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The Ford dynasty

The news last October that a member of the Ford family would head the Ford Motor Company for the first time in over two decades was greeted like the return of King Arthur. William Clay Ford, Jr, great-grandson of founder Henry Ford, was replacing the unpopular non-family executive Jacques A Nasser as chief executive. At the Ford plant in Dearborn workers cheered their new leader.

What could the 44-year-old scion, who had never run anything larger than the company's Swiss operation, do to reverse Ford's massive slide in profits, its tumbling stock price and problems with quality like the Ford Explorer-Firestone tyre fiasco? While that question was uppermost in people's minds, the management reshuffle at Ford raised another set of intriguing questions for observers in the family business field.

Some of the largest public enterprises in the world are controlled by families. Yet business schools and business journals have paid scant attention to how these hybrid companies are governed. How do the founding families protect their interests and ensure the company adheres to their cherished values and traditions? How much influence do they wield behind the scenes, and what is the impact on managers, investors and the public? In the Ford case, how much did the Ford family, which controls 40% of voting power in the company, have to do with the rise of Billy Ford Jr?

Often the only place to find answers to these key questions is to consult histories on powerful business dynasties.

The Fords: An American Epic by Peter Collier and David Horowitz is one of the richest sources on the Ford Motor Company. Written in 1987, the book will be republished early this year with a new Foreword by the authors. Based on a thorough examination of the historical record as well as interviews with family members and former Ford executives, the book offers rare glimpses of the interaction between family and company at the world's second largest automaker.

Two main points emerge from this tragic history. The book shows how the actions of an obsessed and autocratic founder can continue to wreak havoc on a company and a family for generations. It also demonstrates that unless owning families come together to heal their divisions, develop an agenda around common values and prepare their future leaders, they are unlikely to be a positive influence in a public company no matter how many voting shares they control.

Phase I: Creator and destroyer
"He was like some God of Oriental mythology – simultaneously creator and destroyer, " write Collier and Horowitz about founder Henry Ford. Ford dominated members of his family not only in his acts but in the company he had built. "This was the central fact of their lives, the purpose to which they had been born".

Henry Ford created a revolution in travel with the first mass-produced, lowcost car, the Model T. The son of a Michigan farmer, he was a mechanical genius and business visionary whose mission went beyond profits. In the era of robber barons, he became a populist hero virtually overnight after he doubled the wages of his salaried workers in 1914 from US$2. 50 a day to US$5. Ford wanted the workers who produced his automobiles to be able to buy one. He saw his company as saving souls as well as manufacturing cars. The worker who had a job to support his family would be kept from a life of temptation, drunkenness and crime. He picked up hitchhikers and gave them jobs in his company and even hired ex-convicts in his efforts to reclaim souls.

However, Henry Ford had two sides to him and the 'Bad' Henry Ford almost destroyed on the way down what the 'Good' Henry had built on the way up (in Léon Danco's famous words). His bizarre behaviour almost wrecked the huge industrial enterprise he had built, and also – most tragically – contributed to the early demise of the son he deeply loved, Edsel Ford.

The only child of Henry and Clara Ford, Edsel (named after Henry's childhood friend Edsel Ruddiman) was a frail boy who grew up in the glittering new world of the automobile. He drove a Model T at the age of 10. Almost every day after school he came to the Ford plant where he and his father looked over blueprints together and chattered about cars. "I have a fine son to one day take over, "Henry told an acquaintance.

Edsel, in turn, worshipped his father and was loath to defy him. He had wanted to attend an Ivy League university, but his father insisted he could learn all he needed to know at the Ford Motor Company, so he joined the company right after high school. During World War I, he wanted to volunteer for the army like other patriotic young Americans, but was forbidden to do so by his father, much to Edsel's great embarrassment.

As a young executive at Ford, Edsel showed a flair for the styling and design that was becoming more and more important to selling cars. General Motors was racing ahead with an expanded line of cars in different price ranges, creating a multidivisional corporate structure to produce them more efficiently. The other automakers were developing new technologies such as water-pump cooling systems and hydraulic brakes. Perversely, Henry clung to the basic Model T even after sales had begun to decline in the early 1920s. And he continued to run the organisation his way, having little patience with formal organisation.

