Back near the start of Innov8Social, I overviewed the case and story behind Dodge v. Ford. To summarize, in legal analysis circles the case is prominent for articulating an immutable rule for corporation law—i.e. a corporation has a duty to maximize shareholder wealth. Dodge v. Ford took place in 1919 and just as the past century has seen significant changes in the we travel, how we communicate, and the kinds of toppings that are acceptable on pizza—so too have there been advents affecting a court’s right to assess a corporation’s actions.
Corporate Directors 101
It is well-established that directors of a corporation (i.e. the elected or appointed individuals who oversee and direct the activities of a corporation) are bound by fiduciary duties of good faith, care, and loyalty to the corporation’s shareholders.
What does that mean?
Essentially corporate directors are barred from actions that would jeopardize the corporation or that would put an individual director above the corporation (i.e. self-dealing).
Business Judgment Rule: A Coming of Age
The Business Judgment Rule (BJR) provides a buffer between the court and the actions taken by a corporate board of directors. For example, corporations may have found Dodge v. Ford troublesome not for its ruling in favor of shareholders, but for the court’s intrusion into a board of directors’ decision-making.
How Business Judgment Rule Impacts Social Innovation
Is the BJR Enough to Protect and Promote Social Innovation?
At the end of the day, we may be ready for a new corporate structure that can expand our conception of stakeholders and that can create quantifiable ways to measure progress of the bottom line (profits), double bottom line (community, profits), and triple bottom line (environment, community, profits).
And, this discussion is vital today, as new corporate structures are making their way into law across the U.S. in the form of the benefit corporation.
What do you think of the BJR? Has it paved the way for social entrepreneurship?