Let me amend that a little:

In a system where everything that can result in situations where maximising profits is a bad thing have been removed, a company that is maximising profits is always doing a good thing.

Now I can agree with it without reservation.

So you’ll agree with me if I amend my statement to:
““And yes, there are people who want companies to simultaneously make a monetary return on their retirement savings, and pursue some other social goals. I don’t know why people do, and I think it is inefficient for the world as a whole.”?

What I am saying is that your position that moral behavior by corporations is necessarily inefficient is not true.

When did I say that? I have been strongly maintaining that in a system with good property rights, a company that is maximising profits is doing a good thing. I have also, in another thread, argued that honesty (a form of moral behaviour) can well be profit-maximising (of course there are situations, eg the deranged would-be murderer demanding to know where their intended victim is, when lying is the moral thing to do).

While one would have to stipulate a lot of detail to run numbers, suffice it to say that a CEO buying product out of his own product and selling at a loss is not necessarily going to be more effective than the company accepting a reduced profit margin.

Why wouldn’t it be more effective? It would certainly be faster for the CEO to buy the goods directlyk, as the company’s auditors wouldn’t need to look at the transaction except to note $x in sales. I can spend my own money faster than I can the company’s.

To be fair, I see your point about how expecting morality complicates the business of corporations,

It depends which sort of morality you expect. Different organisations should focus on different things. Expecting Amnesty International to return a profit would complicate the business of Amnesty International. Expecting the justice system to also grow food would complicate the business of the police and the courts. That doesn’t mean that making profits or growing food is bad, it just means that organisations run better if they don’t try to solve all of the world’s problems at once.

and that charitable acts can have negative unintended consequences (though this is true in non-profit structures too; as when local warlords consolidate their power by confiscating food aid).

Or when Florence Nightengale insisted the soldiers in her hospital drank lemonade rather than beer. The water supply was contaminated by a dead horse, and after the war she worked out that her hospital had had a higher death rate than the others for that (and other reasons).

I think that it is probably easier to do bad things by accident than by intention.

“And yes, there are people who want companies to simultaneously make a monetary return on their retirement savings, and pursue some other social goals. I don’t know why people do, and I think it is inefficient”

and

“I think it would be wise for that somebody to worry about how effective companies are at addressing environmental issues. One of the key things that concerns me about many discussions about CC is that they don’t spend much time talking about how effective companies actually are at achieving those goals – it seems to be enough that they intend to achieve some nice-sounding goal.”

I did not argue that it would be right for a CEO to forgo his intellectual property in this case, but that it would be efficient at achieving the goal of eradicating HIV - more effective than anything the CEO could do acting independently of the company. There may be, as you suggest, other cost in how this affects the market going forward, but there are always possibly other effects. What I am saying is that your position that moral behavior by corporations is necessarily inefficient is not true. And, in fact, you seem to implicitly concede this by dropping the efficiency argument and returning to the shareholders enforcing their rights in court, which is the argument here. My point, and I deliberately chose an extreme case for clarity, is to make clear that corporations are often in a position to achieve a social goal more efficiently than other players. That doesn’t necessarily mean they should, but it does mean that the efficiency argument doesn’t generally hold water, though it may in specific cases.

In the CC example, too, you seem to revert to a shareholders’ right position, by stating that it matters whether the CEO owns the company. While one would have to stipulate a lot of detail to run numbers, suffice it to say that a CEO buying product out of his own product and selling at a loss is not necessarily going to be more effective than the company accepting a reduced profit margin. And, yes, keeping careful books would be advisable, but that is always true.

To be fair, I see your point about how expecting morality complicates the business of corporations, and that charitable acts can have negative unintended consequences (though this is true in non-profit structures too; as when local warlords consolidate their power by confiscating food aid). But the efficiency argument is not a bullet pointing in one direction.

This is a serious problem with all fraud prosecutions, especially if the fraudster has just wasted away the money (and I understand it is very rare for them to do otherwise). For this reason, prison time makes sense. It may not help the victim of the theft directly, but at least it deterrs future theft.
http://www.itbusinessedge.com/item/?ci=21066
http://www.npr.org/templates/story/story.php?storyId=12586282

And these business relationships are useful in solving whatever problem they are trying to solve?

As for your example of a company’s product being available more cheaply, the CEO can buy the product and sell it at a loss. I have less worries about you setting up a business that does multiple goals, if you are both the shareholder and the CEO. But if you do set up a company selling equipment that reduces fossil fuel consumption, and you want to sell some of it as a loss, I advise keeping the records of the charitable endeavours explicitly, so you know what you are paying in terms of forgone profits, so if the profit-making side of your company starts to become a loss-making side you can easily tell if that’s because of your charitable donations or for some other reason.