Edsel was appointed president in 1919, the same year Henry finally succeeded in buying out the minority investors with whose help he had built the company. This seems to have been a turning point in the history. After many battles with minority investors, other inventors and entrepreneurs, Henry was finally in absolute control of his company. Now in his 60s, he was beginning to show signs of meglomania.

He undermined and humiliated his son at every turn, often describing him to others as a "weakling. " With an ally, Ernie Kanzler, Edsel designed an extensive remodel of the Model T in 1924, but when he showed the plans to his father, Henry snapped, "Rub it out!" When Edsel, supported by almost the entire executive staff, approached his father to ask him to consider developing hydraulic brakes, Henry cut him off. "Shut up, Edsel!" he said, and abruptly left the room. "I have responsibility but no power, "the son lamented to a friend.

Edsel managed to convince his father to give up the Model T in 1927. He introduced an engineering department, with a separate styling staff. He spurred creation of the company's first luxury car, the elegant Continental. But his treatment by his father continued to frustrate and perplex him, and he developed stomach ulcers. Asked why he continued to take it, Edsel usually answered with words to the effect: "My father is a great man. It's his company".

The great man's eccentricities were by then looking more and more like paranoia. He was already well known for his virulent anti-semitism. With labour unrest growing in the 1930s, Henry railed against Jewish bankers, Communists and union organisers. The Service Department he had created to provide personal security for family members turned the company into a virtual police state. Headed by Harry Bennett, a pugnacious little man in the Jimmy Cagney mold, the department used strong-arm tactics to crack down on union activity and manipulated management to carry out Henry's every whim. Despite the production boom during World War II, the company was losing ground rapidly in the auto industry. It was also under investigation by the FBI.

This was not a legacy a family could be proud of, and Edsel's death from stomach cancer in 1943 – at the age of 49 – created a powerful undertow that would drag down the family for years.

Phase II: The sibling partnership that never was
Edsel's widow, Eleanor, and their four children – Henry II, Benson, William, and Josephine – blamed Henry for the death. In the family's collective memory, Edsel was the noble prince whose shining promise had been denied and whose deeds needed to be vindicated. As the oldest in the third generation, Henry II, then an ensign in the US Navy, saw himself as picking up the standard and restoring the family's honour.

Twenty-six years old, Henry Ford II was unpromising material to head a billion-dollar industrial company. He was viewed as a shallow young man – "the chubby princeling of the Ford clan". He had coasted through the school years and, after being thrown out of Yale University for plagiarism, served a brief and unimpressive apprenticeship at the company before enlisting in the Navy.

With Edsel's death, old Henry had taken back the title of president himself and was hinting that Harry Bennett would ultimately succeed him. Henry II's allies quickly moved to position the young man to succeed his grandfather. Released from the US Navy with their help, he returned to find the Ford plants in a woeful condition, with Bennett's Service Department ruling by fear and intimidation.

Interestingly, it was the Ford women, rarely heard from in the past, who intervened with old Henry to ensure that the grandson would get the job. In a tense confrontation, Clara Ford, the matriarch, and Eleanor Ford, Edsel's widow, insisted that Henry II be named president as the price of family harmony. Usually deferential towards her father-inlaw, Eleanor Ford threatened to sell the stock she had inherited from Edsel, some 41% of the company, if he didn't.

Old Henry reluctantly stepped aside in 1945 and Henry II quickly demonstrated that people had underestimated him. Recruiting a former FBI man, John S Bugas, as an ally, Henry II moved against his principal antagonist, Bennett, now a paunchy older man. Bugas was dispatched to fire the notorious Bennett. Both men drew guns in a showdown right out of a gangster movie, with Bennett finally backing down. Afterwards, in a display of force majeure, Henry IImarched through the Glass House headquarters in Dearborn firing Bennett cronies as he went, over a thousand of them.

