For Corporate Law, “The Public Be Damned”

I love a good story and Kent Greenfield’s sidebar in the January/February issue of the Washington Monthly provides one.

“The public be damned,” railroad magnate William Henry Vanderbilt snorted at a reporter in 1882. The impertinent scribe had asked whether Vanderbilt ran his railroads with an eye toward public benefit. At the time, Vanderbilt was among the most powerful men in American business—and by his own estimation the richest man in the world. His figurative middle finger to the American public was big news, appearing on the front page of hundreds of newspapers within twenty-four hours.

The week before his comment, two trains had collided on his railroad inside the Fourth Avenue tunnel in New York City, killing two passengers and injuring hundreds. Many New Yorkers blamed the accident on Vanderbilt’s unwillingness to cut into profits by spending money on safety measures. His contemptuous words, spoken as he dined in his private train car, salted an open wound. The satirical magazine Puck ran a cover cartoon of a ballooned, profligate Vanderbilt wearing a diamond pin, smoking a stogie, and leaning back in a leather chair with a foot on the throat of an eagle dressed in Uncle Sam garb.

He also tells the backstory to one of the most consequential cases in the history of corporate law: Dodge v. Ford. In that case, the court ruled that Henry Ford couldn’t withhold dividends from shareholders in order to use the money to build a new auto manufacturing facility.

A business corporation is organized and carried on primarily for the profit of the stockholders. The powers of the directors are to be employed for that end. The discretion of directors is to be exercised in the choice of means to attain that end, and does not extend to a change in the end itself, to the reduction in profits, or to the nondistribution of profits among stockholders in order to devote them to other purposes.

Greenfield’s point is that shareholders have been put on a pedestal above “the interests of workers, customers, and society.” He call’s this “corporate law’s original sin.”

You can read the whole piece here, and his fuller treatment on corporate personhood here.

Martin Longman

Martin Longman is the web editor for the Washington Monthly and the main blogger at Booman Tribune.