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Ford's divided clan considers its options

By Francesco Guerrera, John Reed and Bernard Simon
Updated: 9:42 p.m. ET Oct. 29, 2007

W hen Elena Ford was told that her 131ft yacht, Unity, was too big for the small marina of ritzy Detroit suburb Grosse Pointe, she refused to take no for an answer.

Using a small part of the wealth she has accrued as a fifth-generation member of the carmaking dynasty, Ms Ford paid for the dredging of the local yacht club's harbour. Weeks of work and thousands of dollars later, Unity docked at Grosse Pointe, her Ford-blue hull and three-storey white deck dwarfing the smaller pleasure boats around it.

Elena's relatives will have to show a similar commitment to unity if the carmaker they control is to survive its biggest crisis since the patriarch, Henry, founded it 104 years ago.

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With Ford bleeding money, ceding market share to foreign rivals and losing touch with its traditional US customer base, the family is under increased scrutiny. As the company's management implements a turnround plan to steady the ship, the question for investors, employees and potential bidders is whether, in the coming years and months, the clan will stay the course or decide to cash in their chips.

For Henry's 50-plus adult heirs - a disparate bunch that includes a Hare Krishna convert, an author of books on etiquette, a winery owner and a Hollywood producer - the decline of the company is both a financial problem and an emotional trauma.

Even in America's family-filled corporate aristocracy, once populated by famous clans such as the Rockefellers and Vanderbilts, few dynasties are as tightly linked to their business as the Fords.

"This is the worst predicament in their history. They are like a wounded animal," says David Lewis, a professor of business history at the University ofMichigan who has written nine books on Ford. "The company is in their blood. Some of them would tell you that their blood is Ford-blue."

The blood ties have been strengthened by a dual shareholding structure that gives the Fords 40 per cent of the vote with less than 4 per cent of the shares. The scheme, which has been repeatedly attacked by investors demanding a one-share, one-vote system, dates back to Ford's days as a private company.

The two classes of stock were a ruse devised by Henry to minimise the high inheritance taxes introduced by President Franklin Roosevelt in 1935. When, in 1956, the Ford Foundation, the charity Henry had endowed with large amounts of non-voting stock, decided to raise funds by selling Ford shares on the stock market, the family took remedial action. Recalling that Henry, who had died nine years earlier, abhorred the idea of a listing and fearful of losing their grip on their heirloom, the Ford clan retained the bulk of voting rights.

For decades, that looked like a smart choice. As Ford thrived, the generous dividends paid by the company - which totalled $132m in 1999 alone - enabled four generations of family members to accumulate considerable wealth. The steady stream of cash helped several Fords to fund gilt-edged lives centred on Grosse Pointe's sprawling mansions and high-profile Detroit-based activities. Henry's grandson, Bill Ford Sr, for example, owns the Detroit Lions, the local football team that plays in the $500m (€347m, £243m) Ford Field arena.

Others chose to pursue more eccentric interests, such as the many Hare Krishna temples from Hawaii to Calcutta that have been partly funded by Alfred Ford, one of Henry's 13 great-grandchildren, also known by his Indian name of Ambarish Das. Another example is the highly regarded Heron Hill wine company in New York state owned by Alfred's sister, Josephine, with her husband, John Ingle.

T hese diverse but financially secure lifestyles were rocked on September 15 2006, when the company scrapped its dividend for the first time in more than 20 years. The move, sanctioned by Bill Ford Jr, the family heir who had just resigned as chief executive after failing to reverse Ford's slump, made a number of family members anxious.

The collective soul-searching culminated in an unprecedented family meeting with Perella Weinberg, a Wall Street mergers and acquisitions bank. People with knowledge of the meeting, which took place in April in Ford's hometown of Dearborn, near Detroit, said it exposed differences of opinions within the family over what to do withits stake.

"There are different factions. Some people are very keen for something to happen and others don't want to rock the boat," says one person close to the family. "There are a lot of people who are jittery because of the lack of dividends and want something to happen but it is a long way from there to launching a revolution."

The Ford family, through the company, declined to comment, as did Perella Weinberg.

Alan Mulally, who was lured from Boeing to put an end to Bill Jr's inglorious five years as CEO in September last year, appears to have sensed the family's divided loyalties. In return for attempting to lead Ford away from the brink, Mr Mulally strapped on a "golden parachute" that will reward him handsomely should the company be sold within five years.

