Debt & Credit, Corporate Style
Posted by Moonage on 30 Nov 2004 | Tagged as: Businesses
Another piece of Debt & Credit, corporation style. By Calpinist from TMF and notes on the Doge vs Ford case around 1919. This was in replay to a piece on teaching proper "Credit Use" in the schools.
Interesting take off on that subject:
As follows
Social Clubs / The Land of Sisu
Subject: Re: The Debt Burden Date: 11/30/04 1:13 PM
Author: Calpinist Number: 14703 of 14703
In fact, since Dodge v Ford. 1919, USA corporations’s duties are seen as solely to their stockholders —- in effect this means corporations are their own primary constituents.
I was interested in this part of your post because I was not familiar with that court case. Off I went on a google and this site gives a good synopsis:
Rather than pay regular and special dividends, as the company had done in previous years, Ford announced that only regular dividends would be paid. The remaining profits would be used to expand production capacity, increase wages, and offset losses expected from his cutting the price of cars.
(…) Ford proclaimed broader social goals: "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." The Dodge brothers sued, claiming that Ford was using shareholder equity to pursue his own personal philanthropic goals. The Michigan Supreme Court, while professing to respect Ford’s business judgment, agreed with the Dodges. It stated that a corporation exists to benefit its stockholders and that corporate directors have discretion only in the means to achieve that goal. It may not use profits for "other purposes."
In Europe as is well known, corporations have separate boards for employees and shareholders, and employees have a voice in how the business is run. This runs directly counter to the American situation. Quite interesting and I tend to agree with the U.S. position, as long as the government acts as a good steward of workers’ rights.
There have been instances recently — e.g Wal-Mart not offering most of its workers health benefits — where that stewardship appears to be failing, but in general I believe the U.S. system works. In contrast, the European system has contributed to the rigidity of their labor markets and thereby reduced economic growth and productivity.
Calpinist
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