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The Duty of Corporations

Should the duty by re-examined?

  • Yes

    Votes: 12 42.9%
  • No

    Votes: 16 57.1%

  • Total voters
    28

Cameron

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Right now it is understood that corporations have a duty to their shareholders, but not to their employees, consumers, or the remainder of the public (although they of course have a duty to comply with the law, which includes many regulations designed to protect employees/consumers/third parties).

The clearest example of the warped effects of this is probably the famous case of Dodge v. Ford Motor Company.

By 1916, the Ford Motor Company had accumulated a capital surplus of $60 million. The price of the Model T, Ford's mainstay product, had been successively cut over the years while the cost of the workers had dramatically, and quite publicly, increased. The company's president and majority stockholder, Henry Ford, sought to end special dividends for shareholders in favor of massive investments in new plants that would enable Ford to dramatically grow the output of production, and numbers of people employed at his plants, while continuing to cut the costs and prices of his cars. In public defense of this strategy, Ford declared:

"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. To do this we are putting the greatest share of our profits back in the business."

While Ford may have believed that such a strategy might be in the long-term benefit of the company, he told his fellow shareholders that the value of this strategy to them was not a primary consideration in his plans. The minority shareholders objected to this strategy, demanding that Ford stop reducing his prices when they could barely fill orders for cars and to continue to pay out special dividends from the capital surplus in lieu of his proposed plant investments.

When the shareholders sued, the court ruled in their favor, stating Ford's duty was to profit his shareholders, not the community or his employees.

In light of the growing gap between the wealthy and the rest of America, do you think that this idea needs to be re-examined?
 
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I never thought of it like that, good point. I definitely think they should have their consumers best interest in mind.
 
They have the duty to behave ethically.
 
good poll; i was just thinking about this.

my post in a related thread :

i would argue that capitalism has a responsibility beyond making a profit / delivering a dividend to shareholders. many of us who support capitalism do so because it provides society and individuals a greater opportunity for advancement. absent that, it's more or less re-heated feudalism.
 
It's funny, isn't it? A company tried to do good by the consumer and the worker and the government told them "no, no. you need to focus on benefitting your shareholders short-term."
 
Corporations aren't people. They don't have duties. They're not capable of performing duties. They are, at best, tools for creating money for their owners and employees; they're incapable of doing anything else and it is foolish to expect them to.
 
Shareholders get nothing until the duties owed to employees and suppliers are met. That is, paychecks are issued timely and accurately, and bills are paid. There's nothing wrong with that model.

In the Dodge vs Ford case, it is interesting to note that the plaintiffs had a competing business and could have used Ford dividends to expand their own operation at Ford's cost.
 
Right now it is understood that corporations have a duty to their shareholders, but not to their employees, consumers, or the remainder of the public (although they of course have a duty to comply with the law, which includes many regulations designed to protect employees/consumers/third parties).

The clearest example of the warped effects of this is probably the famous case of Dodge v. Ford Motor Company.



When the shareholders sued, the court ruled in their favor, stating Ford's duty was to profit his shareholders, not the community or his employees.

In light of the growing gap between the wealthy and the rest of America, do you think that this idea needs to be re-examined?

No, I don't think it should be re-examined. A large company's main responsibility is to its investors. They are people, too, and represent a whole lot more people than the employees, as a matter of fact. And rather than show up for a paycheck, investors put their money on the line...expecting a fair return.

Now! In order to best serve their investors, any company needs good employees. So attracting and retaining them is integral to their success. One hand washes the other. The fact that you don't think corporations are using enough soap makes me wonder what you wish they'd do. Hire people they don't need? Build plants to stand idle? Give their shovelers teaspoons to dig with? What?
 
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Courts ruled correctly.

Anyone can start a private buisiness, organization, or just a group of people, or their own individual efforts with the goals of:
-> helping whoever they want.

You are free for the most part in the U.S. How can you not already know this!

