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Comment by rsj_hn | Hacker News Reader

There is nothing wrong with moving to a better tax jurisdiction because you want lower taxes. It is perfectly legal, happens all the time, and is not something subject to a 'government review', because firms are expected to optimize their behavior in order to avoid taxes as much as possible, and even legally required to do so if they are to meet their obligations to maximize shareholder value. The whole idea that people change their behavior to avoid taxes is the basis of sin taxes - this is how things are supposed to work.

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> and even legally required to do so if they are to meet their obligations to maximize shareholder value.

This is a solid comment overall, but I really wish this particular widespread canard would die already. It's flatly untrue, the kind of myth that lives on because there are so many people who aren't capable of processing the benefits and costs of corporations and treat them as one-dimensional boogeymen out of a children's bedtime story.

(to be clear, that doesn't appear to be the case for you).

It is not a canard. The purpose of a corporation is going to be specified in the corporate charter, and while some corporations are non-profits or have explicit charitable requirements, most have a charter that focuses on maximizing shareholder earnings. Almost no company has a charter that focuses on maximizing taxes paid.

That charter is a binding contract that governs the behavior of the officers of the company and shareholders, when they buy shares of a company, do so with their rights and the obligations of officers encoded in that charter. They are not buying blind -- they are buying into that charter. That is a contract that they expect to be followed.

The idea that a corporation can do whatever it wants and ignore shareholders is a fashionable myth in some lefty circles and has absolutely no basis in reality or corporate law. If you want to found a corporation whose charter is to help the poor, or to provide high paying secure jobs to workers, you can certainly do that, but then it goes in the charter and if a corporate officer were to start turning the company into a for profit venture she could get sued by the shareholders just as an officer turning a for profit company into a non-profit can get sued.

In addition to the legal obligation of abiding by the charter (in the sense that it is a contract and you can get sued for breaching it), most corporate charters are structured in such a way as to allow shareholders certain operational control: to replace board members who they don't believe are acting in their (the shareholder) interest, require shareholder approval for major things like executive pay, issuance of corporate debt, issuance of more stock, etc. This is another way that corporate officers are bound to serve shareholder interests and again these rights are all promised to the shareholder in the charter before they purchase stock, so that a shareholder knows what they are buying and what rights they have.

In addition to the daily operational controls that shareholders exercise, the charter also specifies what is necessary to change it -- usually a shareholder majority of some kind. This means if you displease the shareholders, they will sell your stock, lowering your stock price, allowing a hostile shareholder to buy up the company and throw management out and also rewrite the charter. Maybe even take the company private so they become the sole owner of the entire company. All of that is hanging, like a Damocles sword, over management, forcing management to cater to shareholder preferences.

If you don't like the current shareholder focus -- and there is a case to be made that we are too focused on the shareholder -- then you can go company by company and propose a vote to amend the current charter, assuming you can get the shareholders to agree -- but what you can't do is pretend that the vast majority of corporate charters aren't structured in such a way as to force corporate officers to maximize shareholder value. They are.

You moved the goalposts. Corporate officers may indeed be motivated to maximize profits by the threat of being thrown out by shareholders. But they are not legally required to do so, or at least they have no meaningful risk of losing a lawsuit over it; the business judgment rule creates a presumption that they are acting in the corporation’s best interests, a presumption which is hard to overcome. The main exception is if they sacrifice the corporation’s interests for personal financial gain (self-dealing), but that’s not what’s being discussed here.

As I pointed out, if they violate the charter, which explicitly says that shareholder returns is the purpose of the corporation, then they are liable to be sued by either shareholders or state’s attorneys. That charter is a legally binding obligation. The requirement to disburse profits, have shareholders approve executive pay, etc which is also in the charter also becomes a legal obligation. It’s not a question of preferences but rather contracts that are heavily regulated.

https://smallbusiness.chron.com/consequences-violating-corpo...

“ State laws require the board of directors to act in the best interest of the corporation and its shareholders. Part of that responsibility is managing the affairs of the business according to certain legal standards. Once a director takes a seat on the board, he has various duties as the representative of the shareholders that the law places upon him, such as the duty of care and loyalty, that determine if he's doing his job properly. Even if your small corporation has few shareholders and all of them also sit on the board of directors, the shareholders in their capacity as directors must take action and make decisions that comply with the law and the corporation's governing documents, including the bylaws.”

