Not so golden silence at Ford Motor…

September 8, 2010

New car.

If a $131-million verdict comes down in a Mississippi courtroom, and no-one’s around to hear it, when will shareholders find out about it? Maybe not for a long while, if it’s up to Ford Motor (F).

As has been reported, Ford lost a civil lawsuit in Mississippi last Thursday, with a $131 million verdict over the death of Brian Cole, a promising New York Mets prospect who died when his Ford Explorer rolled over in 2001. Ford settled for an undisclosed sum after the the jury awarded compensatory damages but before a finding on punitive damages. Adam Penenberg, a New York University journalism professor and author of a book on Ford’s decade-long string of deadly Explorer accidents, broke the news via Twitter, and then took the working press to the woodshed the next day in Fast Company*, for all but missing a big story.

But worse than the news media’s failures, in our view: Any shareholders relying on the board or executives of Ford Motor to keep them abreast of significant corporate developments would still be in the dark. The company has filed nothing about the judgment with the Securities and Exchange Commission, and doesn’t appear to have put out a statement or press release on its voluminous Web site either.

Moreover, the company doesn’t seem to have said a word about the unfolding case in any of its recent 10-Q and 10-K filings — and the company had some warning that it might lose, given that two previous trials had ended with hung juries. The company has provided statements to various news organizations — to the effect that the accident was Cole’s fault, and the company felt it had been denied a fair trial — but those don’t appear on Ford’s website or in its filings. By contrast, the company has put out 10 press releases since last Thursday, on everything from August sales in China and India to the qualification of three Ford vehicles for Nascar competition.

Materiality may be in the eye of the beholder, especially before verdicts come down, and we suspect Ford’s lawyers of being competent enough to keep to the bright side of federal disclosure rules. But that’s the letter of the law, and it leaves open the more subjective question — not whether Ford had to disclose something, but whether it should have disclosed more along the way than it has, about the case in progress and about the verdict and settlement once they happened.

Even for a company of Ford’s size, after all, $131 million is nothing to sneeze at.

As close as we can figure it, it’s about 2.84 cents a share, using last quarter’s shares outstanding. It’s just a smidgen less than the $136 million Ford reported in pre-tax income from its Asia-Pacific automotive segment, and close to the $165 million Ford got for selling its Thai auto-finance unit. It’s almost 40% of the $338 million gain in net income that Ford saw fit to trumpet in the first sentence of its second-quarter earnings release and 8-K filing.

And keep in mind that Ford’s actual cost for settling the case could prove to be considerably higher than $131 million. The public figure doesn’t include any allowance for punitive damages, and Tab Turner, the lawyer representing Cole’s family, is no slouch when it comes to suing and settling with Ford: Penenberg tallies his settlements with the carmaker at more than $1 billion. (That said, in his tweet-storm after the verdict, Penenberg also suggested that the compensatory damages award could have been cut well back on appeal, thanks to tort limits in Mississippi.)

We’ve already said we think Ford’s lawyers probably are careful to stay on the right side of the written rules when it comes to disclosure. As for the spirit, we’ll leave that to Ford’s shareholders to decide.

Image source: ianmunroe via Flickr

* We should note that Fast Company is owned by Mansueto Ventures, which is controlled by Joe Mansueto, who is also chief executive, co-founder and majority shareholder of Morningstar, the publisher of footnoted. That makes Joe something like our boss’s boss. But we liked Fast Company even before we became distant corporate cousins.

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