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Document Type

Article

Abstract

Corporate tax avoidance is a pressing issue of both national and international concern. Corporations usually claim that they are legally required to engage in aggressive tax strategies. But this Article proves that claim is incorrect when based upon the fiduciary duties owed to the corporation and its stockholders. Directors and other corporate managers often look to the classic case of Dodge v. Ford, which is ubiquitous in corporate law from the boardroom to the courtroom, as a North Star that guides them toward and defines their fiduciary duties to the corporation and its stockholders. In Dodge, the court held, “A business corporation is organized and carried on primarily for the profit of the stockholders. The powers of the directors are to be employed for that end.” This holding has been interpreted by many directors and other corporate managers not only as a decree to relentlessly seek profit, but also as an absolute edict to maximize profits, even if it means hurting society, damaging the environment, or destroying anything standing in the corporation’s path. The problem is that this interpretation of the Dodge mandate is wrong. The mandate requires only that directors and other corporate managers run the corporation “primarily for the profit of the stockholders,” leaving room for other secondary considerations. Beyond that, many limitations on the Dodge mandate exist, including the business judgment rule, which gives directors and other corporate managers substantial discretion in running the corporation. The Dodge mandate, while offering general guidance as to how a corporation should be run, i.e. “primarily for the profit of the stockholders,” utterly fails to offer guidance in assessing any specific analysis. As a result, other doctrines are needed to fill this gap. This Article discusses some of the doctrines, including corporate social responsibility, sustainability, and economics, that should be employed to protect society from the damage that tax avoidance can create. It concludes that while some minimal amount of tax avoidance may be acceptable, very aggressive forms of tax avoidance should be avoided.

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