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Henry Ford, Dodge v. Ford Motor Co., and Maximizing Shareholder Wealth

Watched a good documentary on the brilliant and flawed and kind-of-weird Henry Ford. The documentary touched on one of the most important corporate law/finance cases in history, Dodge v. Ford Motor Company.

"Dodge" was John and Horace Dodge, who created the Dodge car company. John and Horace were early investors in Ford Motor Co. (created in 1903) and owned about 10% of the shares.

Ford came out with the Model T in 1909, and after Ford invented the "assembly line" in 1913, the Model T was produced and sold like crazy and generated massive profits. For many years, Ford distributed portions of the profits to shareholders like the Dodges.

Henry Ford actually hated investors and wealthy people like the Dodges and believed in lifting up the common man and making their lives better (or so he claimed). In 1916 Ford Motor Co. had $50,000,000 in cash. Henry Ford wanted to use the money to build a new, giant factory, to give more jobs to more people, etc., and severely cut back dividends to shareholders.

The Dodges, as minority shareholders, sued Ford to stop construction of the factory and force Ford to pay out the cash as dividends. Their Dodge car company was already up and running, and they wanted their share of the profits to invest in their own company. Ford knew this, of course, and this was the real reason he didn't want to pay them dividends.

The case went through trial and up to the Michigan Supreme Court, which held that the purpose of a corporation was to make profits and maximize shareholder wealth, not to be social crusaders and do-gooders like Henry Ford wanted. To this day the case is still cited for that proposition.

So Ford was forced to pay out millions in dividends to shareholders. But Ford went on to build the giant factory with other money, called River Rouge. It's still around today. Good articles here and here.

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