Skip to main content

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.

Labels:

Comments

Post a Comment

Popular posts from this blog

Being Fired for Things an Employee Did On Their Own Time, Outside of Work: Legal or Not?

New York is an "at will" employment state, meaning that, in the absence of a contract, you can be fired at any time, for any reason, or for no reason at all, unless the reason is based on something like age, race, religion, disability, etc. (just a handful of categories). (Government employees have more protections than private-sector employees, such as First Amendment protections.) One of the few exceptions to the at-will employment rule is New York Labor Law §201-d. The statute is lengthy and has lots of caveats and qualifiers and defenses (for the employer). But the gist of § 201-d is that an employee can't be disciplined or fired (or not hired) for something they do on their own time, away from work, that is legal, and that is not against the employer's interests.  The statute and the reported cases mostly deal with "recreational" and "political" activities, and the cases can turn on whether something was a "recreational activity...
Post a Comment
Read more

Recent Case Developments: Employment Contract Enforceable Against Employer Even Though Not Signed

The plaintiff is a modeling scout. Defendant modeling agency decided to hire him as a modeling scout for $190,000/year, plus bonuses. An employment contract was prepared. One provision of the contact said that if the plaintiff were ever fired without cause, he would be entitled to 6-months severance ($95,000). The contract also said that it could be signed in counterparts. The plaintiff signed the contract on August 18, 2015 and emailed his signature to the modeling agency. One of the agency's board members emailed back, saying "Welcome aboard. We'll countersign over the next few days." But no one from the agency ever signed the contract. Nevertheless, the plaintiff began working as a modeling scout, and the agency paid him according to the contract. But after six months, the agency decided to terminate him, without cause. The agency then refused to pay him the $95,000 severance, and the plaintiff brought a lawsuit for breach of contract. The modeling agency m...
Post a Comment
Read more

Recent Case Developments: Contractor Entitled to be Paid For Extra Work Not Part of Original Contract

On September 12, 2013, the Town of Kent (Putnam County) entered into a contract with a contractor to build a sewer.  During construction, certain "conditions that were unexpected and unanticipated" arose, requiring the contractor to do "extra" work--things beyond the scope of work of the original contract. (The appeals court doesn't detail what this extra work was.) The contractor performed the extra work, totaling around $380,000 in additional costs. For reasons not stated by the appeals court, the Town refused to pay for this extra work, and the contractor eventually sued the Town in May, 2015.  The contractor moved for summary judgment in the lower court (a kind of mini-trial on paper), and the court awarded judgment in favor of the contractor for the $380,000.  The Town appealed, but the appeals court sided with the contractor, saying that even though this "extra" work was not within the scope of work of the original contract, the con...
Post a Comment
Read more