February 20, 2007
Teaching Dodge v. Ford Motor Company
Posted by Lisa Fairfax
Today I taught the famous 1919 case of Dodge v. Ford Motor Company, which, in addition to its messages about the proper aim of a corporation and the circumstances under which to compel dividends, has now become a study in irony.  Indeed, at the time of the controversy, the Ford Motor Company not only had made a tremendous profit for several years, but had amassed a huge surplus with very little liabilities.  The company was planning to greatly increase its operations by opening more plants, building more (and cheaper cars), and employing as many men as possible.

In sharp contrast, in January the Ford Motor Company reported a $12.7 billion loss for 2006, the biggest in its 103 year history, topping a $7.39 billion loss in 1992.  The company also has announced that it anticipates losses for at least 2 more years.  Moreover, the company plans to build fewer cars, close plants and shed jobs, offering buy-outs and early retirement packages to its factory workers and other employees.

On the one hand, this contrast underscores the changes in the auto industry as well as changes that can occur more generally at a corporation.  On the other hand, it raises interesting issues about the age-old debate regarding the proper aims of a corporation.  Indeed, Dodge centers around shareholders objections to Ford Motor Company’s plans to withhold dividends in order to sell more cars at a cheaper price and, in then chairman Henry Ford’s words, “do as much good as we can, everywhere, for everybody.”  Notwithstanding the court’s pronouncement that “A business corporation is organized and carried on primarily for the profit of the stockholders,” the case sparked debate about whether corporations can or should engage in more altruistic enterprises.  For those who believe that corporations should behave more altruistically, the Ford Motor Company of 1916 was an ideal application of this concept—it seemingly had more than enough money to meet its business needs and engage in socially responsible behavior. 

Some ninety years later, its situation has changed dramatically.  To be sure, there are some who claim that social responsibility and profit-making are not at odds.  Yet it seems that during times of financial instability, these concepts are at least in significant tension.  Indeed, Ford Motor Company's anticipated job shedding and plant closings suggest that the corporation cannot meet its profit needs without some negative impact on employees.  As a result, one wonders if even proponents of social responsibility would be comfortable with such a company continuing to engage in actions that seek to “do as much good” as possible, or if only extremely profitable companies can afford to be socially responsible. 

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» Business Associations Spring 2007 Class 12 from ProfessorBainbridge.com ® ...
"Topic: Duty of Care and Business Judgment Rule: Operational Decisions Readings: KRB 288-298, 328-332 ..." [more] (Tracked on February 26, 2007 @ 16:15)
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