Dodge v. Ford Motor Co. (Ford duty, 1919)
Case Overview
Dodge v. Ford Motor Co., 204 Mich. 459 (1919), is the classic statement of shareholder primacy in American corporate law. Ford Motor Company had built up a large surplus, and Henry Ford, its majority stockholder and president, wanted to stop paying special dividends and instead pour the money into new plants, lower car prices, and higher wages. Minority shareholders John and Horace Dodge, who owned ten percent, sued to force the dividends and block the plan.
Legal Issues
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The Issue
Whether corporate directors have a fiduciary duty to maximize shareholder profits and distribute earnings as dividends, or may subordinate shareholder returns to other corporate purposes such as employee welfare and community benefit.
Whether a court may enjoin corporate dividend decisions when directors act from charitable motives rather than shareholder profit maximization.
The Rules
The business of the corporation is to make money for its stockholders. Directors cannot use corporate funds for charitable, philanthropic, or altruistic purposes if doing so reduces shareholder profits. Directors owe a fiduciary duty to act in the best interests of the corporation and its shareholders, which means maximizing profits.
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