Corporate charters don't generally include clauses requiring that profits be maximized, profits be disbursed, and executive pay be approved by shareholders.

Rather they tend to include maximally expansive language such as "all business activities legal in the state of XXX". It's a placeholder, delegating responsibility to the directors to the greatest extent permitted by law. This is the standard, for good reason.

Are the charitable donations of the Fortune 500 evidence of widespread violation of fiduciary duties?

> Corporate charters don't generally include clauses requiring that profits be maximized, profits be disbursed, and executive pay be approved by shareholders.

This is false.

Corporate law requires that Board members faithfully represent the interest of stakeholders, and the corporate bylaws define who those stakeholders are. Generally they will he creditors, holders of preferred shares followed by holders of common shares. By defining the stakeholders, the corporate charter is defining who owns what and whose interest the board must represent. This is where all the activists who insist that corporations have stakeholders like "the environment" hit a road block -- they aren't going to get shareholder approval to list the environment as a stakeholder.

Corporate bylaws, which must be voted on and approved by shareholders, do spell out voting rights for shareholders, approval of executive pay, approval of debt issuance. This is very common.

People misunderstand how heavily regulated corporations are, because it is a funny ownership structure, where the owners -- the shareholders -- are distributed and don't actually run the company. This creates all sorts of principle agent problems and thus corporate law grants shareholders many rights and imposes many obligations on corporations. Shareholders can audit the books. Shareholders can sue. All the ways that the business does anything from make a decision to issue debt must be spelled out in bylaws that shareholders must approve. Corporations must have a board. The board must be elected by the shareholders. The board has to act in their interest. The board gets to appoint the CEO, etc.

State law also defines the liability shield, that as long as board members are acting faithfully in the interests of shareholders, they can't be sued, but as soon as they are not they can be.

Things like corporate donations are generally justified as helping the bottom line by improving the brand. But you do need to show how they are helping shareholders, otherwise it would be a breach of fiduciary duty and the liability shield would be lost at which point shareholders could sue.

But even apart from this, when the shareholders turn against you they can sell, and if someone buys a majority of the shares the company becomes theirs, they own it, they can take it private, they can throw out management, etc. This ensures that the board be focused on keeping shareholders happy above all other concerns.

You're changing the subject to substantially narrower claims, none of which I disagree with. The claim wasn't that corporations aren't free to explicitly optimize for goals other than or contrary to shareholder value (this seems trivially true AFAIK). It was that corporations are forced by law to take specific steps like "doing everything they can to optimize tax avoidance", and are legally prohibited from leaving any optimization opportunity on the table (as long as it's legal). Corporations are afforded far more discretion in this area, legally speaking, than your OP comment states.

I never said that they couldn't do it. But I said that these tradeoffs were governed by the corporate charter, which itself needed shareholder approval to change.

Thus shareholders can agree to bring in other stakeholders. They can agree that a certain business should maximize its taxes. They can agree to turn the company into a non-profit. But they have to be the ones to agree to do it, and it needs to be spelled out in the various bylaws that define who the stakeholders are that the Board members must faithfully represent.

It is not up to management. It is not up to employees. Only the shareholders decide this. The broader claims come from the assumption that shareholders generally support their own economic interests exclusively. My own observation of the world is that this is the case. Even if a shareholder cares about the poor, they would rather have the maximum return from their assets and then donate some money to the poor themselves, rather than asking their investments to donate to the poor and lower their return.

So the technicalities are that yes, shareholders can give up these claims if they want to. Admitting this is not, IMO, backing off from my broader claim, but recognizing that shareholder supremacy also empowers shareholders to direct a corporation to include other factors than profits.

> The whole idea that people change their behavior to avoid taxes is the basis of sin taxes - this is how things are supposed to work.

What sin taxes are at play here?

Edit: Or just downvote I guess, it was just a question.

No sin taxes are at play here. Their reference to sin taxes was to show that tax minimisation is expected behaviour.

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