|The Dodge brothers sued Ford in 1916, claiming that Henry Ford had cheated shareholders of potential income by pricing cars too low.|
|Price of Model T Touring Car|
Henry was angry; partners had to get out
Legal battle with Dodge brothers started campaign by Ford family for total control of company
After all, it was he who had the idea for the car, he who gathered the people to make the machine, he who found suppliers to make components. The unprecedented success of the Model T was a sure sign that the person who owned 58 percent of the business was doing things right.
So Henry was shocked when minority shareholders John and Horace Dodge sued in 1916, claiming that Henry Ford had cheated shareholders of potential income by pricing cars too low.
A civilized brawl
The lawsuit represented bare-knuckle business brawling carried out with civilized tools. It was filed the day after Edsel Ford's wedding to Eleanor Clay; the Dodges had been guests at the reception. The lawsuit eventually put Henry Ford on the witness stand where canny lawyers made him look foolish. His beliefs in the way business was supposed to work were savaged and ridiculed.
Henry Ford was hurt by the accusations of cheating, but most of all, the Dodge lawsuit launched Ford's successful quest to bring ownership entirely within the family.
The charges made by the Dodges went to the heart of Henry Ford's philosophy of business. In 1909, he had declared his intent to "democratize" the automobile by making it possible for everybody to have one.
The Dodge brothers' relationship with Ford had begun in 1903 with the Model A. They provided engines, transmissions and axles for $250 a set for cars to be assembled at the Mack Avenue plant. Their own Dodge car business would be founded with profits from Ford sales estimated at $10 million and with some $6.6 million in dividends from their 10 percent ownership of Ford stock.
But the brothers were annoyed when they saw Henry charging less and less for his cars, reducing the potential profit, and at the same time amassing a large cash reserve for the company without distributing it to shareholders. Their lawsuit demanded that $39 million be distributed as dividends.
Henry Ford fought them hard. "They say my course is likely to injure them. They own 10 percent of the stock, and I own 58 percent. I can't injure them $10 without injuring myself $58," author James Brough quotes Ford telling a Detroit News reporter.
Meanwhile, Henry Ford tried to plow company money back into the operations to reduce investor hunger. The Rouge plant was born, in part, to keep Ford Motor money tied up.
Changing the game
The Dodges won their case and the inevitable appeal. The Michigan State Circuit Court ruled on Oct. 31, 1917, that Ford had withheld profits from shareholders. A distribution approaching $20 million was ordered, representing half the accumulated profits. In 1919, the Michigan Superior Court upheld the judgment.
Henry Ford reacted with the calculated savagery of a die-hard checkers strategist, setting up jumps that would oust pushy shareholders and give him control. First, at the end of 1918, he announced he would resign as president. Edsel, well-liked by John Dodge and James Couzens, would become a figurehead president.
Henry Ford began removing people and structures that might threaten his power. Leaders who disagreed with him found that there was no room for them in the company, no matter how important their previous role. The executive committee of the board of directors, created by Edsel to mirror modern management, was abolished by Henry.
In March 1919, Henry shocked the company and the nation by announcing that he intended to form a new company to build a car better than the Model T. The company would use the existing business structure of Henry Ford & Son, wholly owned by the Ford family and used to back the tractor business.
Ford investors quickly realized their investments would become worthless and that the dividend stream from Ford would dry up if Henry left the company and went into competition with it. Sales of Ford products skidded just on word of the new company.
A buyer's market
That made an effort to buy the 8,300 shares of the company possible.
Operating through bankers and brokers, Henry Ford managed to secure all the shares except Couzens' for about $12,500 per share. Couzens held out until Edsel reasoned with him but eventually tendered his shares for an additional $500 per share.
On July 10, 1919, the court-ordered dividends were distributed. The Dodge brothers received about $2 million. Henry, majority shareholder, had to take $12 million.
On July 11, the Ford stock purchase deal was completed for a reported $106 million, $75 million of it borrowed from New York bankers. Henry, Edsel and Henry's wife, Clara, then held a total of 172,645 shares in a single, giant corporation.
Henry's moves had been successful, but his unchallenged dominance led to a strange and arbitrary management style rife with inefficiencies and damages that were not cleaned up until Henry Ford II and Ernest Breech took over.
You can reach Tim Moran at email@example.com.