## Facts

- John F. Dodge and Horace E. Dodge, minority shareholders holding about 10% of Ford Motor Company stock, sued Ford Motor Company, Henry Ford, and other directors.
- Henry Ford, as president and majority shareholder, controlled roughly 58% of the company.
- Ford Motor Company had accumulated an exceptionally large surplus (reported in excess of $60 million) relative to its capital stock.
- The company had paid regular dividends and substantial special dividends in prior years.
- Henry Ford publicly announced the company would stop paying special dividends and instead use profits to reduce car prices, expand production (including building a smelting plant), hire more workers, and improve working conditions.
- The Dodge brothers objected to the cessation of special dividends and argued the policy subordinated shareholder returns to broad social goals.
- The trial court ordered a large special dividend and enjoined construction of the smelting plant and aspects of the expansion plan.
- On appeal, the Michigan Supreme Court affirmed the compelled special dividend but reversed the injunction against the expansion project.

## Issues

1. Whether directors of a for-profit corporation may withhold special dividends and retain a very large surplus to pursue stated objectives aimed primarily at benefiting employees and the public rather than shareholders.
2. Whether a court may enjoin the corporation’s proposed expansion project (including a smelting plant) over minority shareholder objection when the board asserts a long-term business purpose.

## Decision

- The court affirmed the order compelling payment of a special dividend (approximately $19,275,385).
- The court held the directors abused their discretion by refusing to declare a special dividend given the size of the surplus and the company’s profitability, particularly where management stated shareholder benefit was not a primary consideration.
- The court reversed the injunction against building the smelting plant and other expansion plans.
- The court held operational and expansion decisions are generally for directors under the business judgment rule absent fraud, bad faith, misappropriation, or oppression of minority shareholders.

## Legal Principles

- A business corporation is organized and carried on primarily for the profit of its stockholders; directors’ discretion concerns means, not a shift away from that end.
- Courts may intervene in dividend policy when directors’ refusal to declare dividends constitutes an abuse of discretion, including where withholding is used to oppress minority shareholders.
- Courts generally will not interfere with directors’ ordinary business decisions (including expansion) absent fraud, bad faith, or improper diversion of corporate funds.
- Retaining earnings and reinvesting in the business may be permissible where the decision is reasonably connected to corporate benefit, even if it also aligns with management’s broader objectives.

## Conclusion

The court required Ford Motor Company to distribute a substantial special dividend because the refusal to do so, in light of a massive surplus and stated non-shareholder aims, was an abuse of discretion, but it declined to block the company’s expansion plans because operational decisions were protected by director judgment absent fraud, bad faith, or minority oppression.


Dodge v. Ford Motor Co., 170 N.W. 668 (Mich. 1919)