My concern about ineffectiveness really starts to come in when people start hiring agents to run the business. Maximising long-term profits is, as Daniel points out, hard enough to measure in the long run. Knowing if you are actually achieving non-monetary social goals is generally even harder because you don’t have money as a guide. I have yet to learn that an effective management response to unclear goals is to combine them.

Let me give an even clearer example. A company develops, at great expense, an HIV vaccine. For the sake of humanity, the CEO wants to turn it over to the public domain. Neither he nor anyone else could do this acting as individuals – couldn’t do it at all, much less “more efficiently”.

The CEO has no moral right to take that decision, since you specified that it cost the company a great expense. It’s the shareholders’ decision – it’s their money. If the CEO wants to donate the service developed at a great expense, he should seek shareholders’ approval. You have managed to find a case where I reverse my original intuition and are prepared to argue that management should be sued. If a CEO can just take great resources like that and give it away, it is going to be very hard to raise money in the future for any life-saving vaccine and that is very very scary.

As for individuals, who said that people were obliged to act as individuals when they want to act charitably? I explicitly mentioned charitable organisations in both comments I have made so far, in approving ways. There are a lot of organisations that don’t seek to make a financial profit. The UK’s Wellcome Trust is a charity focussing on medical research that has an endowment of around £15 billion.

I don’t think it is empty philosophising to worry about management structures and the confusion caused by dual values. Management structure does make a big difference to how effectively organisations perform. Giving someone multiple goals is not necessarily a pathway to success. Management structure is a serious issue in business schools, I would hesistate to say those guys are engaged in empty philosophising.

You don’t like management paying attention to environmental issues or social issues etc when they ought to be making money for you.

A company that is making money for me is paying attention to social issues. If it’s making a profit, it’s doing it by selling people things they find more valuable than the sum of the inputs used to create those things.

As for environmental issues, I think those externalities should be internalised. Or run by a separate organisation that focuses on the environmental issue (eg retaining seed banks).

Somebody else doesn’t like them ignoring environmental or social issues.

I think it would be wise for that somebody to worry about how effective companies are at addressing environmental issues. One of the key things that concerns me about many discussions about CC is that they don’t spend much time talking about how effective companies actually are at achieving those goals – it seems to be enough that they intend to achieve some nice-sounding goal.

Moreover, the functioning of a market economy is not like a field. A field you can sit down in, have a rest, turn round and walk off at right-angles to your path; all without immediate catastrophic consequences. You can’t do that in a market economy. If it is ‘shocked’ by more than a small percentage in any direction, strong positive feedback intervenes to further enhance instability, just like a guy on a rope over the Grand Canyon – markets crash, thousands lose their jobs, their savings, their homes, there is potential for significant political unrest, etc. To deny this is to deny most of modern history…

In such cases, where traumas to the economy are survivable, it is usually because those aspects of society that are least like a market economy step in. I think, for example, of the strong sense of cohesion within Japanese society, or the very generous tradition of charitable giving in the USA, or, indeed, of essentially non-economic ties of national and cultural loyalty in most developed societies.

So, to your fairy-tale of market harmony, I say nyaah!

Let me give an even clearer example. A company develops, at great expense, an HIV vaccine. For the sake of humanity, the CEO wants to turn it over to the public domain. Neither he nor anyone else could do this acting as individuals – couldn’t do it at all, much less “more efficiently”. How could the personal charity of the CEO be more efficient at combating AIDS than having the company surrender its IP? Your premise requires that it be so, but it is hard to see how it can.

If Judge Prof Posner wants to append a rule “CEOs had better not ever ever try to deceive customers in an effort to sell product or voters in a effort to influence public policy” to the fiduciary rule, that would be fine by me (I can do without the $35 I’ve earned from google ads so I don’t care if he bans the advertising industry). But I don’t think that was what he had in mind

A market economy is not anything like what you described. In fact, it’s rather the opposite. A market economy is like a bunch of people traversing an empty field toward their own destination using whatever means they deem best. You can try peddling backwards on a rope over the grand canyon with a blindfold on if you really want. I would prefer to walk forward on flat solid ground with my eyes open. Now if we were to come to some sort of intersection together, we would have to make some sort of agreement together on how to proceed. And maybe 5 or 6 of us would meet at the same intersection and decide how that intersection would work, and anybody coming along after us would either have to agree to abide by what we decided, or come up with enough people to change our decision.

