Bill Bundy

April 09, 2015 Leadership & the Reinvention of an

American Icon

I’m going to speak with you this evening about the leadership skills of a man that may be unmatched in the annals of America business. I think it’s highly likely, given how interesting his story is, it’s one that is still largely unknown by most people in America.

His is the story of what is arguably one of the greatest corporate turnarounds in American history. It features duplicity, intrigue, backstabbing and redemption, as well as characters such as the Flivver King and Hank the Deuce. At its core it is the story of the salvation of a company that is as much a household name as any in America. This paper was inspired by the book American Icon by Bryce G Hoffman, who was a reporter covering Ford Motor Company for the Detroit News and had a front row seat for all the action. The book is an abbreviated account of the turnaround of Ford Motor company by a man named Alan Mulally, who became its CEO in September 2006, just months before the financial markets collapsed and the great recession began.

The story begins in 1903 when Henry Ford started Ford Motor Company, a company that is commonly referred to as the Blue Oval. The events I’ll talk about tonight take place primarily between the years 2006 and 2010.

In the beginning, Ford Motor company had varying degrees of success and management acumen. By 1925 it sold 1.6 mil units of the Model T at $265. It was a fairly good sized company for the early twenties, but in 1926 it lost money. Ford introduced the Model A in 1927, a model which sold very well, but didn’t introduce another new model until 1932.

At the same time, Ford’s primary competitor, GM, was introducing new models regularly to improve its products and suit the changing consumer demand for vehicles in America.

Henry Ford was an autocrat who ran his company with an iron fist. He hired “yes men” to do as he directed, and never saw the need to develop a management team capable of running any segment of the business as a part of a whole, with results reported up the chain. He built a fearsome security

1 - Bundy apparatus with a man in charge named Henry Bennett in order to keep order at the huge River Rouge manufacturing complex in Dearborn. The hiring of Bennett, along with Ford’s domineering management style, set the stage for a malignant corporate culture which endured well into Mullaly’s time at Ford.

Henry Ford held control of the company until shortly before his death in 1947, but he finally ceded control of the company to Henry Ford II (Hank the Duece as he became known by the workers) in 1945. This shift happened shortly after the Navy ordered Henry II to resign his commission in order to return to the family business to help reorganize and manage it.

Henry Ford II learned well from his grandfather, and during his term as CEO (1945 to 1980) the cultural nightmare deepened. The toxic culture often pitted one executive against another, although to his credit Henry II personally fired Henry Bennett (the pistol toting personnel chief). He replaced Bennett with true businessmen, often hiring them from crosstown rivals. He led the first great turnaround of Ford, and his leadership continued through the glory years of the 50s and 60s. Henry II stepped down as CEO in 1979 and over the next twenty-two years the company cycled through a number of non-Ford- family CEOs. This leadership merry- go-round culminated in the hiring of Jacques Nasser in 1999, who by many accounts almost succeeded in running the business into the ground.

Nasser, a pugnacious and swaggering Lebanese born Arab, led a massive diversification of Ford. He embarked on a buying spree of non–automotive related companies, as well as the European luxury brands Volvo and Land Rover. Ford already owned Aston Martin. At the same time, largely due to Nasser’s disinterest in the Blue Oval, quality began to suffer, launch dates were missed, and leadership began to lose sight of the fundamentals of the business. These developments began to greatly concern William Clay (Bill) Ford Jr., great grandson of Henry Ford, who had joined the family business fresh out of Princeton in 1979 and held the Chairman’s post at the company.

As a note of interest, it was during Nasser’s tenure that the Ford Explorer rollover problem came to light. You may remember that fellow Miltonian Jim Vines was intimately involved in this as a staff attorney for Bridgestone- Firestone Tire Company.

2 - Bundy As Bill Ford became more and more concerned about Nasser’s dismantling of the company and subsequent spending spree, he built a case and worked with other board members to oust Nasser. The ouster occurred in October 2001, and Ford added CEO to his Chairman’s title.

