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ASSAIL FORD'S PLAN OF PROFIT-SHARING

American Government Special Collections Reference Desk

Topics:  Ford Motor Company

ASSAIL FORD'S PLAN OF PROFIT-SHARING

The New York Times
December 30, 1922


Counsel for Minority Bondholders of His Railroad See Loss of Their Share.

PROTESTS AGAINST METHODS

Interstate Commerce Commission Asked for Hearing Before Approving Plan.

Henry Ford's proposal for sharing the profits of his railroad with employes of the road is analyzed and assailed in papers filed before the Interstate Commerce Commission at Washington by Alexander L. Strouse of the firm Frank, Weil & Strouse, 180 Madison Avenue, who represents Leon Tanenbaum and Benjamin M. Strauss, real estate men of this city, who hold a small percentage of adjustment bonds and stock in Ford's railroad, the Detroit, Toledo & Ironton.

The plan is assailed as a method of cutting the minority interest out of a share in the possible profits by distributing them to employes.  The application of the automobile manufacturer is so loosely drawn, according to this document, that Ford and his immediate associates might qualify as employes of the road and divert profits to themselves, under his profit-sharing plan.

Ford, who has recently been put forward as the Presidential hope of farmers, railroad workers and others, is accused in the objections filed by Tanenbaum and Strauss of advocating in his profit-sharing plan for railroading "a fundamental and revolutionary change in the relations between capital and labor in connection with railroads."  The Interstate Commerce Commission is asked to listen to oral argument before deciding on the application to install a profit-sharing system on Ford's railroad.

October Deficit Larger.

The documents before the Interstate Commerce Commission are concerned mainly with the theory, because the October statement of the Detroit, Toledo & Ironton Railroad showed a net operating deficit of $300,404 for the road for that month, as against $107,574 in 1921.

The plan outlined in the request made on behalf of Ford to the Interstate Commerce Commission is an application to the railroad of the profit-sharing plan of the Ford motor plant.  The outline of the plan filed with the commission predicted that 50 per cent. of the employes of the road would invest in the profit-sharing certificates, would put their money into the company at the rate of 5 per cent. a month and would take a keener interest in the efficient operation of the road on that account.  In the document opposing the proposal the lawyers for the minority stockholders say:

"He (Ford) uses this railroad as a facility in the operation of the large motor car plant operated by him, and has publicly stated that said plant has made an enormous saving as a result of such acquisition of said railroad by him.  He has, furthermore, in a series of public interviews, stated that his scheme of railroad management is to get rid of unproductive stockholders, notably in an interview published in The Nation's Business in its issue of Nov. 21, 1921, reference to which is hereto made as if set forth at length, and in an interview published on Oct. 28, 1921, in The New York Times, in which he said, 'Railroads should throw their stocks and bonds away as mine did and get down to business and make some money.'

Ford's Statements Cited.

"He has further stated at various times that he is operating his railroad as an example to the other railroads of the United States, and the various policies and steps taken by him have been largely exploited in the public press and among laymen in general, including labor, who have not fully understood his unique position, in that said railroad is to all intents and purposes an adjunct of his motor car company, so that he may, in view of the increased profits made by him as a result of such connection by his motor car company, bear with entire equanimity the fact that he may not obtain any direct return upon his bond and stockholdings in said railroad.

"The amount which has been invested in this railroad to enable it to be built and maintained is in excess of $25,000,000, as shown by the balance sheet of said railroad, submitted with the application herein.  This money was all furnished in reliance upon the ordinary and usual custom of devoting not earnings to a proper return to the investors in so far as they are not carried to needed surplus.

"The proposed plan," the document continues, "is contrary to the public interest, as it would create the precedent of a device by which control of the earnings of this railroad or of any other railroad could be readily acquired by a very small interest.

"Under the proposed plan and of similar plans it would be entirely possible for the officers or other persons interested in acquiring control of a railroad to do so by means of the issuance of such so-called investment certificates, as their issue is not limited to trainmen, engineers, maintenance or clerical workers, &c., but is also open to railroad executives.  If 25 per cent. of the net earnings may be so utilized under an issue similar in size to the one here contemplated no reason can be suggested in principle why subsequent investment certificates would not be justified to be issued to different groups of railroad employees, each yielding a large return thus substantially exhausting the entire income, and why in turn these certificates may not be acquired by interested parties who could in turn acquire the whole or a great and unwarranted part of such income at a relatively small outlay.

The Question of Wages.

"The employes of the railroad are unquestionably paid the prevailing rate of wages.  According to interviews given the public prints they are in fact paid somewhat more, if anything.  If this application were granted they would receive an extraordinary and unjustifiable increase in their earnings over and above the normal and usual rate, for their capital investment as such certainly could not be deemed capable of earning 25 per cent. of the net earnings of a corporation capitalized at the figure at which this company is capitalized."

This alleged plan of giving away the money of stockholders to railroad employes or executives would create a demand on the part of railroad men on other railroads for similar treatment, it is urged.

"Once a precedent is established," the document continues, "a denial of such a preference would create great, though unjustifiable, dissatisfaction on the part of employes, who would not understand the peculiar relationship between this railroad and the Ford Motor Car Company, and accordingly attribute a degree of altruism or of unselfish farsightedness to this railroad which are manifestly not the moving motives in the minds of the creators of this scheme."



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