Nope there's no legal requirement. Management is happy for you to believe there is because they get paid in stock.
The only legal requirement is to make decisions that are in the shareholders' interests, rather than the management's. That means short-term-bad, long-term-good decisions are actually strongly encouraged.
Allowing outside shareholders in combination with private ownership is going to result in the kinds of short term thinking that lead to the "exits" and other profit-maximizing behaviors.
One "way out" is to make laws that give good public incentives / allow people to easily incorporate as organizations where the employees are the sole owners of the entity (co-op).
FWIW this is a myth.
> Second, absent a limited set of circumstances as defined under Revlon, a board of directors, while always required to act in an informed manner, is not under any per se duty to maximize shareholder value in the short term, even in the context of a takeover.
> To quote the U.S. Supreme Court opinion in the recent Hobby Lobby case: “Modern corporate law does not require for-profit corporations to pursue profit at the expense of everything else, and many do not.”
https://www.nytimes.com/roomfordebate/2015/04/16/what-are-co...
You would be right technically.
Practically? a firm that isn't competitive, will have lower multiples, will trade at lower stock prices, and that will make it an attractive takeover target.
Just buy the firm, drop the practices that don't improve stock price, and then pocket the difference.
It doesn't happen all the time, and some firms may have enough of a war chest to avoid this fate.
However, the pressure does exist, and it does drive conformity in behaviour.
There are laws that a plumber can't come into your home and smash up your pipes. That law however is not the thing that prevents the plumber from doing that, the plumber naturally works in your common interest. It's the exact same with companies, shareholders elect a board who hires specialists to run the company. Notice the shareholders are at the top.
"The company" is not a living thing. It cannot "want" something.
A company does what its management and board wish for it do to. Ergo its wants are the managements wants. Management is human, and most humans want money.
Paying management with company stock is theoretically meant to align those incentives.
Or do you want to redistribute the ownership of capital?
The interests of the shareholders diverge quite strongly from the interests of electrical utility customers. It is generally a parasitic relationship where they consume resources that could have been spent improving utility service for the customers, either directly via dividends or indirectly by avaricious behavior on the part of the company in pursuit of their stock price.
Unless the customers are the shareholders, as in a co-op. The article's data seems to show that co-ops provide the cheapest electricity, which makes sense because the owners are the same people as the users, so the incentives are aligned.
That is true for most businesses. People in different circumstances have different economic wants and needs, that is a neutral fact.
The parasistism you describe is only enabled by barriers to competition.
I think that's unfair. Do you disagree that companies who go public become myopic and attempt to extract more value until they've hollowed themselves out?
Shareholder value (primacy) is one interpretation on the purpose of companies (and a relatively recent one):
* https://en.wikipedia.org/wiki/Friedman_doctrine
There are others:
* “Profits are to business as breathing is to life. Breathing is essential to life, but is not the purpose for living. Similarly, profits are essential for the existence of the corporation, but they are not the reason for its existence.” ― Charles A. O'Reilly, Lead and Disrupt: How to Solve the Innovator's Dilemma, https://en.wikipedia.org/wiki/Charles_A._O%27Reilly_III
* “On the face of it, shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy...your main constituencies are your employees, your customers and your products.”[72] — https://en.wikipedia.org/wiki/Jack_Welch#Politics
If you back to the mid-1900s US:
> In 1949 General Foods’ president Clarence Francis told Congress that he had a “three-way responsibility to the American consumer, to our associates in this business, and to the 68,000 [stockholders in General Foods]. We . . . would serve (the company’s) interests badly by shifting the fruits of the enterprise too heavily toward any one of those groups.” Two years later, the president of Standard Oil of New Jersey claimed that managers needed “to conduct the affairs of the enterprise in such a way as to maintain an equitable and working balance among the claims of the various directly interested groups—stockholders, employees, customers, and the public at large.” So widespread were such views that, in 1959, one writer in the Harvard Business Review complained that it was no longer “fashionable for the corporation to take gleeful pride in making money.” Instead, he complained, it was typical “for the corporation to show that it is a great innovator; more specifically, a great public benefactor; and, very particularly, that it exists ‘to serve the public’.”
* https://law.temple.edu/10q/purpose-corporation-brief-history...
Or further:
> American corporate law has long drawn a bright line between for-profit and non-profit corporations. In recent years, hybrid or social enterprises have increasingly put this bright-line distinction to the test. This Article asks what we can learn about the purpose of the American business corporation by examining its history and development in the United States in its formative period from roughly 1780-1860. This brief history of corporate purpose suggests that the duty to maximize profits in the for-profit corporation is a relatively recent development. Historically, the American business corporation grew out of an earlier form of corporation that was neither for-profit nor nonprofit in today’s parlance but rather, served a multitude of municipal, religious, charitable, educational, and eventually business purposes in early nineteenth-century New England. The purposes of early American business corporations—rather than maximization of profit to private shareholders— were often overtly public, involving development of local transportation, finance, and other much-needed economic infrastructure. With the rise of factory-based manufacturing, railroads, and other capital-intensive industries in the middle decades of the nineteenth century and the advent of general incorporation statutes, the purpose of the American business corporation shifted fundamentally from public to private. By 1860, the stage was set for the modern firm.
* https://repository.law.umich.edu/mbelr/vol9/iss1/2/
The idea that it is some kind of 'legal requirement' is also a myth:
tl;dr Ford wanted to invest profits back into Ford company and Dodge forced them in court to pay dividends instead.
https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co.
> Michigan Supreme Court held that Henry Ford had to operate the Ford Motor Company in the interests of its shareholders, rather than for the benefit of his employees or customers.
