That is not a hypothesis. That is the legally enforced and encoded definition of what capitalism must do.
There is no law that I can think of that forces me, as a business owner to maximize my profits nor does any law prescribe the golden path for achieving said maximum. Generally speaking my business can incur losses as long as I find people willing to pay the money - either through loans, donations, whatever other means. I'm free to run my company as I wish as long as I get the majority of shareholders to agree.
There is one caveats that applies: If I run out of money, my company goes bankrupt. If I willfully or negligently damage the company by e.g. performing illegal acts and thus damage the property of other shareholders I might be liable. Paying decent wages certainly does not fall into this category.
Capitalism does not require companies to become bad actors. It certainly provides a lot of incentives to do so, but it's still the actors decision. Blaming any "legally enforced and encoded definition" is blame shifting.
Nope. You certainly got it wrong. See the linked posts from https://news.ycombinator.com/item?id=7129788. One of the potential source for that confusion might be that directors decisions can be challenged on the presumption that they are wasteful, but you'd have to prove that paying a decent wage is wasteful which is a very hard hurdle to overcome. Bad faith may be another option - but that's a different story.
Being traded on the stock market provides a lot of incentive to maximize profits since more profitable companies trade better - but it's not a legal requirement.
directors/officers of a corporation have a fiduciary duty to its stockholders. this is three-pronged: good faith, loyalty, due care.
there is no such 'maximize profits' mandate in common law. See business judgment rule and Directors' duties.
if these don't clarify things, please ask questions.
1: http://en.wikipedia.org/wiki/Business_judgment_rule
2: http://en.wikipedia.org/wiki/Directors%27_duties
..
edit: another poster (netcan) gave a great explanation in a sibling thread- https://news.ycombinator.com/item?id=7129582
Well then certainly you can point us to the law that legally encodes a definition of capitalism and provides a regulatory regime that provides relief when someone practices "unorthodox capitalism."
What you are speaking about is #2. There is a high bar for such lawsuits, but there is a legal standard.
http://www.professorbainbridge.com/professorbainbridgecom/20...
There would need to be a fact-based reason to give that raise out to the entire workforce. For example, workers would need to be leaving for better jobs, or the workers would have to go on strike.
Companies certainly do have a duty to shareholders. That's absolutely true and breaches in duty should be taken seriously. A common issue where this responsibility needs to be better policed is lopsided risk decisions where in many cases executives can make large bonuses and on rare occasions they don't make a bonus while shareholders lose big - a complicated mess of scheming and tricky incentives that can in extreme cases amount to theft. This is the main type of abuse that these legal duties are meant to prevent. They do so imperfectly, but that's a different discussion.
"This company pays a fair wage and maintains a high standard of labour conditions. These are core values of this company and an important part of how we do business."
The above statement is completely legitimate position for a company to take and absolutely does not count as wasting shareholder money.* These are not new legal concepts. They have many years of legislation and litigation behind them.
http://www.law360.com/articles/154407/ibew-fund-sues-goldman...
They didn't win.
Delaware Chancery Court on Monday, alleging the firm's practice of allocating nearly 50 percent of revenue to management's compensation constitutes corporate waste.
Note first that this complaint/case is about financial asset managers, who have more specific duties to deal with specific conflicts of interest. IE, the managers can manipulate the risk the company is taking in a way that benefits them personally. In very simple terms, the boss giving himself a very fat bonus. This isn't even close to the boss paying ground floor employees a better wage.
The Plaintiffs’ problems with the compensation plan structure can be summarized as follows: Goldman’s compensation plan is a positive feedback loop where employees reap the benefits but the stockholders bear the losses. Goldman’s plan incentivizes employees to leverage Goldman’s assets and engage in risky behavior in order to maximize yearly net revenue and their yearly bonuses. At the end of the year, the remaining revenue that is not paid as compensation, with the exception of small dividend payments to stockholders, is funneled back into the company.
This increases the quantity of assets Goldman employees have available to leverage and invest. Goldman employees then start the process over with a greater asset base, increase net revenue again, receive even larger paychecks the next year, and the cycle continues. At the same time, stockholders are only receiving a small percentage of net revenue as dividends; therefore, the majority of the stockholders’ assets are simply being cycled back into Goldman for the Goldman employees to use*
Even in this case, the shareholders were not able to prove that this was anything other than poor business decisions which are not something the court can make decisions about.
The facts pled in support of these allegations, however, if true, support only a conclusion that the directors made poor business decisions. Through the business judgment rule, Delaware law encourages corporate fiduciaries to attempt to increase stockholder wealth by engaging in those risks that, in their business judgment, are in the best interest of the corporation “without the debilitating fear that they will be held personally liable if the company experiences losses.”
Saying that companies can't raise wages because of fiduciary duty is bollocks. It's just an untruth, from a practical perspective.
You are speaking about company directors deliberately devaluing their company on purpose to serve some other end. Often this would be connected to fraud, or semi-fraudulent, hence the the case law behind your idea.