Edit: This question attracted way more interest than I hoped for! I will need some time to go through the comments in the next days, thanks for your efforts everyone. One thing I could grasp from the answers already - it seems to be complicated. There is no one fits all answer.

Under capitalism, it seems companies always need to grow bigger. Why can’t they just say, okay, we have 100 employees and produce a nice product for a specific market and that’s fine?

Or is this only a US megacorp thing where they need to grow to satisfy their shareholders?

Let’s ignore that most of the times the small companies get bought by the large ones.

  • tyler
    121·
    2 months ago

    That is a common misconception, very often spread all over the place on Reddit. There is no such requirement.

    And corporate case law describes directors as fiduciaries who owe duties not only to shareholders but also to the corporate entity itself, and instructs directors to use their powers in “the best interests of the company.”

    Serving shareholders’ “best interests” is not the same thing as either maximizing profits, or maximizing shareholder value. “Shareholder value,” for one thing, is a vague objective: No single “shareholder value” can exist, because different shareholders have different values. Some are long-term investors planning to hold stock for years or decades; others are short-term speculators.

    https://www.nytimes.com/roomfordebate/2015/04/16/what-are-corporations-obligations-to-shareholders/corporations-dont-have-to-maximize-profits

    https://caselaw.findlaw.com/court/us-supreme-court/13-354.html

    https://www.reddit.com/r/explainlikeimfive/comments/15iy8ra/eli5_what_people_mean_by_saying_a_company_is/

    https://skeptics.stackexchange.com/questions/8146/are-u-s-companies-legally-obligated-to-maximize-profits-for-shareholders

    https://insight.kellogg.northwestern.edu/article/shareholder-value-purpose-corporation

    • skulblaka@sh.itjust.works
      21·
      2 months ago

      You run into a subtext problem here though.

      Serving shareholders’ “best interests” is not the same thing as either maximizing profits

      Making this argument to shareholders means you’re telling them “I wish to shrink your profits”, no matter what else comes after that comma that’s a non-starter for an American CEO. 99% of shareholders don’t give one Kentucky fried fuck about the company, they just want free money. You get between them and their free money and you’re gone, replaced by the next failing-upward ghoul in line on LinkedIn.

      The idea of having a well established, respected and non-abusive company is no longer a reality in America. The stock market is a vehicle for gambling on shareholder feelings. It’s no longer about the company at all, just about how much you can hype up the company to then pass the bag along to someone else.

      Wal-Mart shareholders don’t care if Wal-Mart craters into Hell tomorrow, so long as they get paid dividends and are able to offload their shares at a profit before it dies.

      • tyler
        2·
        2 months ago

        The article I linked discusses that…even stakeholders that care about profit care about it differently. You have long term investors (think Warren Buffett) and you have short term traders. Long term investors care about sustainable growth (think a company moving into new markets, like 3M) while traders want the CEO to pump prices so they can jump ship. There is no such thing as “maximize profits” here. Neither one of these maximize profits. One fucks over long term investors, one messes with traders.