The family drama in the third generation centred around Henry II's treatment of his two brothers, Benson and William Sr. Eleanor Ford's dream was that her three sons would work together in the company as a team. Looking back, William Sr related in an interview with Collier-Horowitz, "She told me that Henry II, being the oldest, would probably be the boss. But she said that Benson and I would sit beside him, his right and left hands, his young brothers on whom he would be able to depend".

But Collier and Horowitz say that "this sort of constitutional arrangement didn't hold much appeal for Henry II, who had already sensed the power in his name. While his brothers were learning how to be Fords, he was already playing the role to the hilt".

Henry II earned his authority by sparking a postwar renaissance at Ford. He brought in a team of ex-US Army officers known as the Whiz Kids to shape up the company's financial and accounting practices. Though not a visionary leader, Henry II recognised talent and promoted a series of strong non-family executives like Lewis Crusoe, Robert McNamara, Arjay Miller and Lee Iaccoca. By expanding the company's operations in Europe, he turned Ford into an industry leader and a formidable competitor to General Motors.

The company's decision to go public in 1956 was driven by an odd mixture of motives. While Henry II and his sister Josephine (Dodie) wanted liquidity to support expensive lifestyles, the Ford Foundation's desire for cash also appears to have played a major role in the decision. Henry II and Edsel had created the Foundation in 1936 as part of a tax planning strategy. At the time, they created two classes of stock. To avoid a huge estate tax bill, some 88% of the Class A common shares went into the Foundation. The family kept Class B shares with voting rights that ensured their continued control of the company.

Over the years, the Foundation had been unable to sell any of its massive holdings to fund expanded programs. With the public offering, it benefited from a windfall that enabled it to grow from a small-scale family charity into an organisation rivaling the Rockefeller Foundation. (Years later, Henry II, disgusted with the ambitions of the Foundation's professional staff, resigned from the board. )

The public offering, the largest in history, left the company awash in cash, but inevitably reduced family influence as well. Gearing up to use the new-found capital to build a new line of Fords, management carved up the LincolnMercury division then headed by Benson Ford. William Sr had focused his efforts too narrowly on building a new model of his father's Continental. His project also lost in the shuffle after the company forged ahead with its 'Big Plan'.

Given inconsequential jobs at Ford, both brothers slid into years of alcoholism. They blamed their older brother. In fact, neither Benson or William Sr had really displayed the drive or leadership ability necessary to earn authority – although it was also true that Henry did not throw either of them a lifeline after they were cast adrift.

As the sole Ford in the hierarchy, Henry II filled the company with his own personality and became a nationally known industrial leader. In 20 years as chairman (from 1960 to 1980), he brought credit to the Ford name by moving towards more enlightened positions on public issues. He was one of the first leaders in his industry to acknowledge the need of government controls on auto emissions, for example. And he pushed his executives hard to recruit more blacks from the inner city and train them for jobs at Ford.

But 'Hank the Deuce' was a tormented figure who chafed for years under the heavy burdens he had assumed. He sought relief in drinking and consorting with royalty and the jet set in numerous trips abroad. His messy affairs and two highly publicised divorces further alienated the family from him and from the company.

Phase III: Non-family leadership to the fore
Henry II's battle to remove Lee Iaccoca as president of Ford set the stage for the next succession, which pushed the family further out on the fringes of power. Iaccoca was a brilliant 'car man' and marketer responsible for a string of successes such as the Ford Mustang. But according to Collier and Horowitz, he constantly sniped at Henry behind his back, regarding him as a playboy who had gotten his job because of his name. Henry, in turn, began to see in Iaccoca a rival whose lust for power and deviousness reminded him of his grandfather.

After Henry moved a non-family executive, Earl Caldwell, ahead of him in the executive pecking order – positioning Caldwell to succeed him as CEO – the battle was joined. The humiliated Iaccoca began actively campaigning for the job, lobbying, among others, William Sr, the largest family shareholder. Balked at first in his efforts to fire Iaccoca, Henry II finally received board approval after threatening to quit himself. With his brother William Sr at his side, signaling family unity, Henry II gave the news to Iaccoca in 1978, forcing him to resign.

