Is It All About Money?
Bloomberg Businessweek|December 28 - January 04, 2021
Big shareholders are pushing companies to think about society and the environment. But there’s a new legal backlash
PETER COY

THE LEGAL PRINCIPLE that corporate boards must focus exclusively on maximizing value for shareholders wasn’t always taken for granted. It was enshrined in a 1919 court decision involving Henry Ford and two of his car company’s shareholders, the Dodge brothers. As chairman and majority owner of Ford Motor Co., he had repeatedly raised his workers’ pay, cut the price of the Model T, and reinvested profits in expansion. If Ford were around today his stance might be applauded by the environmental, social, and governance (ESG) movement on Wall Street. “My ambition is 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,” he said in a speech introduced at trial.

Ford lost, though not entirely. Minority shareholders John Francis Dodge and Horace Elgin Dodge, who were scraping together money to launch a rival automaker, sued him to stop frittering away profits and to raise dividends. In Dodge v. Ford Motor Co., the Michigan Supreme Court ordered Ford to pay an extra dividend. But it simultaneously undercut the principle of shareholder primacy by affirming what’s now known as the business judgment rule, which gives boards of directors wide latitude to decide what’s in the best interest of the corporation.

That ambiguity has never been resolved. For a century there’s been a struggle between advocates of shareholder primacy and those who say corporations should take into account other priorities, particularly environmental, social, and governance issues. As ESG has gained prominence it’s generated a quiet backlash. In the waning days of the Trump administration, three federal agencies are promulgating rules to narrow the scope for considering ESG factors in business and investing decisions, even as lawyers predict the Biden administration will go in the other direction.

Which side is right? Well, that’s where it gets interesting. The latter-day Henry Fords are correct that companies can and should aspire to more than just pushing up their stock prices, while today’s Dodge brothers are right that managers and boards shouldn’t have free rein to do whatever they wish with a company’s money.

Managing conflict over the purpose of the corporation is difficult, but some see it as part of the art of running a company. Barnali Choudhury, a law professor at the UCL Faculty of Laws in London, compares corporate directors to the resourceful main character Truffaldino in The Servant of Two Masters, an Italian comedy written in 1746. “Like Truffaldino, corporate managers should also be able to serve both the financial interests of shareholders and the interests of non-shareholder corporate constituents through use of the ambiguity of the corporate purpose,” she wrote in a 2009 article for the University of Pennsylvania Journal of Business Law when she was at Charleston School of Law.

Continue reading your story on the app

Continue reading your story in the magazine

MORE STORIES FROM BLOOMBERG BUSINESSWEEKView All

It's Not Just the Confetti

How Robinhood made stock trading easy, approachable— and maybe too hard to resist

10+ mins read
Bloomberg Businessweek
April 26 - May 03, 2021 (Double Issue)

Not-So-Great Green Jobs

Clean energy isn’t a wellspring of the better-paying union jobs Biden has been touting

6 mins read
Bloomberg Businessweek
April 26 - May 03, 2021 (Double Issue)

THE COLLAPSE OF COPERNICUS

The implosion of Curt Schilling’s video game empire was a $150 million reminder that the industry’s workers are always on the verge of disaster

10+ mins read
Bloomberg Businessweek
April 26 - May 03, 2021 (Double Issue)

Drivers Wanted

○ Riders are flocking back to ride-hailing, but drivers need more nudging

4 mins read
Bloomberg Businessweek
April 26 - May 03, 2021 (Double Issue)

Making That Money

For music executives like Kevin Liles, of the hip-hop label 300 Entertainment, the pandemic has mostly made a good life better. A lot of musicians, however, are experiencing something different

10+ mins read
Bloomberg Businessweek
April 26 - May 03, 2021 (Double Issue)

LAST STANDS

The soothing escapes that old-growth forests provide are probably much closer than you think. But they’re under siege

9 mins read
Bloomberg Businessweek
April 26 - May 03, 2021 (Double Issue)

Hands Off My Football Team!

The European Super League followed a model shaped in the U.S. Opposition from fans scuttled the idea

5 mins read
Bloomberg Businessweek
April 26 - May 03, 2021 (Double Issue)

Can Aluminum Really Go Green?

Alcoa and Rio Tinto —with a push from Apple—are trying to clean up production of one of the dirtiest metals

6 mins read
Bloomberg Businessweek
April 26 - May 03, 2021 (Double Issue)

Unending Pandemic. Global Anxiety. Travel Restrictions. Perfect Time To Start An Airline!

David Neeleman, airline savant (think Jetblue) and perpetual optimist, is at it again with a new budget carrier called Breeze

10+ mins read
Bloomberg Businessweek
April 26 - May 03, 2021 (Double Issue)

Go Big or Go Home

Joe Biden tackled Covid and an economic crisis in his first 100 days. It won’t get easier from herea

10+ mins read
Bloomberg Businessweek
April 26 - May 03, 2021 (Double Issue)
RELATED STORIES

Cat's MEOW

Herb Stuart’s EFI, dohc, 32-valve, road race Cougar is the cure for the common Mustang

5 mins read
Drive!
April 2021

FORD PARTNERS WITH U-M ON ROBOTICS RESEARCH, NEW BUILDING

Digit marches on two legs across the floor of the University of Michigan’s Ford Motor Co. Robotics Building, while Mini-Cheetah — staccato-like — does the same on four and the yellow-legged Cassie steps deliberately side-to-side.

3 mins read
AppleMagazine
AppleMagazine #490

WILL WORK FROM HOME OUTLAST VIRUS? FORD'S MOVE SUGGESTS YES

It’s a question occupying the minds of millions of employees who have worked from home the past year: Will they still be allowed to work remotely — at least some days — once the pandemic has faded?

6 mins read
Techlife News
Techlife News #490

TAKE THE HIGH ROAD

Solomonson Family Heirloom the FFG Way

3 mins read
Street Trucks
March 2021

DA SEIS-QUATRO

Grand Slam, Back to Back to Back to Back

4 mins read
Street Trucks
March 2021

WHEN YOU'RE HOT, YOU'RE HOT

INSTALLING STRICTLY DIESEL’S 6.7L FORD TRANSMISSION COOLER

2 mins read
Diesel World
April 2021

HARD WORK PAYS OFF

A CUMMINSSWAPPED ’08 SUPER DUTY PACKING A 4R100 AND 700 HP

3 mins read
Diesel World
April 2021

FIRST GENERATION BRONCO VS. 2021 FORD BRONCO SPECS

A comparison of the data. The first-generation Ford Bronco, released in 1966 and after vs. the 2021 Ford Bronco.

1 min read
4LOW Offroad Magazine
February/March 2021

FORD TO GO ALL ELECTRIC IN EUROPE BY 2030

Ford announced a major push into electric vehicles in Europe, vowing to convert its entire passenger car lineup on the continent to electrics by 2030.

2 mins read
AppleMagazine
AppleMagazine #486

HOT PRODUCTS

01 A Better Allison Merchant Automotive MAximum Transmission Work Series

7 mins read
Diesel World
March 2021