Saturday, August 19, 2017
I did a Lexis search, and found zero citations to Dodge v. Ford in the New York Times (though it appears there was at least one online reference in 2015), and only three in the Wall Street Journal – two of which were factual recitations regarding the history of corporate governance debates.
The third was yesterday’s op-ed, arguing that the shareholders of the companies that quit Trump’s manufacturing council (an issue discussed earlier this week by Marcia), as well as shareholders of other companies that purport to take a “moral” stance, should sue corporate executives for destroying shareholder value. The authors, Jon L. Pritchett and Ed Tiryakian, argued:
Memo to activist CEOs: Dust off your notes, open your textbooks, and reread the basics of corporate finance taught at every credible university. The fiduciary responsibility of a CEO is to safeguard the company’s assets and acknowledge this overriding principle: “It’s not our money but that of the shareholders.”
In today’s heated political climate, some executives have rejected the fundamentals in favor of short-term publicity for themselves and their corporations. When several CEOs quickly resigned over the past few days from the now-disbanded White House Council on Manufacturing, they cited personal views or political disagreement as their reason for leaving. Those may be truthful reasons, but are they in the best interests of the companies they represent? Wouldn’t shareholders be better off with their interests represented in this powerful group of government officials who control regulatory policy?
In the landmark 1919 case Dodge v. Ford, the Michigan Supreme Court laid out the ruling that has guided corporate America ever since. Ford Motor Co. must make decisions in the interests of its shareholders, the court ruled, rather than in a charitable manner.
As any business law professor knows - and as Marcia made clear in her earlier post - the matter is not nearly that simple. Even if we accept a pure shareholder wealth maximization frame, what would it mean for these companies’ ability to function if they remained? #SoupNazi became a popular hashtag on Twitter to force Denise Morrison of Campbell’s Soup to quit the council; the celebrity endorsements of Under Armour may have been under threat due to Kevin Plank’s presence, and employees of Silicon Valley were in open revolt over their leaders’ cooperation with the Trump administration, which just goes to show why Dodge v. Ford is generally considered not good law, at least to the extent it proposes that courts second-guess the wisdom of business decisions.
That said, there’s the macro-level view. Political instability is bad for business. The perception that America strives for certain moral ideals, and its adherence to the rule of law, are good for business. It’s reached the point where multiple companies are listing Trump as a risk factor in their SEC filings.
America’s CEOs may have limited options for pressuring for more stability – and refusing to lend their credibility to Trump’s (largely ceremonial) business councils may be one of the few tools available.