In practice, the company is not an entity able to set objectives or make decisions, decisions are made and influenced by individuals, and often the incentives of individuals are _not_ aligned with maximising stockholder profits. In many cases companies do things that do not maximize stockholder profits. There are blatant examples of this where a company CEO or company president is able to plunder assets from the company for their own personal enrichment (e.g. through self-dealing where the company buys or sells assets to another entity controlled by the CEO). There are also many cases where a project pursued by the company may have zero or negative benefit to the firm and to its shareholders, but provide many benefits to the employees leading or participating in the project.
William J. Bernstein's article Of Earnings, Dividends, and Agency [1] offers an educational and entertaining perspective on this:
> in a taxless world a company’s dividend policy should matter not at all to the shareholder. Inside academia, this is known as the "Modigliani-Miller theorem." In the taxable world, of course, shareholders prefer capital gains to dividends. So why do companies pay them?
> Because, to put it bluntly, corporate officers are often scoundrels and theives. They lie. They cheat. They steal. They invest in projects more on the basis of turf, prestige, and politics than cash flow. They run around in Learjets and eat fois gras on your nickel. Shareholders intuitively know this and insist on spiriting their cash away from these bad actors as fast as they can.
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> "failure to disgorge cash leads to its diversion or waste, which is detrimental to outside shareholders’ interest."
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> But what is most remarkable about [the paper by La Porter, Lopez-de-Silanes, Shleifer, Vishny][2] is its tone, which is almost Menckenesque in its description of modern corporate ethics. They describe a Hobbesian world in the kind of plain English rarely seen in academic finance; "Firms appear to pay out cash to investors because the opportunity to steal or misinvest it are in part limited by law, and because minority shareholders have enough power to extract it."
If Bernstein were to update his 2000 article for 2022, he might need to briefly discuss share buybacks as an increasingly popular tax efficient alternative to dividends. Share buybacks, like dividends, allow cash to be extracted from company coffers and captured as gains for shareholders.