THAT is a better (but still poor) analogy for what a free market is. What you have done by adding all sorts of restrictions like wearing a blindfold, pedaling backward, carrying other people, etc. is to illustrate what happens after government gets involved.

A recent example is Google, the up and coming IT punk who seemed destined to change the market forever. Well, they IPO’d, bought a stupid video sharing website, and haven’t made a headline since.

Like politicians, public companies are caught in the sociological trap of pleasing a large group by averaging out their interests to a fuzzy gray mess. Simply by offering shares, a company simultanously makes contradictory promises between any two share holders of “what’s right” and then breaks every single agreement by seizing up. At that point the option is to liquidate or trade into or outto a competitor. Risk is hard to sell when your job description is fundamentally to keep your stack of chips from EVER going down.

The Great American Mess comes from the merging of public and private interests where the contradictions go on forever: A worker’s 401k heavilly invested in a competitor, layoffs to increase shareholder value decreasing the number of available customers, any first year student can do this all day.

However, an abolishment of public trading in favor of a finance-based economy would be at once more honest and healthier for all concerned. The notion of percentage entitlement creates kings where only gentlemen should stand. If a loan were simply paid off and the transaction ended, responsibility of the company would rest squarely upon the proprieter, who would then be judged sqaurely by their market. Actions then become a reflection on a commitment to actual success rather than some fuzzy, over-the-horizon, potential-profitability nonsense that makes only non-producing consultants wealthy and makes everyone involved freeze-up with apprehension.

To put it short (too late), two people can pick a pizza with plenty on it, but after seven or eight in the party, you end up just getting nothing but extra cheese. Let us cast aside the failure of democracy to the federalized spending with which it is so abhorantly and deservedly associated, and leave business to deal with itself as America was intended to do. Though, ironically, we would need a popular (read: federal) action to bring about such a balance.

(note that the soldier’s right to disobey illegal orders is clearly stated in an attempt, not always successful, to forestall the intimidation of soldiers into carrying out illegal acts. The vaguer the formulation, the less likely the soldiers are to disobey, not the more likely)

Fear, uncertainty, and doubt are well known to make people act conservatively. Just as nobody ever got sacked for buying IBM, no director ever got sued for being a Genghis for the sake of the shareholders. But being a Gandhi for the sake of the shareholders might not save you from some irate shareholder’s wrath if it goes wrong.

No. I think there is still something in that management should not be stealing money or fame for themselves. If a manager wants $2 million of the shareholders’ money to blow at Las Vegas, he/she should go directly to the shareholders and ask them for it.

OK, but they never do. They just take it, or they get their tame board of directors to approve it, and your choice—if you even find out about it—is mostly to sell the stock or choose not to buy it in the first place.

In some extreme cases you might possibly take the top management to court over it, and perhaps win a class action suit. Long after they do the thing you think they should not have done, you might possibly get a check in the mail for it. Will that check come out of the company president’s pocket? Far more likely it will come from the company, and the legal expenses of defending your lawsuit will also be paid by the company. So the end result of the company president stealing money from the company is it gives you the right to take from the company too.

I repeat—if your conclusion is “If management does something I don’t like then I can sell my shares” then all your extended argument about why you’re right to dislike the things you dislike, is only empty philosophising.

You don’t like management paying attention to environmental issues or social issues etc when they ought to be making money for you. Somebody else doesn’t like them ignoring environmental or social issues. OK, given your opinion about why you want to sell the stock plus a sell order, you can sell stock. And given your opinion and $3.50, you can buy a latte.

Yep, and I personally do so. I think making donations to a charity is in some ways similar to being a shareholder. Of course as a donor yu expect your return in other things, in whatever units you measure “doing your duty” or “warm fuzzy feelings from helping others”. If I think an organisation is not doing enough charitable work, or it is doing ineffective charity work compared to some alternative, I stop donating to it.

And yes, there are people who want companies to simultaneously make a monetary return on their retirement savings, and pursue some other social goals. I don’t know why people do, and I think it is inefficient, but I think that trying to stop them would be far more inefficient.

In that context the concept of fiduciary responsibility is nothing more than empty philosophising.

No. I think there is still something in that management should not be stealing money or fame for themselves. If a manager wants $2 million of the shareholders’ money to blow at Las Vegas, he/she should go directly to the shareholders and ask them for it.