I have just posted a new article to SSRN: Stephen Mark Bainbridge, Why We Should Keep Teaching Dodge v. Ford Motor Co. (April 5, 2022). UCLA School of Law, Public Law Research Paper No. 22-05, Available at SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4076182
Abstract
What is the purpose of the public business corporation? Is it to maximize shareholder value? Or is it to simultaneously enhance the welfare of shareholders, stakeholders, and the larger society? These are perennial questions, of course, but they also have been much in the news in recent years. Whether tagged as stakeholder capitalism, stakeholder theory, corporate social responsibility, or ESG (i.e., environmental, social, and governance), much attention is being paid.
The time has thus seemed propitious to many legal scholars to revisit the law of corporate purpose. Many of these scholars have been influenced by the late Lynn Stout’s work on the topic. Ten years ago, Stout published her book, The Shareholder Value Myth, which built on her earlier article, Why We Should Stop Teaching Dodge v. Ford. As the latter title suggests, Stout’s principal foil was the Dodge case.
Stout’s focus on Dodge was well chosen, as the case is included in almost all law school corporation law and business association casebooks and has been widely discussed in the academic literature. The influence of Stout’s critique of Dodge work was confirmed by a March 31, 2022, search of the Westlaw Law Reviews and Journals database, which identified 98 articles published in the last three years that cited her book and 43 during the same period that cited her article.
Given the renewed attention to the corporate purpose question and the continuing influence of Stout’s work on that debate, it seems appropriate to revisit her arguments to determine whether she was correct that law professors should stop teaching Dodge. I conclude that law professors ought to keep teaching Dodge. It was good law when handed down in 1919 and remains good law today.
Keywords: corporate purpose, corporate social responsibility, CSR, ESG, Henry Ford, Dodge v. Ford Motor Co., shareholder primacy, stakeholder theory, stakeholder capitalism, corporate law, shareholder wealth maximization, shareholder value maximization
JEL Classification: K22, L21, M14
