Everything Old is New Again: Lessons from Dodge v. Ford Motor Company
M. Todd Henderson
University of Chicago - Law School
U of Chicago Law & Economics, Olin Working Paper No. 373
There is much more to Dodge v. Ford Motor Company than meets the eye. Dodge is often misread or mistaught as setting a legal rule of shareholder wealth maximization. This was not and is not the law. Shareholder wealth maximization is a standard of conduct for officers and directors, not a legal mandate. The business judgment rule protects many decisions that deviate from this standard. This is one reading of Dodge. If this is all the case is about, however, it isn't that interesting.
But Dodge is a part of the corporate law canon because it is about much more than this. This essays shows that what the Michigan Supreme Court did was actually an elegant solution to a complex legal and policy issue. The history of case and the parties also shows how many prominent aspects of corporate law and practice have long and under-appreciated histories.
Henry Ford failed twice as an entrepreneur before finding success with the Ford Motor Company. His failures, which he blamed on meddling investors, presaged not only his conflict with the Dodges, but also show the importance of allocating and exercising control rights deftly. The history demonstrates how modern techniques for allocating control rights separately from economic rights would have helped the parties avoid costly and acrimonious litigation. Perhaps most interestingly, however, the back-story of the case shows that it is not clear at all that the parties wanted to avoid litigation. Both the Dodges and Henry Ford used the legal process as a tool in what was at base a business dispute. To paraphrase von Clauswitz, litigation is business by other means. The history of this case provides a prototypical example and also shows an example of how courts can resolve disputes well in these cases.
This essay also shows how practices common today in venture capital transactions, corporate reorganizations, and other areas of corporate law and practice appear vividly in the back-story of this case. Many seemingly new ideas are not, and examining their historical roots can help us better understand them and their place in our modern understanding of corporate law.
Number of Pages in PDF File: 39
Keywords: corporate law
Date posted: December 17, 2007