In every state, dividends are normally payable only at the discretion of the directors. Courts will order distribution only if they are expressly mandatory or if it can be shown that the directors abused their discretion by acting fraudulently or in a manner that was manifestly unreasonable. Dodge v. Ford Motor Co., (see Payment of Dividends ), involves Henry Ford’s refusal in 1916 to pay dividends in order to reinvest profits; it is often celebrated in business annals because of Ford’s testimony at trial, although, as it turned out, the courts held his refusal to be an act of miserliness and an abuse of discretion. Despite this ruling, many corporations today do not pay dividends. Corporations may decide to reinvest profits in the corporation rather than pay a dividend to its shareholders, or to just sit on the cash. For example, Apple Computer, Inc., maker of many popular computers and consumer electronics, saw its share price skyrocket in the late 2000s. Apple also became one of the most valuable corporations in the world. Despite an immense cash reserve, Apple has refused to pay a dividend, choosing instead to reinvest in the business, stating that they require a large cash reserve as a security blanket for acquisitions or to develop new products. Thus despite the ruling in Dodge v. Ford Motor Co., courts will usually not intercede in a corporation’s decision not to pay dividends, following the business judgment rule and the duties of directors. (For further discussion of the duties of directors, see Corporate Powers and Management ).
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