In the event, the family did not hire Perella Weinberg and people close to the matter insist that, although its members have not received any dividends fromFord for more than a year, they have no intention of selling in the near term.

Ford insiders say that, for the time being, the pressure to sell has been kept in check by senior family members such as the New York-based socialites and writers, Anne and Charlotte, daughters of the late Henry Ford II - a former CEO - and, of course, Bill Jr.

In addition to his roles as Ford chairman and family leader, Bill Jr, alongside Bill Sr and Edsel, his cousin and hitherto rival for the CEO job, is a trustee for a block of shares accounting for about three-quarters of the family holding. Other large shareholders such as Lynn Alandt, a great-grandaughter of the founder, who owns more than 12 per cent of the family's non-voting shares, have also showed no inclination to sell.

But tension over the future of the Fords' holding is likely to persist, partly because there are signs that the balance of power within the family could soon change. Bill Sr, once a powerful influence on the company, is 82 and has taken a back seat, having retired from the Ford board in 2005.

Bill Jr's authority in the family, which backed his rise to the top of the company eight years ago, has been dented by his managerial shortcomings. Since 1999, the value of the family holding has plunged from $3.85bn to about $550m, courtesy of an 80 per cent-plus slump in Ford's shares.

Only two members of the fifth generation still work for the company and Ford observers fear that, as the family grows more detached, the chances of a sale will increase. "If the family can't provide the CEOs, its days of ownership will be numbered. When you are coupon-clippers, it's very hard to sustain," says one.

Bankers and private equity executives say that, so far, the family has been under little external pressure to sell because potential bidders have been deterred by Ford's huge losses and large retiree healthcare liabilities.

But signs of a meaningful and sustainable turnround - including a possible deal with the unions to curb retiree health costs - could spark interest from private equity groups attracted by Ford's strong brand and wide scope for asset sales, downsizing and outsourcing.

Private equity's desire to buy into the sector was underlined by Cerberus Capital Management's $7.4bn acquisition of Chrysler from Germany's Daimler in August.

Ford's own auction of its British Jaguar and Land Rover brands has also drawn preliminary interest from buy-out groups, including Cerberus, Ripplewood Holdings, TPG, One Equity Partners and Terra Firma, as well as Indian carmaker Tata Motors. Three of the buy-out groups have former Ford executives fronting their bids, including former CEO Jac Nasser, who was ousted by Bill Jr in 2001 and is leading One Equity's effort in the auction.

Ford might also prove an attractive partner for an automaking alliance with a rival, especially if its revival plans stumble or take longer than expected. Last year Ford and General Motors held talks that are believed to have foundered largely on the family's opposition but could be rekindled if the crisis of the US car industry were to call for a "grand coalition" of domestic producers. Renault/ Nissan's Carlos Ghosn - rebuffed as a possible partner by GM last year - says he is still interested in a North American partner to round out his group's Franco-Japanese alliance.

Unless Ford stages a remarkable comeback, a dynasty that began with one man's vision of an automobile for the masses could founder on his rich heirs' inability to cope with a new era in mass transportation.

Part 3 in Companies & Markets tomorrow: the man charged with transforming Ford's vehicles

Affable persona that belies a ruthless streak

A stranger wandering into the Red Dog Inn in Lawrence, Kansas, in the mid-1960s may not have predicted that the wiry young man strutting his stuff on the dancefloor would one day ascend to the top of an American corporate titan.

But for his friends who knew that bopping to the beats of Motown and the Beatles was not his only passion, Alan Mulally was always going to make it in the big city.

They just did not know which one. Until last year, that is, when Mr Mulally moved to Detroit to take the helm of Ford, the fallen giant of US manufacturing.

Mr Mulally has arguably the most difficult job in US business today: turning around Ford's slumping operations and reforming a company whose local fiefdoms and ferocious internal politics have become legendary.

With Mr Mulally having just marked his first year in charge, the Financial Times interviewed childhood friends, university professors and former colleagues to obtain a glimpse of the man and his management style.

Before Ford - and Boeing, the only other company the 62-year-old executive has ever worked for - there was Lawrence, a university town tucked away in a corner of America's heartland.

