The goal of a corporation and the role of regulation

Hey guys,

This thread is in response to this thread:
www.abovetopsecret.com...
in which the op states " a corporatiosn goals should not be the mantra taught in finance schools of "maximize shareholder value." Im going to hopefully spell out the basic case why its not true, and hopefully lead into what we could do to change the BS thats been going on (disclaimer: right wing family, libertarian views, commercial real-estate owner).

A corporations goals IS to make their money. Why else do they exist? If they were to serve a specific purpose and to not make money, it would be a nonprofit organization. I am very much for the movement of people making things like cell phones, TV's, computers, food, clothing, tools etc and to sell them @ cost or @ a fraction above costs so to ensure solvency in case they do not sell all of their product. But corps are FOR profit. If it is a good or necessary product, people will buy it, and the company's owners make money. Its the invisible hand at work and is what drives many people to get out of bed in the morning. It has also brought us untold wealth.

The problem with a corporation is that it rightfully should make as much money almost any way it can (because that is its goal). It shouldn't try to regulate itself. That is the role of PEOPLE and GOVERNMENTS, to set fair and socially friendly rules by which these corporations are to play by. An Oil company should aim to not get fined, even if they spill a billion gallons of oil in the ocean. Morally they should get fined, and its up to outside regulation to do so (make them pay). The BofA example in which they have moved their derivatives to be insured by the FDIC is another case of a corporation making a right move for itself, despite it being amoral. The rules prohibit this. They are only playing by the rules.

This is why REGULATION is necessary. Regulation has regulated us into a better life in many ways (40 hour workweek, safer, cleaner enviornment etc). My huge issue is with corporate personhood and all of the laws protecting corps unsafe behavior. This needs to be stopped with all our efforts.

So how do we get there? I like Rogans idea of using the internet to vote on issues, but I'm sure it can be hacked (not that the electronic voting booths arent).

Thanks for your time, and lets make all of these changes for the better.

Corporations exist to make money.

And they will do anything they can to game the system to do it.

Case in point would be mortgage backed securities. They figured out how to take the crap loans and sell them. But not only that they insured the sale. In the form of credit default swaps. The unfortunate result of this was the TARP bailouts.

This is why regulation is needed. To keep things from getting out of hand. The government needs to be like a referee. Watching all the plays to make sure there are no fouls committed. Handing out penalties when required.
Maintaining a level playing so everyone can compete in a fair manner.

I agree, OP. You have spelled out the role of a corporation beautifully, and the current cry that they should not make profits is ridiculous.

I think the problem is that ideally, many people seem to think that corporations should be run as non-profits. I challenge these people to go out and start a non-profit of their own. A non-profit oil company, for example.

What's stopping them?

Maybe that's what OWS should shift their focus to. Instead of railing about how bad the current system is, they should go out and start a better one. Lead by example.

I'd love to buy my gas from a non-profit gas company! As soon as one sets up and starts selling gas, I'll be the first in line.

reply to post by GeorgiaGirl


Me too! I'd love to buy gas from a NFP. In raelity, it may only be about 5-10% cheaper (oil companies need to explore and end up paying about 5% dividends and try to pump the reset in to exploration etc). But still, I bet it would catch like wildfire

Originally posted by vonholland

A corporations goals IS to make their money. Why else do they exist? If they were to serve a specific purpose and to not make money, it would be a nonprofit organization. I am very much for the movement of people making things like cell phones, TV's, computers, food, clothing, tools etc and to sell them @ cost or @ a fraction above costs so to ensure solvency in case they do not sell all of their product. But corps are FOR profit. If it is a good or necessary product, people will buy it, and the company's owners make money. Its the invisible hand at work and is what drives many people to get out of bed in the morning. It has also brought us untold wealth.

The problem with a corporation is that it rightfully should make as much money almost any way it can (because that is its goal). It shouldn't try to regulate itself. That is the role of PEOPLE and GOVERNMENTS, to set fair and socially friendly rules by which these corporations are to play by. An Oil company should aim to not get fined, even if they spill a billion gallons of oil in the ocean. Morally they should get fined, and its up to outside regulation to do so (make them pay). The BofA example in which they have moved their derivatives to be insured by the FDIC is another case of a corporation making a right move for itself, despite it being amoral. The rules prohibit this. They are only playing by the rules.