Bill Ford took over the company at a time of several years of sustained profitability, but this success was beginning to wane due to the events of 9/11 and Nasser’s missteps as CEO. Ford recovered and led the company to three straight years of profitability, but the job took its toll on him. He realized that he was not well suited for the top operational position in the company and that he needed a savvy, tough CEO that could manage the day to day affairs of the giant company. As early as 2003 he had Ford’s HR chief putting together lists of potential CEOs, which included Dieter Zetsche (Mercedes and Chrysler) and Carlos Ghosn (Nissan) but in the end no one was hired.

The stress of the job continued to take its toll on Ford. The Ford family was becoming more and more concerned about the company’s prospects, and when Bill Ford addressed the board of directors in July 2006 the stock price was less than half what it was when he had become CEO five years earlier. In this meeting he asked the board to “help me find a solution”. “This company means a lot to me. I have a lot tied up in it” Ford said. “But the one thing I don’t is my ego.”

Ford realized that the company needed someone to run the organization other than himself, and felt it should preferably be someone from the outside able and willing to cut through the harmful cultural issues that had plagued the company for years. Within weeks of the board meeting, board members had contributed several candidate names, but the one that stood out was a man named Alan Mulally who at the time led Boeing Aircraft’s Commercial Airplane Group. 3 - Bundy Mulally was a native Kansan, the son of a postal worker who became interested in space travel after watching President John F Kennedy’s “we choose to go the moon” speech in 1962. He attended the University of Kansas where a professor recognized innate leadership skills which set him apart from others. After discovering that he was colorblind and would never fly, Mulally shifted his focus of study and earned his Bachelor and Master’s of Science degrees in Aeronautical and Astronautical Engineering. After briefly considering a career as a professional tennis player, he went to work for Boeing Aircraft upon completion of his Master’s.

At Boeing, Mulally made a name for himself as he moved up the ranks and ultimately by leading the 777 program where he introduced his own unique management concepts. In his tenure at Boeing, he was passed over for the top position twice but did become the CEO of Boeing Commercial Aircraft in 2001 shortly before the September 11. After the 9/11 attacks he ably led the division through the subsequent turbulence of those times. Then, in the summer of 2006 he was approached by Ford board members Irv Hockaday (President and CEO of Hallmark Cards) and John Thornton (former chairman of Goldman Sachs) about his interest in the CEO position of the Ford Motor Company.

Shortly thereafter began a series of meetings where Mulally was wooed by the Ford board members. In a meeting in Aspen Hockaday insisted that there “can be no sacred cows” for the next Ford CEO, but Mulally insisted that he “wouldn’t have to get rid of many”. When pressed, he went on to explain his system of weekly meetings that forced extreme accountability with no place to hide for non-performers. He asserted that the non- performers at Ford would self-select out.

After an intense courtship Alan Mulally was hired as CEO of Ford Motor Company and as he was driven into the executive garage at the Dearborn headquarters on September 5, 2006 he couldn’t help but notice the number of luxury brand automobiles in the garage: Land Rover, Jaguar and Volvo. Not a Ford in sight.

It was during Mulally’s introduction and brief comments to Ford executives that the first shot across the bow was fired. A member of the executive team said “we appreciate you coming here but this is a capital-intensive business with long product development cycles. The average car includes thousands of parts that have to work together flawlessly”. Mulally, in a preview of his

4 - Bundy unflappable demeanor that would serve him so well over the next few years replied “That’s really interesting. The typical passenger jet has over 4 million parts and if any one of them fails the jet will fall out of the sky. I feel pretty comfortable with this”. This was just the first in a constant barrage of cultural misbehavior Mulally experienced at Ford which included competition between executives, private and public comments disparaging others, and ignoring the new rules set forth by Mulally.

As a backdrop to the hiring of Alan Mulally at Ford, the economic environment in 2006 included a slowing economy, growing unemployment, and tightening credit markets. All these things affected the people that were buying Ford products. Despite the storm clouds on the economic horizon Mulally dove into the mess at Ford with remarkable zeal and energy.