However, if you start a public business that has specific shareholder obligations, you're being essentially invested in, to maximize profits. How you go about that, as CEO, is up to you, but you still answer to investors. That's how it should be. If they can do it while being green and being #1 with consumers, OK. If they can't, OK. If you as a CEO would rather run in private, you can. Run it any way you want.

But don't let the criminal desire to force other people to run it YOUR way, creep into your thoughts. That's wrong-headed.
 
I've never understood people who think that a corporation's duty is to produce a profit for its shareholders, period. Sure, that's the duty of SOME corporations. But really, a corporation's duty is whatever it's management decides its duty is. If you don't like it, don't invest in it.

I think of it like this: If I started my own business, and wanted to give half of my profits to charity, no one would tell me I'm wrong for doing so. If I started a partnership with four other people and we agreed to majority rule, and a majority agreed to give half of our profits to charity, we're still fine because we all agreed to abide by the majority's decision. If I started a corporation where the shareholders elected a Board of Directors that agreed to give half of our profits to charity, I think the same logic applies. Obviously a lot of the shareholders would want the corporations to take on that responsibility (or else they would've elected a different board), and the ones who don't agree are under no obligation to continue to invest in the company.
 
Apparently corporations are people to they have feelings, they can get married, and they go fight wars...
 
However, if you start a public business that has specific shareholder obligations, you're being essentially invested in, to maximize profits.

If the shareholders elect a Board who appoints a CEO who has other goals, then that would indicate that either A) a majority of the shareholders disagree that the company's only responsibility is to maximize profits, or B) they have a different opinion of what will maximize profits than you do.

It sucks if you invested in the company with the understanding that it would maximize your profits, and the company later appointed a CEO with other goals in mind...but hey, changes in management are a risk in any corporate investment.
 
It's funny, isn't it? A company tried to do good by the consumer and the worker and the government told them "no, no. you need to focus on benefitting your shareholders short-term."

Well, the courts actually, which is a little bit different than the govt as normally considered in this type of discussion.

But a good point, nonetheless.
 
Well, the courts actually, which is a little bit different than the govt as normally considered in this type of discussion.

But a good point, nonetheless.

What's weird to me is that lower cost, faster production, and a larger product line would have expanded profits in the long-term, even if short-term gains were stiffled or erased. The decision in this case essentially said that long-term expansion is less important than short-term profits. Hardly seems like the best mentality to promote long-term economic growth and "middle class" stability...which is what we're struggling with today, right?
 
from Khrazy in the OP

When the shareholders sued, the court ruled in their favor, stating Ford's duty was to profit his shareholders, not the community or his employees.

In light of the growing gap between the wealthy and the rest of America, do you think that this idea needs to be re-examined?

100% absolutely positively without a doubt.

As long as the only imperative for a corporation is to make money, there will always be societal problems and fall out. We need new rules for new times and a new paradigm that takes in much more than simple greed fo a corporation or its stockholders.
 
What's weird to me is that lower cost, faster production, and a larger product line would have expanded profits in the long-term, even if short-term gains were stiffled or erased. The decision in this case essentially said that long-term expansion is less important than short-term profits. Hardly seems like the best mentality to promote long-term economic growth and "middle class" stability...which is what we're struggling with today, right?

According to this, the court held that Ford was arbitrarily witholding dividends. It's not like workers were being laid off or having to wait for their pay. Model Ts were on a long back order already due to their low price.

Held. Plaintiffs are entitled to a more equitable-sized dividend, but the court will not interfere with Defendant’s business judgments regarding the price set on the manufactured products or the decision to expand the business. The purpose of the corporation is to make money for the shareholders, and Defendant is arbitrarily withholding money that could go to the shareholders. Notably, Ford did not deny himself a large salary for his position with the company in order to achieve his ambitions. However, the court will not question whether the company is better off with a higher price per vehicle, or if the expansion is wise, because those decisions are covered under the business judgment rule.

