The Brittle Spear IV: Incentives

  • The Brittle Spear IV: Incentives

    updated 2 weeks ago 1 Member · 1 Post
  • Anonymous

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    April 8, 2021 at 9:20 AM
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    Publicly traded companies have a fiduciary responsibility to do what is best for their shareholders. It is all well and good that management should be beholden to the beneficial owners of a firm. Management indeed should act in the best interests of those whose mandates they are supposedly carrying out.

    This gives us some perverse incentives, however. In a situation where a company could spend 3% more on a product and lessen its environmental impact, but reap no other rewards beyond that, it would be unclear what the direct benefit to shareholders would be. If we spend more and chalk it up to marketing costs and hope that people will buy more of our stuff later, then this could be of benefit.

    Similarly, we can spend more because it would strengthen our license to operate and would make for less criticism from the public or regulators. We could also envision a scenario where a company could spend more in an attempt to obfuscate other detrimental economic impacts that the business has (gluten-free meat products or a “green” packaging for something that is, per definition, destructive, such as palm oil.) The company may do this in order to attract more graduate

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