At his first senior executive meeting Mulally laid out the rules for every meeting; no side discussions, no jokes at others expense, no Blackberry use during the meetings and total transparency and honesty. Each of the executive team would be accountable. He introduced his Business Plan Review process (BPR) which he had described to Irv Hockaday and John Thornton just a couple months prior. The BPR was a process he had developed at Boeing which included a set of PowerPoint slides that listed key metrics of each member of the leadership team’s departments. Each executive was expected to give his or her own presentation and know his or her own details. The prevailing culture at Ford was that underlings presented information and the executive team rarely stood up and gave their own presentations. Not only that, but most Ford executives knew precious little about the performance of their departments and as the new expectation was introduced to the executive team, the level of tension and resentment toward the new CEO heightened. Near the end of the first meeting the CFO gave a financial review that showed an expected loss for the year of $12 billion. Mulally was reminded of the Jerry Garcia quote, “somebody has to do something and it’s just incredibly pathetic that it has to be us”.

It took several weeks for the leadership team to grasp the BPR but Mullaly continued to insist it was a safe environment and that total honesty would be protected. It was quite a shift from Ford’s legacy culture of every man or woman for him or herself. One of the main aspects of the BPR was a graphical display that included key projects and metrics color coded either red (serious problem), yellow (slow progress) or green (everything on track),

5 - Bundy relating to the progress of the metric being measured. For the first several meetings the status of all panels was green.

One member of Mulally’s C-team let him know in no uncertain terms that between overseas travel and his own team meetings that he had better things to do than attend weekly BPR meetings. Mulally responded “that’s fine, you don’t have to attend the meetings. You can’t be a part of the Ford team but that doesn’t mean you’re a bad person”. The message was clear, Mulally would hold your feet to the fire and expect your full participation on his terms; the self-selection process had begun.

By the end of October 2006 Mulally was beginning to feel frustration as all the panels were still colored green on the BPR. At one meeting he queried the executive team of the company’s projected $12Bil loss, “is there anything that’s NOT going well here”?

At the next meeting, which Mulally called the defining point in Ford’s turnaround, a young lieutenant name Mark Fields opened up. Fields was close to Bill Ford and was the heir apparent to the CEO’s position before Mulally was hired. Fields had a production problem with a new crossover SUV, the Ford Edge, which was delaying product launch. In the hangover of the legacy organization he felt he could lose his job any day as he was the biggest threat in the company to Mulally. He also began to feel as he had nothing to lose. The new CEO kept stressing that the BPR was a safe environment and it was a place where problems were to be solved. To the shock of all those in the room but Mulally, Fields displayed a red panel on his BPR page. After a brief pause, Mulally started clapping his hands and said “Mark, this is great visibility, who can help Mark with this problem?” The shift had begun. As a point of interest, Fields succeeded Mulally as CEO in 2014.

Meanwhile, Mulally’s energy and enthusiasm wowed the staff. He communicated with production line employees as effortlessly as his executive staff. He dropped into offices around the corporate headquarters just to chat and ate lunch with employees he didn’t know. He would often strike up conversations with random employees and implemented ideas he heard about from those he met in the hallway. At one employee meeting, a young man from the Cologne Germany office asked Mulally how he could get a Blue Oval lapel pin like the one he was wearing. Mulally responded, “you should all have one and I’m going to get you all one”, then took off his

6 - Bundy and gave it to the man that asked about the pins. Alan Mulally proved to be a guy that relished the job of communicating with employees as much as he loved fixing difficult production problems, and through that ability won the hearts and minds of the ranks. When his direct reports learned that 5:30 am wasn’t early enough, they gave up the idea of getting into the office before he did.

At the end of just his third month on the job, Mulally wrote notes on his trademark legal pad that recorded his thoughts on the need to “aggressively restructure”, to “accelerate the development of competitive new products that people want and value”, to secure the financing needed for the restructuring and weather an economic downturn, and finally, about the need to work together with the union and employees. He understood that he needed to model the leadership needed for the company to navigate the complex automobile manufacturing ecosystem in a world where competition was fierce and growing, and the storm clouds of recession were on the horizon.

