Almost one hundred years ago, Henry Ford, as CEO of the Ford Motor Company, announced a plan to cease payment of special dividends to shareholders. Instead, the company would reinvest its profits to employ more workers and build more factories. Investing in new workers and factories would cut the cost of cars and make them affordable to more people. Ford publicly declared that his “ambition [was] to employ still more men, to spread the benefits of this industrial system to the greatest possible number, to help them build up their lives and their homes. To do this we are putting the greatest share of our profits back in the business.” Minority shareholders were outraged. Two minority shareholders in particular, the Dodge brothers, brought suit seeking to stop Ford’s plans. The Dodge brothers argued that the primary purpose of a company is to maximize shareholder profits, not to help the community. The trial court agreed with Dodge and ordered Ford to pay the special dividends to its shareholders. Ford appealed. The Michigan Supreme Court affirmed, holding that a “corporation is organized primarily for the profit of the stockholders,” not for the benefit of the community or its employees.
Tammi S. Etheridge,
Lessons from Institutional Shareholder Services: Governing Benefit Corporations' Third-Party Standard,
Mich. Bus. & Entrepreneurial L. Rev.
Available at: http://repository.law.umich.edu/mbelr/vol4/iss2/3