There are laws and rules that require publicly traded companies to maximize stockholder profit.
No no no no!
It's not really true. It's not completely false to talk about the need of public companies to take into consideration , but there are significant problems with the argument most of the time you see someone trot out that line. Shareholder wealth maximization is a consideration, but is by far need not be be-all, end-all goal from a legal perspective. This is particularly true in this scenario of 20% time, because if the board thought that 20% time was a good thing to have from the company's perspective, they would be completely allowed to implement it.
"While the duty to maximize shareholder value may be a useful shorthand for a corporate manager to think about how to act on a day to day basis, this is not legally required or enforceable. The only constraint on board decision making is a pair of duties â" the âoeduty of careâ and the âoeduty of loyalty.â The duty of care requires boards to be well informed and to make deliberate decisions after careful consideration of the issues. Importantly, board members are entitled to rely on experts and corporate officers for their information, can easily comply with duty of care obligations by spending shareholder money on lawyers and process, and, in any event, are routinely indemnified against damages for any breaches of this duty. The duty of loyalty self evidently requires board members to put the interests of the corporation ahead of their own personal interest."
"But if shareholder value thinking is counterproductive, how did it become so prevalent? Non-experts often assume the approach is rooted in law, and that public companies are legally required to maximize profits and shareholder returns. This is pure myth. Thanks to a legal doctrine called the business judgment rule, corporate directors who refrain from using corporate funds to line their own pockets remain legally free to pursue almost any other objective, including providing secure jobs to employees, quality products for consumers and research and tax revenues to benefit society."
"[Dodge vs. Ford Motor Company] is frequently cited as support for the idea that "corporate law requires boards of directors to maximize shareholder wealth." The following articles attempt to refute that interpretation. ... In that context, the Dodge decision is viewed as a mixed result for both sides of the dispute. Ford was denied the ability to arbitrarily undermine the profitability of the firm, and thereby eliminate future dividends. Under the upheld business judgment rule, however, Ford was given considerable leeway via control of his board about what investments he could make. That left him with considerable influence over dividends, but not as complete control as he wished."
"Many of us have heard that corporations are legally required to maximize shareholder value. Guess what, they are not. The law in the United States does not require management to maximize shareholder value (except under rare circumstances such as when the company gets put up for sale). This may surprise you because you've also probably also heard that shareholders own the corporation. That's not true either."
And finally, to make things ever more interesting:
"In case law speak, judicial commentary articulating an opinion and not decisive to the case is known as "dicta" and is not binding in the court of law. The comments that have made Dodge v. Ford the single-most known case for defining a corporation's duty to maximize shareholder growth...comes in, well, dicta."