Firms have owners and the excutive.
Firms have owners and the excutives and agents works for the owners. Owners have certain rights in the firm. Legally the firm belongs to owners/share holders which means they have the right to control the firm. But when you look at publiclty traded firm this control that shareholders have is a little somatic. The only time the woners control the firm is when they go to the annual meeting and vope a proxy , thats it. everthing else is at the hand of someone else.. this means you buy shares in a company, you have no control over the firm except the right to vote for those shares. Those shares get voted once a year at the annual meeting. Owners have rights to the profits of the firm. Ie dividends and I the firm is ever dissolved they have the right to the assets of the firm. The owners bear the cost of governance and governance comes down to the board of directors. The primary role of the board of director is to select the executives that will be running the firm and monitor their performance and how they are running the firm. Both the executives and the board of directors are fiduciaries and agent of the firm but the board of directors are not involved in the day to day function of the firm. The executives make policies, the made decisions of balaf of the shareholders on the day to day operations and pretty much run the firm under the supervision of the board of directors. Ivestors vote the board of directors. The directors have the power to select the executives and the executives are responsible for contracting all the stakeholders- customers, employess, banks etc.they are contracting on behalf od the owners in such a way to make super normal profits- contract with employess in a such a way to pay the last as possible, contact with customers in such a way to charge as much as possible etc. So what they try to do then is to advance the interest of owners. So they are there to serve the shareholders and no one else. They advance the interest of shareholders while respecting the rights of stakeholders. They are maximizing returns for the woners which is a result based duty while respecting the right of the stakeholders. So they are maximizing within constraints- some constraints are legal and some are social. Corporation actions become less defendable as they encroach over the perceived rights of stakeholders. For example there are some laws that protect the rights of customers.The Sherman act of 1990, prevents monopolizing and price fixing, protects them from the monopoly power that firms were acquiring the in the last 19th centurary. Drug admininistrative act of 1906, excentially sayas customes that the right to safe food, not to be poinstoned and to drungs that say what they are. In bboath cases the antitrust act enforced by the department of judstice and we see the tax dollor payment dollars being spend to enforce that right. The SEC act of 1933 to protect the right of investors and to insure investor materially correct information. Budget of the SEC is 1.5 million dollars a year and the auditor firms have about 40 million dollars a year and if you look at what firms spend on internal audit andaccounting is prob 5 times that. Tax payers are paying 1.5 for the tight to material information and there is prob $250 being spent by the industry. One thing to kee in mind, no matter how good you do, you will always be remembered by your biggest mistake as an executive. Boots pharmasutacal, a one drug company had a drug and although it lost its patent has 84% of the market share. Eventhough there are 3 generics out there. So this is the power of the brand. Boots decided to defend ther fanchise and commission a study. Brading plays a really big role in pharmasitucal drugs. And once your patent expires, you run a risk of running a lot of market share as generic medication make their way into the market at a much lower cost. They could have done the study in house but how much weight is the study going to have? So what they decided to hire a univestity to do the study because universities fuduciarry duty is suppose to be to the community- state sponsored institution. Researcher at UCSF, top of the market institution to do the study for them. Researchers do a clinical trial and learn both drugs are identically the same. They belive, their product is the best. We are thought to belive that and that is truth by authority. Whay we are trying to get the imperical truth here. Thugh by authority and empirical truth are not always the same. And what they learned from contracting the university is that it aint so. The other thing at play s that the researchers signed a contract with boots without having the university lawyers looks at it but doenst change the imperial truth. What you also found out is that your customers are paying your prices and now they dont have to., you know it and they dont. People taken the drugs do not know that there is a cheaper alternative out there and they no longer have to pay your prices so there is some hosing going on here. But your fiduciary duty is to your investors and as a one drug company, you have a big problem at your hand. At one hand you know that your customers are paying prices when they dont have to at the same time.This is a stakeholder problem. The other thing at play, is that boot is at up for sale for a millions of dollars and if they were to disclose this information, the price of the company would tank and now you are faced with some angrey share holders. So you have a contract that gives you the right to commission the study, you have a fiduciary duty to your shareholders to retain their profit stream and you are selling the company and what the buyer is buying is your profit stream on this drug. If this was to get out, not only would you compromise your profit stream for your share holders but you would also compromise the sale. So what decided to do is discredit the study and ruin the reputation of the researcher. Dr wong sighed a contract that gives the company to stop the research at any point during the study. So are the executives wrong in what they did? Examining the role of the executive, an executive is sort of like a politician and their duty is to serve theshareholdr and the share holder only while honering the rights of the stakeholders and what they did was stop the study and trashed the researchers reputation and they got the transaction approved and got the sale for their shareholders except when you do something like this, you cant really make it go away. It eventually finds its way out to the public. After the transaction took place, there was a class action lawsuit aganst DESF and they ended up paying aprox. 130 million to a fund to compensate the patients for knowingly overcharging for a drug that had a generic version that cost a lot less. This was not a legal suit, it was a civil suite. The real offense was done by the university of California because they have the duty to the truth. They are a research institute and not for profit. Universities have a particular role in sociecy and they are one place, where you are suppose to tell the truth. they have a role in society to tell the truth. This is suppose to be one of the top universities in the world and they got rolled by a one drug company and eventhough Dr wang signed the contract, what they should have done was breach the contract and gotten the truth out there. And this leads to the question, so why didmt the university to that? The reality is that more and more universities are now getting their research funding from corporations and no university wants to a get a reputation of not playing well in the sand box and lose their funding. And this is a very pernicious factor in society, it come down to, who is paying for it? Not good or bad but its a question of design. How do you want to design your universities, how do you want to design your institutions of truth.