Dodge v. Ford 1919

Dylan Royse

In 1903, Henry Ford founded the Ford Motor Company. Today, Ford is one of the biggest auto companies in the world. Early on however, Ford had some problems with some of their shareholders.

In 1916, the Ford Motor Company had accumulated a surplus of sixty million dollars. They also increased workers wages all while lowering the prices of their top vehicles. Ford president Henry Ford wanted to end special dividends for shareholders because he wanted the company to invest more in their factories to increase production. He also wanted to build a new smelting plant. John and Horace Dodge were one of the biggest shareholders of the company and opposed Ford's plan. The dodge brothers had a ten percent share in the company which is a lot because they had many shareholders. They took him to court and the case was heard by the Michigan Supreme Court. They ruled in 1919 that Ford couldn’t end the dividends but could build the new plant. The dodge brothers would go on to create their own company now known as the Dodge Motor Company. Some of the money they used to create their company were the dividends Ford had to pay them from this case.

The main legal issue surrounding this case is if majority shareholders could cut dividends for minority shareholders. This case defined some of the powers majority shareholders like Henry Ford had over minority shareholders like the dodge brothers. One of the things the court cited in this case was the business judgment rule. Also cited was the shareholder primacy theory. Some experts argue this case made minority shareholders more powerful while others argue the ruling in this case is barely enforced in today’s society. In my opinion, the court got it right legally because of the business judgment rule and the shareholder primacy theory. I also think the ruling is fair because when you own a share of a company, it has value and they shouldn’t be able to withhold the money your share is worth.

In conclusion, regardless of what you think of the outcome of this case, it changed the auto industry when it comes to shareholding and it actually worked out for both sides in the end. Both companies are really successful in today’s society and not just in the United States but most of the entire world.

Add-Ons

Basic Timeline of Events

1903- Ford Motor Company is founded by Henry Ford

1913- The Dodge brothers are major suppliers within the Ford Motor Company and own approximately 10 percent of the company’s shares

1916- Ford ends dividends

1916- The Dodge brothers sue the Ford Motor Company

1918- Lower court rules in favor of the Dodge brothers

1918- Ford appeals lower court decision

1919- Michigan Supreme Court upholds lower court decision

1919- Henry Ford buys out the Dodge brothers share of the company

1919- Ford pays the dividends

Sources

Google

Wikipedia- Dodge v Ford

Justia law .com