Bollettino

There�s a story in today�s NYT about the trial that is replaying the Daimler Benz takeover of Chrysler . LI wrote a review of a book about that deal, so we take some interest and have some views. That the then CEO of Chrysler, a non-descript little egoist named Robert Eaton who basically resented the very smart crew of car designers and marketers that made Chrysler hot in the early nineties is going to have to testify about the inner workings of the thing will satisfy business watchers the way, say, forcing Iago to testify would have satisfied spectators in Venice. Kirk Kerkorian is the animating force behind the suit. Interestingly, Kerkorian wanted, in the early nineties, to take Chrysler private. He thought that the company had accumulated too much cash on hand � about eight billion dollars � and could pay out more to investors. Kerkorian is not our kind of guy � another sleazy billionaire buyout artist � but there was something to his offer. Unfortunately, he saddled the offer with the very unpopular notion that Chrysler should recall Lee Iacocca. Nobody thought Iacocca was a good idea � he was roundly disliked at Chrysler.
We were attracted by the end grafs, which compared the trial to a former trial.

�So who won one of the last times such titans met?

The Dodge brothers. They sued Henry Ford because he had cut Ford Motor's dividends and used the money to invest in new plants. The Dodges, who then owned about 10 percent of Ford, wanted to use the proceeds to finance an auto company bearing their name. Mr. Ford argued in court that business was about more than enriching shareholders, but about creating jobs and making products at a decent price.

"Ford lost," said Mr. Lewis, the historian. "On the other hand, he gained tremendously in public popularity."

The Dodge brothers built their own company, now a division of DaimlerChrysler.�

In the Automotive News this June, there was a little story about that trial which does a better job of talking about what the result of it was than to submerge it into the baby fat of celebrity culture (he gained tremendously in public popularity indeed). It is an interesting trial, because it exposed the historical dynamic that was operating to render the personally run corporation obsolete � the dynamic that led to what Veblen called absentee ownership.

The personal context of the trial was a Dreiser-like situation:

�The lawsuit represented bare-knuckle business brawling carried out with civilized tools. It was filed the day after Edsel Ford's wedding to Eleanor Clay; the Dodges had been guests at the reception. The lawsuit eventually put Henry Ford on the witness stand where canny lawyers made him look foolish. His beliefs in the way business was supposed to work were savaged and ridiculed.

Henry Ford was hurt by the accusations of cheating, but most of all, the Dodge lawsuit launched Ford's successful quest to bring ownership entirely within the family.�

Ford, losing the suit, responded with a two stage strategy. First, he resigned as President, leaving that office to Edsel Ford. Then he let it be known he was going to start a rival auto company. That fluttered all the hens in all the roosts of Detroit. The strategy abutted in a plan to buy out Dodge and other shareholders. Edsel�s independent board of directors was swept away. But this apparent victory over the trend towards the absentee run firm put Ford�s management in the hands of a man who could no longer manage the company: Henry Ford.

�On July 11, [1919] the Ford stock purchase deal was completed for a reported $106 million, $75 million of it borrowed from New York bankers. Henry, Edsel and Henry's wife, Clara, then held a total of 172,645 shares in a single, giant corporation.
Henry's moves had been successful, but his unchallenged dominance led to a strange and arbitrary management style rife with inefficiencies and damages that were not cleaned up until Henry Ford II and Ernest Breech took over.�

That we are re-playing these issues now will no doubt interest those who are wondering what direction the recent global corporate governance scandals are going to take the structure of the firm.