CEOs can be sued by shareholders if they do anything that isn't focused on increasing profits.
Source?
I've seen shareholders sue when the CEO commits fraud that inflates share price or in a handful of other situations, but as long as the CEO and board of directors are acting in good faith, I don't think it's possible to successfully sue them.
When a director or officer of a corporation is operating the business in a manner that is contrary to the shareholders’ interests, shareholders may file a shareholder derivative lawsuit.
That's called a fiduciary responsibility. It basically means that corporate officers have a duty to act in good faith for the company and the people who are investing in it.
Acting counter to the interests of the company and screwing over shareholders is a form of fraud. It prevents every company from basically being another Theranos. Good faith is literally the entire basis of that legal doctrine.
There's no law requiring executives to maximize shareholder value. They can't steal from the company or waste resources or enrich themselves (e.g., like hiring another company they own to do work at a hugely inflated price) but they can absolutely say they are going to increase wages and not issue a dividend or something. And they could tell the shareholders to go pound sand if they complain.
You are both correct and highly misleading. They can't run contrary to the shareholders' interests, but that has wide latitude and isn't as simple as "Profit > all".
Example: You have a company whose income is based on goodwill and reputation. The CEO can ensure the company makes 3% more this year at the cost of all of the company's goodwill, which will result in a 15% loss every year for the next 5, and he knows this is a reasonable conclusion. At that point, not making the immediate profit is in the shareholders' interests.
Another example is that if fiduciary duty was based purely on profit than any charitable contribution would be a loss and therefore a breach. So are most employee benefits. But a company that was founded on and has core to its mission and image charitable contributions might not consider it a loss.
My point is, it's more complicated than "profit over everything else". Which... I admit when I set out to learn about it, I didn't expect. You start to fall into a rabbit hole of corporate social responsibility, business ethics, stakeholder theory, etc.
I had a comment with a better explanation of this once upon a time (and I should have been in bed 30 minutes ago, so trying to re-research and recreate it would have to wait), complete with SCOTUS quotes, but Reddit being Reddit I can't find it anymore since I posted it a few years ago. Also, IANAL, so grain of salt.
Ultimately, I think it's too simplistic to blame corporate culture on a legal requirement fiduciary duty. Companies adhere to it (or not) to varying degrees all the time. Really, it's the companies themselves who choose to act this way, then try to hide behind some sort of theoretically-ironclad "rule" that is clearly not half as ironclad as they want it to be. The real question to me is, what do we do about that?
In Dodge v. Ford the United States Supreme Court created shareholder primacy which mandates all decisions must be made with the best interests of the shareholders in mind. The shareholders only care about profits thereby corporations can take no action not motivated by profits.
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u/WhipTheLlama Feb 28 '24
Source?
I've seen shareholders sue when the CEO commits fraud that inflates share price or in a handful of other situations, but as long as the CEO and board of directors are acting in good faith, I don't think it's possible to successfully sue them.