The Michigan Supreme Court (Dodge v. Ford Motor Co. (1919)) ruled that Henry Ford had to operate the Ford Motor Company primarily in the profit-maximizing interests of its shareholders, specifically the Dodge brothers who were minority shareholders. Henry Ford had decided to stop paying special dividends to reinvest profits back into the company, lowering prices for customers, and raising wages for employees, with the goal of “spreading the benefits of this industrial system“. The Dodge brothers sued, arguing that Ford was prioritizing other interests over their rightful profits. The Ruling: The court sided with the Dodge brothers, famously stating: “A business corporation is organized and carried on primarily for the profit of the stockholders“. The court ordered Ford to pay the special dividends.
Shareholder primacy is the theory that a company’s primary goal is to maximize financial returns and wealth for its shareholders, who are considered the owners of the company, i.e., social factors should not interfere with business operations. This idea was heavily influenced by economists like Milton Friedman, who argued that the sole social responsibility of business is to increase its profits.
While the specific case of Dodge v. Ford Motor Co. (1919) is unique in its direct assertion that corporations exist “primarily for the benefit of shareholders,” it is widely recognized that the doctrine of shareholder primacy it represents influences the entire business landscape, including the pharmaceutical industry. In particular, pharmaceutical companies must make decisions based on profit, as they are for-profit businesses with a fiduciary duty to maximize shareholder value. This often creates a conflict between their commercial interests and their public health obligations, leading to decisions that may prioritize profitable diseases over neglected ones and can result in high drug prices that limit accessibility, even for life-saving medications.
In particular, a recent study determined that “The pharmaceutical industry operates within a system in which companies make decisions based exclusively on sales and costs to address projects, leading to a de facto prioritization of profits.”1
https://www.laboratoriosrubio.com/en/pharmaceutical-ethics/
- Perkins, L., Pharmaceutical Companies Must Make Decisions Based on Profit. West J Med. 2001 175, 422-3.