A business that earns nothing but money is a poor business.
— Henry Ford
The Dodge brothers were frustrated that Ford had declined to distribute the company’s surplus funds to shareholders, and instead planned to expand the company’s manufacturing capacity, hire more workers, and reduce the prices of its cars. … the Dodge brothers argued that Henry Ford believed that after ensuring shareholders had earned a reasonable return (which the Dodge brothers certainly had), a company should devote its resources to improving society. From Ford’s perspective, this meant producing better products at lower prices and employing more people at good wages.
the Michigan Supreme Court permitted Ford to go through with his plans as he pleased. … It acknowledged that its judges were “not business experts,” and for that reason deferred to Ford and the rest of the company’s board, permitting them to set forth on whatever strategy they deemed fit. After all, the court noted, Ford Motor’s previous strategies had already been extremely successful.
As long as there is some sort of connection to boosting long-term earnings, boards can essentially do as they please, as Ford’s court battle demonstrated. If they choose, directors can imbue a company with a purpose beyond distributing money to shareholders. … The question, then, is not what boards and executives must do, but what they will elect to do.