Growing up in a middle-class family in Lawrence's tightly-knit community, Mr Mulally, like many children, wanted to be an astronaut. The Ford chief, a licensed aircraft pilot, never made it into orbit but has maintained an interest in space and has served on Nasa's advisory board.

There was another trait that was to remain with Mr Mulally through adulthood: an unshakeably affable demeanour and gregarious personality. To his critics, the unflappably upbeat mood, ever-ready smile and tactile manners - a Ford colleague calls him "a hugger" - can sometimes appear conceited and artificial.

But childhood friends swear Mr Mulally's good humour precedes his corporate persona. In the words of Hank Booth, a local broadcaster and fellow pupil at Lawrence's high school: "He was just friends with everybody, everybody liked Alan."

But even then, some worried that Mr Mulally's burning desire to succeed might prove his undoing. "There were times when he was brooding and we feared his ambition could have driven him to destruction," says Ms Wohlford.

Decades later, some Boeing colleagues would harbour similar concerns. "Alan is a very nice person but does have an ego that can get bruised. We used to call him 'the rock star'," recalls one.

Even journalists, whose questions are usually neutralised by Mr Mulally's mixture of charm, verbal sparring and rehearsed answers, have had a taste of that side of his personality. In interviews with the FT when he was at Boeing, Mr Mulally had no qualms about describing himself as the world's "greatest aircraft designer".

Back in his younger days, self-confidence and hunger for success propelled Mr Mulally into business. It was Jan Roskam, his lecturer at the University of Kansas, who gave the future Ford chief his big break: a job at Boeing in 1969 just after he had obtained his postgraduate degree with a thesis on the aerodynamics of light airplanes.

"Jobs were not that easy to get and I had good contacts at Boeing and told them: 'You can't afford not to hire this guy' ", says Mr Roskam, who confesses to never having beaten Mr Mulally at tennis.

The airplane and defence giant was the stage for both Mr Mulally's consecration as a senior executive - he became head of the commercial airplanes division in 1998 - and his biggest setbacks: he was twice passed over for the chief executive job.

As his career progressed, Mr Mulally showed that, behind the smile, the hugs and his self-deprecating habit of drawing a little airplane alongside his signature, he could be a ruthless manager.

In the aftermath of September 11, for example, when the future of the aircraft industry hung in the balance, he launched sweeping cost cuts that led to more than 30,000 redundancies - around a third of his division's workforce.

"Alan's ruthlessness was very real. You would not want that in Mother Teresa but you would want that in your chief executive," says Kostya Zolotusky, now a senior executive at Boeing Capital, who worked with Mr Mulally during the development of the Boeing 777 in the early 1990s.

Mr Mulally's steely edge was also apparent in his famous Thursday meetings - a weekly performance update from senior management that he introduced at both Boeing and Ford.

"If you disappointed him at this meeting, he would embarrass you in front of your colleagues and other onlookers. You could not bullshit at these meetings," says Toby Bright, a former Boeing marketing executive who has known Mr Mulally for some 30 years. "He used these 'public hangings' sparingly but when you saw them you made sure you did not go through those."

Nevertheless, Mr Bright credits the meetings, which often heard Mulally catchphrases such as "Data will set you free" and "You can't manage a secret", with breaking down walls between Boeing - an issue that is going to be crucial at Ford, where local potentates have ruled for years.

Indeed, his game plan at Ford bears strong similarities with the one he adopted at Boeing. In the 1990s, when Boeing's commercial airplane unit, as Mr Zolotusky puts it, "forgot how to make planes", Mr Mulally was criticised internally for not focusing on its key customers: the airlines.

His response: to set out a hierarchy of priorities, starting from the manufacturing process - he overhauled Boeing's production methods, slashing aircraft development time - going on to product strategy and only afterwards moving to marketing and sales.

He replicated the process at Ford. First he espoused a previously-agreed plan to cut costs and rationalise manufacturing, then appointed a global product tsar above the old regional chiefs, and only this month - more than a year after taking over - named a chief marketing officer.

Mr Mulally's credo, spelt out in a recent interview with the FT, is: "It all starts with the product."

With millions of Americans no longer willing to buy a Ford product, shareholders and employees must hope the dance-loving kid from Lawrence can work his charm on one of the toughest audiences he has ever had to face.

Copyright The Financial Times Ltd. All rights reserved.
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