How Does Henry Ford's Feud with the Dodge Brothers Affect Businesses Today?

The legal feud between carmakers Henry Ford and the Dodge brothers wasn't just deeply personal -- it changed the way Americans do business. Learn how in this episode of BrainStuff.

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Episode Transcript

Speaker 1 (00:01):
Welcome to brain Stuff, a production of I Heart Radio.
Hey brain Stuff, Lauren Vogle bam here. When it comes
to great American feuds, there's Hamilton and Burr, Hatfield and McCoy,
and of course Cardi and Nikki, which my co workers
assure me as a funny joke. Some of the most
famous disputes in history have been settled in all kinds

(00:22):
of ways, with pistols, murders, and yes, even rap battles.
But the truly American way of handling big beefs is
to hand them over to lawyers and drag them into
the courts, which means that even the pettiest rivalries can
have wide and longstanding impacts on our society. The legal
tussle that took place between Henry Ford and the brothers
John and Horace Dodge helped shape the auto industry as

(00:44):
we know it. The feud also laid the groundwork for
how judges even today look at the relationships of businesses
with their shareholders, employees, and competitors. There is no Henry
Ford without John and Horace Dodge, and there is no
Dodge v. Ford Motor Company. If a once formidable partnership
hadn't dissolved into in fighting for a leg up on
the burgeoning American automobile market. Ford and Dodge are some

(01:08):
of the most iconic names in US car making history.
It turns out that the guys behind both brands started
out on the same side. The Dodge Brothers, an unruly
pair known in Detroit for their drinking prowess and affinity
for knocking people out cold in barbrawls, got started in
the car business in nineteen hundred building Oldsmobile transmissions. Just
a few years later, they were the chief supplier and

(01:30):
outside machinists for Ford Motors Model A, the company's first automobile.
They also pontied up a large portion of the twenty
eight thousand dollars that Henry Ford received from investors to
get started. That investment soon paid off. Ford Motor turned
a thirty seven thousand dollar profit less than three months
after selling the first Model A. But the Dodges had
bigger plans. They used the Dodge Brothers Motor Company banner

(01:54):
in nineteen fourteen to launch their own car, the Model
thirty five. The vehicle was intended compete directly with the
Ford Model T. Henry Ford did not take kindly to
this new competition. He made a pair of decisive moves
to try to take the wind out of Dodges sales.
Ford stopped paying dividends to the Dodge brothers and other investors.

(02:14):
Then he slashed nearly two thirds off of the price
tag on his cars. We spoke with Mark Hoddeck, an
adjunct professor in New York University's Business School. He explained
that while the Dodge brothers were Ford's primary target quote,
Ford didn't want any shareholders. He considered shareholders to be parasites.
The Dodges promptly sued Forward, claiming that he had priced

(02:37):
his cars too low, thereby cheating shareholders of potential income.
By the way, their suit was filed the day after
Henry's son's wedding, and the Dodge brothers were guests at
the reception. Anyway, the ensuing legal battle eventually found its
way up to the U. S. Supreme Court. The case
is often described as a win for the Dodges, but
Hodak and some legal experts say that that's only half

(02:59):
of the story. The court ordered Forward to pay a
dividend to the Dodge brothers and other shareholders. In doing so,
it rejected Ford's claim that he wanted to keep that
money in order to reinvest it to bolster the company's
production and boost workers wages. The decision is often cited
for the legal theory of shareholder supremacy, or that businesses
should maximize profits for the benefit of shareholders. Judge Russell

(03:22):
Ostrander wrote for the court, a business corporation is organized
and carried on primarily for the profit of the stockholders.
The powers of the directors are to be employed for
that end. But the court also acknowledged another important legal theory,
commonly referred to as the business judgment rule. That principle
assumes the corporate directors generally act in the best interests

(03:44):
of the company and have widely way to do so
as long as their moves are reasonable. The court cited
this when it resolved another segment of the case. It
rejected the Dodge's attempt to block Forward from expanding his factory.
Ostrander wrote, the judges are not business expert. It is
recognized the plans must often be made for a long future,
for expected competition for continuing as well as an immediately

(04:07):
profitable venture. The experience of the Ford Motor Company is
evidence of capable management of its affairs. Ford may have
had that part of the decision in mind when he
made his next move against the Dodges. After the court ruling,
Ford announced he was selling the company to his son.
He also planted a rumor that he might start a
new car business. All of this drove down the value

(04:27):
of the shares in Ford Motor Company. That was enough
to spook the Dodges and other investors, who sold their
shares back to the Ford family, exactly what Ford had
wanted in the first place. Today's episode was written by
Chris Opford and produced by Tyler Clang. Brain Stuff is
a production of iHeart Radio's How Stuff Works. For more

(04:48):
on this and lots of other topics involving the sick
burns of history, visit our home planet as stuff Works
dot com and for more. Podcasts for iHeart Radio is
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