Ask HN: Corporation types and "maximizing shareholder value"?

https://news.ycombinator.com/item?id=748312

by dlytle • 17 years ago

2 4 17 years ago

news.ycombinator.com

I've been wondering for a while if there's a form of corporation that doesn't force the company/board to, as I've seen it called, "maximize shareholder value".

Of course, making money for the shareholders and company is always a driving goal. What worries me are situations where making money for shareholders, and the survival/growth of the business, are at odds.

One possibility would be a policy change that has the potential to generate income, at the cost of user trust/loyalty. (Beacon, for instance.)

Are there any corporation types that handle such a situation better than others? (From the perspective of the founders.)

jacquesm• 17 years ago

There's a 'foundation' type, they don't have a profit motive.

I assume you're asking this from a USA perspectie, the wikipedia page on foundations has this to say:

"In the United States, many philanthropic and charitable organizations are considered to be foundations. However, the Internal Revenue Code distinguishes between private foundations (usually funded by an individual, family, or corporation) and public charities (community foundations or other nonprofit groups that raise money from the general public). Private foundations have more restrictions and fewer tax benefits than public charities."

frisco• 17 years ago

Shareholder value and revenue aren't necessarily the same thing at very early stage companies. Shareholder value can be built through brand recognition and integrity, and sacrificing that for short term revenue is destroying long term shareholder value.

Shareholder value should never be at odds with the goals of the company in the ways you described. It could, on the other hand, be at odds with your personal goals (i.e., blocking a small exit), but that's very different.

robdimarco• 17 years ago

If the founders care about not being forced to "maximize shareholder value", simply don't give out any controlling equity to non-founders. Consider how the NY Times or Washington Post, and WSJ operated for a long time. The controlling interest was held by a single family and not by all of the common shareholders.

If you want to take outside investment, part of the deal is that the company no longer just belongs to the founder. You no have other parties. If you don't like it, don't take the money.

jhancock• 17 years ago

I hear the "maximize shareholder value" rule quite a bit. But I have never seen a reference to a law that proclaims it or defines what it means. Can anyone find such a reference?

Ask HN: Corporation types and "maximizing shareholder value"?

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