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Question: C-Corp vs Public-Benefit companies in similar situations.

As I understand it Netflix really doesn't have the option of taking a principled stand here (let me know if I'm wrong) due its financial responsibilities toward shareholders.

If they had incorporated as a public-benefit corporation would they have additional freedom to say "We won't participate in this market on ethical grounds?"

There is no law (in any jurisdiction, as far as I know) that states a corporation must relentlessly pursue profits. An owner is free to stay out of markets for moral or other reasons without any strategic or financial justification. The only thing stopping them would be other shareholders who disagree. Private, public, public-benefit, etc... doesn't matter.

How does this square with the principle of shareholder primacy and Dodge v Ford?


This is going to sound condescending but I really don't mean it to be, I just couldn't think of a better way to phrase this:

Did you read the bottom half of the entry's summary or the entry itself? Specifically:

> In the 1950s and 1960s, states rejected Dodge repeatedly

> The general legal position today is that the business judgment that directors may exercise is expansive. Management decisions will not be challenged where one can point to any rational link to benefiting the corporation as a whole.

and quotes from a number of law journals:

> Dodge is often misread or mistaught as setting a legal rule of shareholder wealth maximization. This was not and is not the law.

> the rule of wealth maximization for shareholders is virtually impossible to enforce as a practical matter. The rule is aspirational, except in odd cases.

That is very interesting, thank you. I am not a lawyer so anything I say is amateur speculation, but it seems like that case rules mostly on Ford's ability to arbitrarily reduce profit to shareholders by reducing or removing dividends, not necessarily acting in the public interest. This goes back to what I said earlier about a corporation being free to act in the public interest as long as the shareholders don't mind, as then there is no injured party.

There is no such requirement!

[a potential threat of] shareholders bringing suits makes to some extent up for such a requirement.

Not really. Such lawsuits aren't really a thing.

Wall Street Journal says there were a record number of Shareholder lawsuits in 2017 for reasons including disappointing earnings. Nearly 10% of traded companies faced one that year. It kind of seems like “a thing.”


Edit: 2017, not this year

The snippet I can see says:

> When pharmaceutical company Depomed Inc. of the U.S. said this month it is fielding federal and state inquiries over its marketing of opioid painkillers, a stock drop was likely to follow.

> But it was less expected, legal experts say, that shareholders would then sue the company for securities-law violations, alleging that Depomed made false and misleading statements over a more than two-year period leading up to the Aug. 7 announcement in its earnings statement.

A lawsuit about making false statements is entirely different than a lawsuit saying a company is insufficiently profit-seeking. Unless the article broke down how many of those record lawsuits were actually over low earnings (which I can't tell), I don't think this shows anything.

I don’t believe it broke out the earnings cases, but they were significant enough to feature in the article (even in the subtitle, which you can see). No one claimed the opening example in the article was speaking directly to your point. I only did a simple google search about it because you offered no evidence to support your claim, and the results I got suggest to me that it is entirely possible to face shareholder suits if you retreat from a market rather than staying and continuing to make profits. I’m not interested enough in the topic to research it any further.

I think I disagree with you a little even regarding false statements suits, though: Just as a thought experiment: let’s say you lose millions in company X stock because they pull out of a market you think they should have stayed in. I would think going through the company’s public statements and claiming that you were mislead about their commitment to said market would be a decent angle from which to attack them. But that’s just thinking out loud, and I am no lawyer.

The number of filings is irrelevant: I can sue NASA for not building a space station on the moon, it doesn’t mean it won’t be thrown out. The article is paywalled so I can’t see if it reports the number that actually matters, i.e. wins.

From the same article: “Of cases filed from 1997 to 2016, according to Cornerstone, 48% have been settled, 42% have been dismissed and 10% are continuing.“ It later says median settlements range from $2.6 to $13.9 million depending on how far the suit gets and how established the firms are. Another interesting thing was that, recently, most of these suits come from individuals rather than institutional investors.

Kinda odd that so many companies pay money for fairness opinions (M&A, capital raising, major transactions) that specifically identify fairness from solely a "Financial" point of view to shareholders. I always thought it was to avoid lawsuits.

I don't think they are asserting that shareholders never can successfully sue companies, just that a company making a business decision that doesn't maximize profit is not something shareholders can successfully sue over.

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