In a comment on Haskell Murray's post on corporate purpose, Bernard Sharfman opines that:
In eBay Domestic Holdings, like in Dodge v. Ford (Gordon pointed out in his article, "The Shareholder Primacy Norm," that Dodge v. Ford can be interpreted as a case of minority oppression), you had a controlling shareholder oppressing a minority shareholder. However, controlling shareholders have fiduciary duties to minority shareholders. The problem for Chancellor Chandler was to figure out what those fiduciary duties actually meant given the facts presented to him. Perhaps the only thing that made sense to him (again, given the facts presented) was that the duty must involve maximizing the wealth of shareholders. Therefore, as with cases involving Revlon Duties, I think eBay represents a very narrow application of shareholder wealth maximization.
Sharfman is referring to Gordon Smith's interesting interpretation of Dodge v. Ford Motor Company, which argues that the shareholder wealth maximization norm originated as a means for resolving disputes among majority and minority shareholders in closely held corporations. See D. Gordon Smith, The Shareholder Primacy Norm, 23 J. Corp. L. 277 (1998).
I am skeptical of Smith’s interpretation. In the first instance, the court’s own analysis in Dodge is not limited to close corporations. Smith places considerable emphasis on the sentence immediately preceding the court’s statement of the shareholder wealth maximization norm. See id. at 319 (using italics for emphasis). In that sentence, the court draws a distinction between the duties Ford believed he and his fellow stockholders owed to the general public “and the duties which in law he and his codirectors owe to protesting, minority stockholders.” Dodge, 170 N.W. at 684 (emphasis supplied). On its face, the duty to which the court refers is that of a director rather than the duties of a majority shareholder. (Concedely, both the specific passage in question and the opinion in general are sufficiently ambiguous to permit Smith’s interpretation.)
In the second instance, whatever Dodge originally meant, the evolutionary processes of the common law have led to Dodge being interpreted as establishing a basic rule for boards of directors; namely, that the board has a duty to maximize shareholder wealth. In Long v. Norwood Hills Corp., 380 S.W.2d 451 (Mo. Ct. App. 1964), for example, the court observed:
Plaintiff cites many authorities [including Dodge] to show that the ultimate object of every ordinary trading corporation is the pecuniary gain of its stockholders and that it is for this purpose the capital has been advanced.... All of these cases involve either banking, commercial or manufacturing corporations and in most of them alleged misappropriation of the assets of the corporation or misconduct of the majority stockholders or boards of directors have been alleged.
Id. at 476 (emphasis supplied). The court further stated that it had “no quarrel with plaintiff insofar as the rules of law stated therein govern the actions of majority stockholders and the boards of directors of corporations.” Id (emphasis supplied). As Smith himself concedes, moreover, his interpretation departs from the “consensus” of most corporate law scholars. Smith, supra, at 283.
Hence, I continue to believe that Dodge states a principle of law applicable generally rather than being "a very narrow" precedent.
