How Henry Ford Fought to Improve Workers Lives and Lower Car Prices

Back in 1918, Henry Ford had a revolutionary idea for how profits from the Ford Motor Company should be utilized. As the founder and leading figure at the company, Ford wanted to take the massive $60 million in profits and reinvest it in a way that would benefit both employees and consumers, rather than just distributing it to shareholders. This article explores Ford's visionary plan and the legal battle that ensued when shareholders opposed it.

Ford's Plan to Raise Wages and Lower Car Prices

Henry Ford believed the large profits generated by his company could be put to better use improving the lives of workers and making cars more affordable, rather than just enriching shareholders. His proposal was to implement a substantial wage increase for all Ford employees, raising the minimum daily pay from $2.34 to $5 for an eight hour workday. At the same time, he wanted to lower the price of a Model T car from $690 to $440, which would make one accessible to many more average Americans.

Shareholders Sue Over Redirection of Profits

However, two minority shareholders in Ford Motor Company - John F. Dodge and Horace E. Dodge, who also owned the competing Dodge Brothers Company - strongly opposed this plan. They sued Ford, claiming a corporation's sole purpose was maximizing profits for shareholders. The lawsuit made its way to the Michigan Supreme Court, where the judge ultimately ruled in favor of the shareholders. The court decided company directors had a fiduciary duty to use profits to benefit shareholders, not other goals like improving workers' lives.

The Precedent is Set

This legal decision established an important precedent that shaped modern corporate behavior. From that point on, maximizing returns for stock owners took priority over other objectives. While Ford's visionary strategy of "sharing the wealth" was ahead of its time, the ruling discouraged other business leaders from similarly investing profits back into their employees and customers rather than shareholders.

FAQs

What was Henry Ford's plan for utilizing company profits?

Henry Ford wanted to take Ford Motor Company's $60 million in profits and raise all workers wages substantially, while also lowering the price of Model T cars to make them more affordable for average Americans.

Why did shareholders oppose this plan?

Two minority shareholders, John and Horace Dodge, sued Ford claiming a company's sole purpose is maximizing profits for stock owners. They did not want profits going elsewhere like higher wages.

What was the outcome of the shareholder lawsuit?

The Michigan Supreme Court sided with the shareholders, establishing that company directors have a fiduciary duty to use profits in a way that benefits shareholders first and foremost.

How did this impact future corporate priorities?

The ruling discouraged other business leaders from similarly investing profits back into workers and customers. It shaped modern corporations to primarily focus on maximizing returns for stock owners above all else.

What was Henry Ford trying to accomplish with his visionary strategy?

Ford believed in "sharing the wealth" generated by the company in a way that could both raise living standards for employees through higher wages, while also making cars more accessible to average Americans through lower prices.