Case Review_ Dodge v

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University of Nebraska, Lincoln *

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Law

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Feb 20, 2024

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Case Review: Dodge v. Ford Motor Company Procedural and Facutal History of Case: In Dodge v. Ford Motor Company, the Dodge brothers argue that as minority shareholders of Ford, they have the ability to suggest ways Ford should run the company. In the years leading up to the case, Ford had begun to become quite profitable and wanted to use the funds to reinvest in the company, which would allow Ford to dramatically increase production and employee salaries, while continuing to cut back on the costs and prices associated with the Ford cars. This would also mean shareholders would not receive special dividends anymore. The Dodge brothers, who owned 10% of the company as shareholders, were not proponents of this new plan, stating that Ford should stop reducing car prices when they could barely fill car orders or keep paying the special dividends they had enjoyed previously. Legal Questions Adressed by the Court: The main legal question asked by the court is whether minority shareholders had the authority or ability to prevent Ford from operating the company in the way he wanted. The case called into question the power of the board of directors and where the role of shareholder and board of directors ends and begins. The case also brought into question if Ford had the right to use company earnings in the extension of the plants and property of the company and wether this was a misappropriation of company assets and funds The Dodge brothers claimed Ford did not have the right to reinvest their dividends into the company and that the funds should rightly be theirs. The Dodge brothers claimed Ford absolutely controlled and dominated the board of directors and that shareholders should have their right to a say in the company’s decisions. In a letter to Ford, the Dodge brothers begged Ford to speak to the board of directors about the fact that it is their very duty to give shareholders a special dividend no less than 50%. Ford claimed shareholders had received more in dividends than they had originally invested and that they were in no way entitled to receive the extra 5% distribution back. Holding and Order of the Court: The main holding and order of the court states that Henry Ford must act in the interests of shareholders before its employees and clients, summarized in a rule titled, “shareholder primacy”. Thus, Ford could not lower car prices or continue to increase employee salaries and instead, must continue to pay minority shareholders their deserved special dividends. The rationale for this decision comes from many places. First, the rule of shareholder primacy was a large part of determining the case. The Court argued it was the job of a corporation to have the best intentions for its shareholders and thus, was neglectful to cut their dividends. A large part of this conclusion was reached by pointing out that Ford was not a charity, but ran the

business for profit, so it was unfair to expect the shareholders to invest their funds without receiving dividends. The case also used the business judegment rule. Because Ford owned the company, it was his duty to serve in the interests of the shareholders and corporation and the Dodge brothers, in challenging the board of directors’ decisions, would have to find reason that Ford had breached his fiduciary duties of loyalty and care. Such evidence was found in the cutting of dividends and as such, the court upheld the decision that Ford had violated his duties. Personal Review of Court Decision: Personally, I do not completely agree with the Court’s decision. I think, while it is reasonable for stockholders to want some say in the decisions of a company (as this is required of companies to a certain extent), I do not agree that just because somebody is a stockholder, that they should get to control the board of directors and the company and submit any request they want. However, I do think there is something to be said about the Dodge brothers becoming frustrated at losing their ability to receive special dividends. I do not agree with how Ford completely cut off their stockholders and investors, particularly when it is due to those same people that Ford was able to achieve the success they were enjoying so much. It is vital the company frequently distributes dividends so that stockholders will feel engaged and continue to provide the company with the funds they need to survive. This is especially true when Ford themselves admitted their business proposal included increasing employee salaries and decreasing car prices. They are going to need the support of shareholders to keep revenue numbers up and with the way they have treated minority shareholders, they are going to have trouble keeping their shareholder loyalty. This reasoning conforms to my reasoned positions that the purpose of a corporation is to benefit its shareholders. By this standard, Ford should not have cut the special dividends the Dodge brothers were entitled to receive and should be more open to hearing the complaints and concerns of minority shareholders.

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