Dodge v. Ford Motor Co | Casebriefs
 
I've never understood people who think that a corporation's duty is to produce a profit for its shareholders, period. Sure, that's the duty of SOME corporations. But really, a corporation's duty is whatever it's management decides its duty is. If you don't like it, don't invest in it.

I think of it like this: If I started my own business, and wanted to give half of my profits to charity, no one would tell me I'm wrong for doing so. If I started a partnership with four other people and we agreed to majority rule, and a majority agreed to give half of our profits to charity, we're still fine because we all agreed to abide by the majority's decision. If I started a corporation where the shareholders elected a Board of Directors that agreed to give half of our profits to charity, I think the same logic applies. Obviously a lot of the shareholders would want the corporations to take on that responsibility (or else they would've elected a different board), and the ones who don't agree are under no obligation to continue to invest in the company.

If that's what the investors want, there's nothing wrong with that. What is wrong is the CEO taking their money with the promise of maximizing returns and using it for a purpose that the investors did not want.
 
There is nothing wrong with corporations existing solely to make money. When it gets wrong is when they start influencing policy towards themselves to the detriment of others (which is not a legitimate use of money for a civil society as corporations are not people and should not have the power of free speech).

Its a money in politics problem more than a corporate governance one.
 
If that's what the investors want, there's nothing wrong with that. What is wrong is the CEO taking their money with the promise of maximizing returns and using it for a purpose that the investors did not want.

Then the shareholders can elect a Board of Directors that fires the CEO and replaces him with someone more to their liking. Or they can simply sell their shares to other people who have less of a problem with the CEO's agenda.
 
Right now it is understood that corporations have a duty to their shareholders, but not to their employees, consumers, or the remainder of the public (although they of course have a duty to comply with the law, which includes many regulations designed to protect employees/consumers/third parties).

The clearest example of the warped effects of this is probably the famous case of Dodge v. Ford Motor Company.



When the shareholders sued, the court ruled in their favor, stating Ford's duty was to profit his shareholders, not the community or his employees.

In light of the growing gap between the wealthy and the rest of America, do you think that this idea needs to be re-examined?

No, it does not. Forcing corporations, by law, to fulfill some imaginary responsibility to society is called Socialism.
 
I've never understood people who think that a corporation's duty is to produce a profit for its shareholders, period. Sure, that's the duty of SOME corporations. But really, a corporation's duty is whatever it's management decides its duty is. If you don't like it, don't invest in it.

I think of it like this: If I started my own business, and wanted to give half of my profits to charity, no one would tell me I'm wrong for doing so. If I started a partnership with four other people and we agreed to majority rule, and a majority agreed to give half of our profits to charity, we're still fine because we all agreed to abide by the majority's decision. If I started a corporation where the shareholders elected a Board of Directors that agreed to give half of our profits to charity, I think the same logic applies. Obviously a lot of the shareholders would want the corporations to take on that responsibility (or else they would've elected a different board), and the ones who don't agree are under no obligation to continue to invest in the company.

Right! It's the decision of management, not the government.
 
No, it does not. Forcing corporations, by law, to fulfill some imaginary responsibility to society is called Socialism.

Did you just invoke that right wing boogeyman because it is Halloween season and you wanted frighten all of us half to death?
 
Did you just invoke that right wing boogeyman because it is Halloween season and you wanted frighten all of us half to death?

You already did that when you posted this:

from Khrazy in the OP

100% absolutely positively without a doubt.

As long as the only imperative for a corporation is to make money, there will always be societal problems and fall out. We need new rules for new times and a new paradigm that takes in much more than simple greed fo a corporation or its stockholders.

I almost sent milk through my nose.
 
Ford was thinking long term while shareholders were thinking short term. Haven't we just witnesses the detrimental effect of short run profit seeking at long run expense.

How many times have big corporation, including auto companies, been bailed out due to the philosophy of maximizing short term profits at the expense of long-run viability? Then who gets foot with the bill? The taxpayer, but I don't any of these corporate apologists defending the taxpayer when this happens due to the corporation's myopic responsibility to the shareholder in the short run.
 
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