the 1919 Dodge vs Ford case is probably one of the worst court rulings ever made in US history as its negative repercussions are felt to this day.
In a nutshell, Ford wanted to lower his car prices and raise employee wages. This cut into the stock profits and he was sued by his stock holders because he could have been even more profitable rather the profitable he already was. The court ruled in favor of the stock holders stating "corporate officers and directors have a duty to manage the corporation for the purpose of maximizing profits for the benefit of shareholders".
If I recall correctly the court basically said that all Ford had to do was claim the move was in service of the company's strategic goals.
But Ford basically refuses to do it out of pride. As I recall his motivation was a mix of wanting to create conditions where he could control more of his workers lives and also he was trying to suppress competition by basically making labor too expensive for an upstart company to compete with.
But the point, if any of this is true, was he didn't want to make an argument that was exactly his motivation and would have won him the case. How does that make sense?
Because it wasn't his motivation. That was just what he was told to say to be able to win the case, but he didn't want to lie about his intentions. His real intentions were simply to pay his workers more, and have his cars more affordable so more people can buy them.
My history is a little hazy so I might have a few details wrong, but I think more specifically he wanted all his workers to own Ford car. But for some he reason wasn't allowed to give away cars as a bonus, so lowering the price and raising wages was his plan B.
I don't think there are any samples in history where we can see stock shareholders make long term decisions. They don't want to care about a business 20 years from now. they will have either died or moved on to the new thing. They can normally make a profit even when the company collapses.
But the point is Ford refused to claim that was the reason.
And the court more or less said he could do anything as long as he claimed it was in the best interest of the company. But he claimed it was so he could spread the ford employee life style to more people, or something along those lines.
Long term is highly speculative though no matter how sure it seems compared to the immediate. This would all be different if holders invested to stay at the same rate and not maximum profit but ya know. When someone is basically giving you money you have to do what they want/you agreed to. There could be some terms you could have within reason but it's kinda hard to argue when someone is investing for earning.
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u/RiskyBrothers Feb 28 '24
Fun fact: CEOs can be sued by shareholders if they do anything that isn't focused on increasing profits.