First up I would like to apologise in advance for the total lie that passed as a title for this entry. I mean, I was actively involved in what I am writing about and I only found it of passing interest. 🙂 But have a read anyway, you never know!
I am constantly amazed by coincidence. I was doing some prep work for a lecture I am giving next week on Emotional Intelligence and was mulling some of the ways I could develop the discussion around it. I’m planning on taking the Devil’s Advocate route and asking a question like ‘do emotions have any place in an organisation’ and then, if the discussion heads in the ‘yes’ direction, bringing up that a company has a fiduciary duty to maintain shareholder value and, on occasions, shareholders have sued directors for trying to do empathetic things that have cost money that could have gone to shareholders. Now this got me thinking that I really should check whether this fiduciary duty actually exists or whether it is one of those things that have just become accepted as being true. It is something I have been meaning to do for ages because I am sick of it constantly being used as an excuse for business decisions that make people redundant or put a thousand people under mortgage stress or do some environmental damage etc. You know the ‘I am legally obliged to do this’ argument. So, having decided to do this, I immediately forgot about it and moved onto something else. I can be a bit of a goldfish at times to be honest.
Anyway, later on in the day I was reading an article on the Harvard Business Review blog (just how impressive am I hey! 🙂 ) when I read the line ‘There is debate whether this duty exists, but it is such a dominant perception among directors that it is the practical reality’ where the aforementioned duty was indeed the fiduciary duty in question. So I followed the link provided to the more complete article on the subject and bingo, I had my answer! It’s cool how life works sometimes isn’t it. 🙂
Oh, by the way, for those of you who are still awake the answer is that the supposed fiduciary duty is apparently bollocks. As the article behind the link says ‘so we conducted a systematic analysis of a century’s worth of legal theory and precedent. It turns out that the law provides a surprisingly clear answer: Shareholders do not own the corporation, which is an autonomous legal person. What’s more, when directors go against shareholder wishes—even when a loss in value is documented—courts side with directors the vast majority of the time.’ So next time some CEO justifies a cold-blooded decision by insinuating that they are legally obliged to maximize shareholder value you’ll know different. Not sure it’ll change anything but you can enjoy a warm feeling of smugness, never a bad thing. 🙂 By the way, how many of you just glossed over the sentence ‘Shareholders do not own the corporation, which is an autonomous legal person. ‘? Have a think about that for a second.
Oh, before I go, here is a another shot in my increasingly eccentric campaign against Facebook.:-)