For a fuller treatment see:
The problem is a lot of companies functionally behave that way but there actually isn’t a mandate resembling anything like this, though it’s repeated so often I’m not surprised a lot of people it’s the case. Fiduciary duty doesn’t translate to “rip up and sell everything that isn’t nailed down, burn all your goodwill, and squeeze the shit out of everyone so you can extract every red cent as fast as humanly possible.” You are allowed to plan for the long-term. We just don’t and we create all sorts of incentives (bonus structures for instance) to chase short-term gains.
The investors aren’t going to rise up in all their fury and haul off a CEO to be guillotined because he invested in a project that spans more than a quarter. But unfortunately, plenty of businesses love operating as if that’s the case, because it gives an excuse to make quick dirty money. So they hide behind this erroneous perception of what constitutes “fiduciary duty.“ In the US’s particular form of capitalism it makes a lot of sense, even if it’s terrible for us as a whole.
A long term plan for a company is _at least_ a decade. If your plan ended today, it started in 2016 so it has had to survive COVID, inflationary periods, several trade wars, the rise of AI and now the side effects of the war in Iran.
If your long term plan has to adapt to those in real time, is it even a long term plan? Or is it really a series of long term plans cut so short they became short term plans? I can see companies adapting to just drop the long term premise entirely.
As far as I can tell utility companies are pretty bad at "vast profits to shareholders".
Paying for Their Profits: How Ratepayers Foot the Bill for Soaring Utility Profits - https://energyandpolicy.org/utility-profit-report/ - March 12th, 2026
- Some utilities consistently operate at significantly higher margins than the average. The top 10 utilities by average margin over 2021–2024 include MidAmerican Energy (27.22%), Florida Power & Light (23.51%), Nantucket Electric (23.24%), Empire District Electric (22.45%), Florida Public Utilities (20.35%), CalPeco (20.28%), Public Service Electric & Gas (19.44%), Duke Energy Carolinas (19.07%), Alabama Power (18.71%), and AEP Texas (18.63%).
These are their five year stock gains, with the general market for reference.
Market (SP500): 68%
Market(tech): 89%
XEL: +20%
AEP: +51%
SO: +47%
EIX: -5%
CPK: +2.5%
AQN: -64%
NGG: +30%
NEE: -3.5%
Looks like a pretty bad industry for profits, even stacking the dividend on AEP, it still comes up short of SP500.
Utility companies get local monopolies and in exchange their prices are regulated. Consequently they have moderate but stable, essentially guaranteed, returns.
https://www.finra.org/investors/insights/concentration-risk
https://en.wikipedia.org/wiki/Concentration_risk
https://ncua.gov/regulation-supervision/letters-credit-union...
That makes very little sense.
And stock price is not a measure of profit.
Although, a 5 year investment term is too short for comparing equity returns for a long term investment.
Comparing long term returns using a website like this would help figure out if the businesses are over performing.
I am fairly confident the cohort of those who support investor owned utilities are a vocal minority.
Note that there exists the same incentives for publicly owned and investor owned utilities of voters today wanting lower utility prices at the expense of future utility customers by keeping capital expenses down today.
>I am fairly confident the cohort of those who support investor owned utilities are a vocal minority.
I will be the first to support only publicly owned utilities. But that has nothing to do with using bad logic and numbers to determine outsized margins.
The rest of the state is served by either local cities with their own utilities or cooperatives. The cooperatives are not government agencies, they are privately owned non-profit corporations whose customers are the owners. These companies aren't regulated by the state PSC and have the ability to set their own rates unilaterally. The only regulation they have is that they report their rates to the PSC, but it's just a report, no approval
Technically they're almost all subject to regulation by the US Government as a condition of taking loans in the 30s/40s (and most of them have rolled that financing over and continue to use it to finance operations even today) but for the most part that regulation just says they have to at least charge enough to cover their interest, and can't sell their systems without the feds' approval
They could raise rates as much as they want, but the structure of a customer-owned company like that is the profits just get redistributed back to the customers, so there's no reason or incentive to do so
And, FWIW, that 23% number from the linked article is about right. GPC is usually 15-20% higher than most of the coops and city-owned systems in Georgia (there are some that are higher). And this is even with some of those coops and cities actually buying power wholesale from GPC
As interest rates go up, investor owned utilities increase their rate of return on equity ask, pushing up consumer electricity prices. A baseline of consumer electric demand is inelastic, and required for life.
But yeah, natural monopolies with inelastic demand (power, water, healthcare, shared infrastructure) should be publicly owned, imo.
Which is to say if the solution was that simple and the fruit that low hanging it'd be done already.
At the end of the day whether profit or not the problem is that there's no consequences for sucking and no reward for not sucking. Government agencies tend toward fiefdom expansion, amassing power and graft. For profit entities tend to try and create situations where they can extract rents on the flimsiest of pretexts. They both seem to suck for energy though perhaps government sucks a tiny bit less. Neither "solves" the problem because neither seems inclined to steadily march toward cheaper/better/faster/whatever-er energy. They both seem to try and increase the suck if left to their own devices.
The infrastructure is for the public.
Why shouldn't the public get to pay for its own infrastructure without a middleman trying to make a buck?
Public utilities receive unfair advantages like preferential financing, tax exemptions, and government infrastructure grants in your definition of subsidies, public utilities frequently receive some form of government support. (unfair as in not apples to apples comparison)
Okay sure, and if the utility is public, the public should get to set policies accordingly.
> Public utilities receive unfair advantages like preferential financing, tax exemptions, and government infrastructure grants in your definition of subsidies, public utilities frequently receive some form of government support
Unfair to who? Somebody who wanted to profit off the public? As a member of said public, excuse me for not being the most empathic towards people trying to make a buck off me.