Maximizing company value and fiduciary duties. Not so simple.

A lawsuit was introduced on October 3^rd 2022 against directors of Meta, (previously Facebook), adducing they breached their fiduciary duties and damaged interests of “diversified shareholders”, not in their stakes in the company, but because of alleged damages to the value of their other investments. This sounds very odd, but there is an argument. Let´s try to unravel the knot, following the Harvard Law School Forum on Corporate Governance, (1)

The complaint is based on the “shareholder primacy model”, (2) but considers not only the residual interest of common shareholders in the (maximum possible) cash flows and value to be received as common share owners, but beyond that, refers to the effect of board and directors´decisions on their other equity and debt investments, as institutional and even retail investors are generally diversified. The argument by McRitchie (the shareholder starting the procedure) refers to activities by Meta that entail political instability, damages to mental health overall and the rule of law, etc., thus endangering the value of their other investments, even if Meta value could be considered to be maximized, (all efforts by directors are guided to maximize revenue irrespective of these other public goods). The filing comes after some shareholders´proposals urging the board to consider these eventual damages were disregarded.

The filing does not consider actions by directors harmed stakeholders interests; it does not consider either that value in Meta shares was not maximized; it refers to shareholders other investments, (they are broadly diversified, as Institutional Investors -II onwards- own a majority of the market´s shares, over 75%).

The Dodge vs Ford case: should academics keep teaching it or not?

One of the first voices that emerged against keeping the doctrine emanating from this resolution by the Michigan Supreme Court was Ms Lynn Stout, in her article “Why we should stop teaching Dodge vs Ford”, (1). Prof Bainbridge opposses to this view, (2). We will review both in what follows.

The case can be briefly described as follows: a founder and majority shareholder, (Mr Henry Ford) was sued by the Dodge brothers on the accusation that he was restricting paying dividends to shareholders even if profitability was very high; the court did not buy Mr Ford´s reasoning on preferring investing to build better and cheaper cars and pay better wages, (for their employees to be able to buy a car, for instance). And the judge stated that the purpose of a business corporation was the pursuit of profit, so that directors did not have discretion to work for alternative goals but only to select the means to pursue this one.

She asserts that this statement was not necessary and a mistake also, being strange to Corporate law.