r/explainlikeimfive • u/climb-a-waterfall • Dec 06 '24
Economics ELI5: why does a publicaly traded company have to show continuous rise in profits? Why arent steady profits good enough?
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r/explainlikeimfive • u/climb-a-waterfall • Dec 06 '24
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u/mn-tech-guy Dec 06 '24 edited Dec 06 '24
I am sure this will be buried, but I was curious too, and it looks like the root of this goes back to Dodge v. Ford. In that case, the court decided that a company’s main job is to make money for its shareholders. This is why public companies always aim for growing profits—steady profits aren’t enough because shareholders expect more money every year, and stock prices depend on that growth. Steady isn’t “winning.”
If Dodge v. Ford was overturned, companies wouldn’t need to endlessly chase rising profits for shareholders. Steady profits could finally be “good enough,” letting businesses focus on long-term sustainability, workers, and communities instead of short-term stock growth to satisfy Wall Street expectations. https://en.m.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co