The Fords had rarely met as a family over the years, according to Collier and Horowitz. "They told one another that it was because they had families of their own. In truth, however, they stayed away from one another because the strains had become too great". The result was that the family had done zero planning to prepare future family leaders.

When Henry II, suffering from a heart ailment, announced he was stepping down as chairman, there was speculation about whether another Ford would move into a prominent position. William, recovered from his alcoholism, aspired to be chairman, but he had boycotted the company too long to be a credible candidate. There was talk that a Ford woman, perhaps Charlotte Ford, the oldest of Henry's two daughters, might be given a board seat. Charlotte scotched that rumour, remarking bitterly to reporters, "I have no desire to be on the board of the Ford Motor Company. I have never said that I wanted to be on the board. Anyway, I was born a girl and that takes care of that".

Henry made Earl Caldwell chairman and CEO; William became vice chairman. Iaccoca in his 1984 autobiography, Iaccoca, an anti-Henry II diatribe, argued that Henry II was really preparing the way for his son, Edsel II, to eventually take over. But Henry II, in an oblique warning to the next generation, had told a shareholders' meeting, "There are no crown princes in the Ford Motor Company and there is no privileged route to the top".

The five non-family CEOs who followed Henry II fought to limit the family's influence, according to the new Foreword by Collier and Horowitz. Two members of the fourth generation, William Jr and Edsel II, were appointed to the board in 1988. But Donald Petersen, CEO after Caldwell, "denied the two young Fords important committee assignments and tried to marginalise them as dilettantes that happen to have inherited the Ford name and large blocks of voting stock". Alexander Trotman, CEO prior to Jacques Nasser, staunchly opposed William Jr's appointment to head the powerful Finance Committee. When the board named Billy Jr chairman in 1995, Trotman reportedly said to the young man after the vote, "You have your monarchy back, Prince William. "

Phase IV: The fourth generation and the brand
The Ford family, despite its tragic history, remains part of a revered tradition at the Ford Motor Company. Old Henry Ford is remembered as one of the heroes of American industry, a visionary genius and innovator. The company's thousands of employees in the Detroit area still speak of themselves as working at 'Ford's'.

William Sr and Aunt Josephine, along with 13 cousins in the fourth generation, are now principal holders of the controlling voting shares. Both Billy Jr. and his cousin, Edsel II, went through long apprenticeships that took them to every corner of the company. This suggests the family has insisted that management prepare at least one Ford in every generation for a prominent, visible position. According to Collier and Horowitz, Billy outmanoeuvered Edsel to gain the fast track to the top; their competition will have to be contained if the family is to remain a cohesive force.

How the family operates behind the scenes can only be described through a glass darkly, but there appears to be a good chance that Fords will be able to get their act together and rally around a positive agenda led by Billy Jr. The Fords now meet twice a year as a family and maintain a proprietary web site for communications between meetings. The group met three weeks before the announcement of Billy Jr's elevation to CEO and pledged their unqualified support.

The new Ford in the driver's seat is a down-to-earth executive, a strong family man, a Buddhist, a vegetarian and an outdoorsman. He has been outspoken in pressing management to go beyond government requirements in reducing pollution and increasing gas mileage of Ford SUV's and trucks. Everybody is hoping he will be able to repair some of the damage done by the sometimes harsh and demanding Nasser with employees, dealers, customers and suppliers. As CEO, he will have the support of two experienced executives, Nicholas Scheele, chief operating officer, and Carl Reichardt, a longtime board member who will be in charge of finance.

Like his great-grandfather, the new Ford leader believes that "a great company goes beyond profits and makes the world a better place". Such values may go far toward healing the family's deep-rooted ambivalence toward their ancestral company. By playing a more active, organised role as owners, the Ford family may not only help rebuild morale throughout the enterprise but restore a slightly tarnished global brand. 

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