In the absence of any regulatory scheme, isn't the only duty of a corporation to make $$ for its shareholders?

Question

Aside from fiduciary duties to its shareholders, a corporation has no outside duties in the absence of any regulatory scheme, does it?

In other words, if there is no governmental regulatory scheme isn't it in the best interest of a corporation to cheat if the risk calculus is advantageous to do so?

After all, in the view of the corporate entity, as long as the customer agrees to pay the amount negotiated, wouldn't cheating, lying, misrepresenting, etc., not only be okay but advantageous from an economic standpoint if there were no statutory scheme penalizing it?

P.S. By "regulatory/statutory scheme" I mean laws to obey.

My question basically addresses instances where there are no laws on the books to regulate certain types of corporate behavior, such as emerging areas of internet commerce.

The example I had in mind is an offshore corporation which runs an internet poker gambling site. Now since it is incorporated offshore and not subject to US laws, and furthermore no one really has the ability to audit its computer programs anyway, where is the disincentive to cheat?

An internet poker site makes money from "rakes", i.e., the take on each hand played. Most internet poker sites also offer free play chip games. So if it could be shown that by rigging play chip games for outcomes that persuaded marginal players who wouldn't otherwise play the real $ games to in fact play them, that the site would make more $$, wouldn't it be in their best economic interest to do so?

Answer 1

The issues you have stated is why companies pay hundreds of millions and billions of dollars for brand names.

A brand name is a form of consumer insurance. Companies go to great lengths to build and protect a brand name in order to convince patrons to become customers. If a company succeeds in convincing customers to believe that their product is superior (i.e. with respect to your example, does not cheat) they know that they will be able to attract a larger customer base - making more money.

If an off-shore gambling site got a reputation for cheating, their business would suffer immensely, particularly in today's information age. Most businesses are wise enough to realize that to a large degree, there is much more money to be made by attracting a larger and more loyal customer base than in making rake money off of extra bets.

Edit: I used to play quite a bit of on-line poker, and it does sometimes seem that the site is inflating the cards to generate more rake. But you have to realize that you are seeing hands roughly 5 times as quickly as table poker, so you will also see 5 times the number of good hands in a set amount of time.

Edit 2: Also, with regard to play money tables, realize that most players see many more hands than they would if real money was on the line. They also "chase" with even more marginal hands once the flop is out. With more players "chasing", you are going to see more completed big hands (flushes, straights, etc)

Answer 2

I think it depends. There is the school of thought that consumers will find distasteful certain things and will look for competitors that provide the same service without polluting or cheating or harming workers, etc. That the bottom line would be that it's not profitable to do things that consumers won't like or won't benefit from. This is really only the case in a fully developed economy where people are empowerd ( power of the purse ) to make those sorts of decisions.
There are also moral concerns and the idea of "social responsibility" but those are alot less certain. Those concepts will vary from person to person.

Answer 3

Just like private citizens have no duty to refrain from murder, rape, theft, swindling or other crimes in the absence of laws, yes.

And, just because a technology or practice or business or whatever is new, doesn't mean existing laws don't aply, only that there isn't a specific body of case law, yet. For instance, if you were to invent a 'death ray,' and use it to kill someone, you'd still be guilty of murder. If you're a company (corporate or propriatorship) doing business on the internet, and you commit fraud, you've still committed fraud - though the courts might have to decide whether it's more akin to 'mail fraud' than some other type.

Answer 4

The primary obligation of any corporation is survival - otherwise, it could just stay private and die upon the death of the owner.

Sometimes, that survival can mean lower profits in the short term in favor of larger and more consistent ones in the future.

Answer 5

That is the point of any company....to make money, and that is their job....it is up to the consumer to research the things they buy and barter the best deal.....if you pay to much its your own fault....and in absence of laws, well to put it simply if they are not there, people won't follow them.