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When Dodge v. Ford Meets Ben & Jerry’s: Reconciling 100 Years of Bad Precedent with the Reality of Modern Business

  • Author(s): Unkovic, Mary Caitlin
  • Advisor(s): Edelman, Lauren B
  • et al.
Abstract

The 1919 Michigan Supreme Court case Dodge v. Ford Motor Company has come to stand for the common belief that the primary purpose of all corporations is to create shareholder wealth. This unfortunate misinterpretation of the opinion has never fit comfortably with the reality of business practices or academic theories of the corporation and its state-sanctioned role in the marketplace. The tension between caselaw and reality has only increased in the century since Dodge was decided, and has ultimately culminated in the first direct challenge to the shareholder primacy norm: public benefit corporations, for-profit firms that are required by charter and law to pursue at least one prosocial goal in addition to monetary gain. I argue that the increasing influence of public benefit corporations represents the first unavoidable crisis facing Dodge v. Ford caselaw and its progeny, one that creates increasing risk of deadweight loss and ought to be addressed by both Congress and the courts. This turning point in the demographic composition of business also offers social planners a unique opportunity, however, to address the current defects in the law’s approach to the social obligation of incorporated firms without overturning the unfortunate but nevertheless settled precedent. Specifically, this crossroads in the evolution of corporations and their place in modern society provides a chance to: (1) Remedy flaws in the regulation of corporate charity so that good- and bad-faith donations can be distinguished, and (2) Radically improve corporate governance mechanisms to allow social enterprises to thrive.

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