Quote:
Originally Posted by HarryT
The legal obligation of a corporation is to act in the best interests of its shareholders. But this does not always simply constitute maximising short-term profits, of course.
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This may be true in theory, but in practice, given the turnover in both management and in who actually owns the stock, it is frequently the case. If you are not planning to hold on to the stock for a long period of time, short term profits are in your self-interest (defined narrowly in terms of the prevailing economic view of man). It depends on the nature of the company of course (and, practically, on its size). But once you reach the size of, say, the major oil companies and are publicly traded (i.e. your stock becomes commodity), those short term profits assume paramount importance. This is why firms that specialize in corporate takeovers, such as Blackstone Group, are able to make a killing: by any rational standard they damage the long term viability of the companies they take over, but in the short term they drive profits up (and generate massive profits for themselves when they sell the entities they take over).