I like teaching this case. I teach it, along with Shlensky v. Wrigley, right off the bat to interest students in the course (before getting into the more routine shareholder-director conflicts that many students care less about). Dodge and Shlensky can be taught as business judgment rule cases, as Prof. Bainbridge does, although I save the BJR dicussion for later and use these cases to focus on all the interesting aspects of corporate social responsibility.

Of course, while the touchy-feely crowd presents this case as a study in “corporate social responsibility”, the finance crowd treats it as the case of a rabid oppression of minority shareholders by a controller aka financial tunneling. The entire case is about self-dealing on Ford’s part, plain and simple. Minority investors (the Dodges) were a potential threat -- they had their own automobile company and were planning to expand to compete with Ford. How do you stop the competition? Easy. Just make sure the Dodges don’t get much cash out of their investment in the Ford company. Dodges’ stake in Ford was so large that they couldn’t realistically sell it without major losses. So, if you refuse to pay out dividends, you pretty much freeze the Dodges’ cash and severely damage the competition. All dressed up in a socially-responsible rhetoric. Pretty disgusting. Though apparently if you add “it’s all for the children” line to a self-dealing transaction, there will be enough people chanting “for the children, for the children!” many years later.

If I had to teach this case, I would have taught it in the context of current rules against self-dealing, and perhaps added some elementary bits of the free cash flow theory. I would also add a comparative angle, to show that there are many different ways for a controller to tunnel a minority’s stake, and there are many different ways in which the law can curb financial tunneling.

Ford's situation in 1919 sounds exactly like Google does now even down to Google's "do no evil".

The case is worth it just for the uber-SAT word "eleemosynary."

Let me see if I get this straight. In 1919, Ford was awash in cash and no doubt spent a good deal of it on high-priced and talented corporate lawyers who nevertheless failed to convince the Supreme Court of Michigan that some of this cash should be denied the shareholders, including the Dodge interests.

Some nearly 90 years later, having spent some ungodly sum in the meantime on high-priced and talented corporate lawyers (and investment bankers, to be fair), Ford reports "a $12.7 billion loss for 2006, the biggest in its 103 year history."

This is progress? Or more of the same?

Kate is right about Ford's self-dealing, and it's pretty clear to me that this was the focus of the court's decision. You can read more about my view of the case in this article.

Gordon: I knew that every good idea was already taken, but that much? You published this before I even went to law school! Not fair.

What would have happened if, instead of proclaiming his goal of treating his company as a semi-eleemosynary institution, Henry Ford had just been honest with the court and said that he was concerned that if he paid out the dividends that the Dodge Brothers wanted, they would use the proceeds to compete with the Ford Motor Company, harming the interests of the corporation? Wouldn't the court have then had to defer to Ford's judgment, consistent with the court's view that the purpose of the corporation is shareholder wealth maximization?

My class is anything but "touchy-feely," but I do like to spend one class period talking about CSR. Dodge and Shlensky are two of the best cases for that purpose, although I also note Ford's alterior motives and introduce the theme that corporate law is a process-oriented field. One reason Ford lost, it seems, is that he didn't say the right things about profit-maximization when he took the stand.

I think the great thing about the case is that it can be taught from a variety of different angles. We certainly discuss in my class Ford's motive in withholding the special dividend (which was considerably more than the regular dividend) from the Dodge brothers. However, I think the students come to class expecting some discussion on the "do good" rhetoric in the case. So I do talk about (a) whether the rhetoric was just a smoke-screen for Ford's self-interested behavior (and here I think Gordon and Kate are right that the facts point to this as the key motive behind Ford's actions), (b) what kind of weight we should give to Ford or any company's professed desire to put such concerns above profits (especially given the seeming tendency to use those concerns as a cover for self-dealing), and (c) whether that calculus changes depending on a corporation's financial status. To this end, I talk about the modern day Ford and, like Darian, I talk about Shlensky and whether or not a better framing of Ford's argument--i.e. more about long-term profit, than doing good--would have swayed the court. Needless to say, it always makes for a lively discussion.