my opinion, the result of a business serving its customers in a fair and ethical manner while constantly striving to innovate to stay ahead of competition will be to maximize profits over the long run. The survival of the business depends on generating revenues in a profitable manner while keeping costs as low as possible.

davidrmoran

Some history and context:

http://www.washingtonpost.com/business/economy/maximizing-shareholder-value-the-goal-that-changed-corporate-america/2013/08/26/26e9ca8e-ed74-11e2-9008-61e94a7ea20d_story.html

http://www.washingtonpost.com/blogs/wonkblog/wp/2013/09/09/how-the-cult-of-shareholder-value-wrecked-american-business/

bee

I watched a great segment last night on Teddy Roosevelt and his crusade to reform Trusts (Corporations) around the 1900's. Roosevelt crusaded for these reforms for the betterment of the state (and it's people). He argued Trusts had an obligation to the betterment of the state, not merely to the profitability to the Trust owners. One could argue this also means not just to the profitability of its shareholders.

pbs.org/kenburns/the-roosevelts

A reform effort needed today is what I'd call the "corporate lobbyist".

Is The Only Purpose Of A 'Corporate Lobbyist' To Maximize Profit?

msf

All of the links given are fine references, and well worth the read. (Note that the ritholtz link is to a somewhat academic paper by Bruce Bartlett - with 96 footnotes.) Thanks to all for the pointers.

In the 90s, I took a course on partnerships and corporations, where much of this was taught. Even ignoring the corporate structure, businesses have three sets of stakeholders - the owners, the employees, and the customers. If you don't keep all their interests in mind, you'll fail them all - as these articles point out.

When you add the corporate overlay, what you are doing is adding the government (i.e. the people at large) as another stakeholder. The government brings to the company extra benefits - limited liability, and most recently unfettered access to the political process (Citizens United). The corporation owes something to the public in return.

Side note on Endicott (Wash Post/IBM article) - I haven't checked on the Southern Tier (NYS) in years, but it was, and I gather still is, in dreadful economic shape. One cannot talk about IBM in the region without also recognizing Endicott Johnson Shoes and its dedication to its workers:
Two Southern Tier-Based Companies Revolutionized the Workplace and United Families

I haven't watched this documentary on Endicott Johnson Shoes yet, but I intend to (thanks for the motivation)
http://www.wskg.org/episode/johnson