Gods and Shareholders

Mark Kleiman has a post discussing the idea (espoused by Milton Friedman) that shareholder return is the highest duty for any corporation, and Professor Bainbridge's point that this is their fiduciary responsibility (in other words: it's not just a good idea, it's the law).

Kleiman applies a reductio ad absurdem argument, concluding that taken to logical extremes this would require corporations to engage in immoral practices if they are profitable--that, for example, it would have been imperative for any company able to do so to engage the enormously profitable slave trade.

In the same post, Michael O'Hare takes a different approach, arguing that a company's responsibility is to do what the shareholders want, which is not necessarily limited to financial return and may well include the very ethical concerns Friedman says shareholder return should trump. Shareholders may well want good working conditions or environmentally sound practices; while these desires may be difficult to ascertain, the company has a duty to follow them. It's an ingenious argument, and it comes up in practice when large institutional shareholders (union pension funds, for example) try to influence corporate policy, but it doesn't strike me as a strong argument.

I think one problem with the whole discussion is the language being used; another attack opens up if you simply replace 'shareholders' with 'speculators'. Does it really make sense to calculate the obligations of a corporation as if capital were as relatively immobile as it was 20 or 30 or 50 years ago?

Or to take a related tack: what is the fiduciary duty to the 'shareholders' when their interest directly conflicts with the long-term interests of the corporation?

At TPM Cafe, Nathan Newman points to an example of this: GM paid, and continues to pay, investor dividends it could more profitably have invested in research and now really can't afford to pay. They presumably paid the dividends to keep the shareholders happy, and now they're boned because of it. In what moral universe can GM's ethical obligations to the people it promised pensions be less important than the very financial obligation (to shareholders) that helped drive it into the ground in the first place?