This is why REGULATION is necessary. Regulation has regulated us into a better life in many ways (40 hour workweek, safer, cleaner enviornment etc). My huge issue is with corporate personhood and all of the laws protecting corps unsafe behavior. This needs to be stopped with all our efforts.

So how do we get there? I like Rogans idea of using the internet to vote on issues, but I'm sure it can be hacked (not that the electronic voting booths arent).

While I agree totally with the concept that it is the people's duty to regulate, the actual problem is that regulation takes place in Washington D.C., a city where the "people" currently have no voice.

Our voice cannot be heard because corporations currently have monopolistic control over the people's podium, via their unlimited campaign donations and paid lobbyist from K Street. (paid lobbying is nothing more than a retirement plan for congressmen voted out of office and that's why they're so reluctant to legislate against it.)

The whole idea behind the "Citizen's United" decision was to give corporations and big money even more influence over a government that's supposed to be Of, BY & For it's people and in order to do so, they first had to be legally defined as "people."

In their quest to make more money "any way they can," corporations have decided that self-regulation is indeed a way of maximizing profits and the means by which they self-regulate is by controlling the legislators vote via their lobbying efforts. So, if we ever expect to see the return of a government that's Of,By, & For it's people, we must first remove the money from politics, plain and simple. I think I even heard on the news the other night that the new OWS slogan is; "Get The Money Out Of Politics" and in my opinion, that should definitely be Step 1.

On another note, I can understand the concept that corporations are designed to make money but what I don't understand is when is enough, enough? Why the need to continually set new profit records year after year after year? Personally, I believe this is where Wall St. fits in and that's why the protestors "followed the money there." The competition for investment dollars via "shareholders," (a term that does not appear in the U.S. Constitution) is centered on Wall St. and IMO, it's this competition for shareholders that fuels their need to set new records. Kinda reminds me of a dog chasing it's own tail.

All I know is that if I had a business that was providing me with a good standard of living and generating a nice profit, I would be happy to just repeat that performance year after year.

At some point I have to recognize the fact that "Greed" has taken over the corporate mindset and if left unchecked, it's the actual living, breathing "people" of the world that will suffer the ill effects of that mentality. This is the common denominator amongst the uprisings worldwide.

It's time to STOP corporations from viewing the earths natural resources as disposable and unlimited. It's time to STOP them from utilizing our air and water as open sewers for their contaminants. Or in other words, it's time to STOP them from making money "any way they can" and demand instead that they do it in a "responsible and accountable manner."

I'm not a bible thumper but I do believe that "the love of money is the root of all evil" and so long as the fundamental goal of corporations is to "make money any way they can," it would appear as if they were the devil incarnate here on earth.

reply to post by Flatfish


The enough is enough rule doesnt really apply. When a company like Apple or Google comes along, its wrong to inhibit its growth. But banks, I would argue that limiting their return on Equity could be beneficial to the world. Here's why (from my Financial Institutions class, Im getting my masters in Finance):

Banks will lend based on the "expected value" of the return. For great companies at short lengths of time, they factor in almost no defualt risk (and earn a pretty low return). The expected value of the return increases to a point as the more interest they can competitively charge. After this point, the loans expected default rate reaches a point to where the increased interest they could charge would not make a difference because the risk is too high. Should it collapse, they could not have enough funds to even give out some to the depositers.

Deposit Insurance prevents the bank run. Because of this, some of the risk is shifted to "the system" and bankers are encouraged to take more risk.

Now, if a ROE was limited to say 6%, (the rest needed to be given to charities or something), this incentive to take risk could be completely removed, and Commercial banks (not the Investment banks that use proprietary trading and those investing for rich guys and gals) could serve a great purpose, while providing the world with a great investment option at which they could get a return on investment of 6% like clockwork. Not too bad!

But not for other equities, that would stifle growth, creativity, and entreprenuership. But as a finance guy, screw the banks profit, your job is to monitor risk and prices (hah! like they do that), transform assets, and provide services to connect lenders and borrowers.