In the ensuing months, Mulally embraced and masterfully navigated a union negotiation, an attempted takeover by Kirk Kerkorian’s Tracinda Corporation, and continued to build trust within Ford across departments and employees of all stripes. He focused also on combining the disparate organizations within the company, Ford of North America, Ford of Europe, and Ford of Asia into a more cohesive global enterprise that built vehicle models on single platforms, operated on a unified business plan, and cooperated with each other. The overarching idea being to eliminate duplication in product development around the world, making better vehicles and increasing profitability. Mulally’s push for platform consolidation led to great success. When he arrived at Ford in 2006 there were two versions of the Ford Focus, North American and International. By 2013, through a process of design consolidation and single platform thinking, the Ford Focus had become the best selling car in the world.

Near the end of 2006, due to the concern about an economic downturn, Mulally had instructed his finance team to go to the capital markets and “raise as much money as you can” to steel against a recession and to finance the restructuring. By mid December of 2006 Ford had agreed to a total loan package of $23Bil from a consortium of New York banks. By spring of 2008, the economy had slowed considerably, labor markets were weakening, and record levels of consumer debt worried the financial team at Ford.

7 - Bundy Alarmingly, lending activity was tightening which impacted Ford’s potential customers, much less the world economy.

During Mulally’s recruitment, Bill Ford had warned him that the coming union negotiation would be crucial to the company’s success going forward. There were a number of legacy labor issues that needed to be fixed but the Jobs Bank, a program where idled employees stayed on the payroll and received benefits (often for years) until Ford offered them a job they were willing to work, was a high priority. In addition, a previous labor negotiation had encumbered Ford with $23Bil VEBA Trust pension liability (UAW Retiree Medical Benefits Trust) which the company needed to cost shift in part back to the Union.

Mulally’s pitch to the union was simple; sell the non-Ford luxury brands of Volvo, Land Rover, Jaguar, Aston Martin and a share of Mazda, focus on and invest in the blue oval (Ford brands) and then: 1) keep making cars in North America unprofitably, and build production capacity in Mexico for profitable production, or 2) keep making cars in the US, profitably with the right labor agreement, thereby saving American jobs.

The idea of focusing on the Ford and Lincoln brands caught the union pleasantly off-guard and was a great start for the Ford team under Mulally’s leadership. Mulally themed the negotiation: Profitable Growth for All. UAW President Ron Gettlefinger knew what was at stake, either keeping jobs and making concessions to an outmoded labor agreement or losing thousands of jobs that might never be regained. Gettlefinger was also a pragmatist.

The many months of negotiations yielded results in improved work rules in Ford’s favor and a modified Jobs Bank program where laid off employees had to take the first job offered with a one year limit for each person’s participation. Although Ford agreed to keep more plants open than planned, the sticking point proved to be the VEBA Trust pension liability. As negotiations reached a crucial point, Ford’s CFO suddenly insisted on less cash and more stock for the VEBA Trust funding mechanism and the Ford team got wind of the UAW’s intent to walk out of talks. At the last minute Mulally stepped in and huddled with Gettlefinger, telling him that the CFO had been called to an emergency meeting at Jaguar HQ in England. Mulally apologized for the last minute hiccup, Gettlefinger grinned, and the deal was done.

8 - Bundy

In the meantime, 2008 continued to bring even more alarming economic news as unemployment and fuel prices continued to rise, the sub-prime loan crises stressed even the largest New York banks, and home sales plummeted. A worst-case scenario was unfolding for auto makers and Alan Mulally and Ford leadership team were in overdrive crises mode. By November, two months after Lehman Brothers failed and dozens of other banks came to the precipice of failure, the big three auto makers were in serious trouble and their CEOs were called to Washington for Congressional hearings on the condition of the their companies and the need for bailout loans. In the typical Congressional thrashing, all three auto makers were skewered with Chrysler taking the worst of it. Alan Mulally insisted however, and was criticized for it, that Ford had enough liquidity to weather the storm based on the loan package they had negotiated two years earlier.

In front of Congress again just two weeks later, Mulally read a statement in his plain-spoken way, continuing to insist that Ford was a changed company focusing on a new vision and the plan of rebuilding Ford into a company making and delivering cars the people wanted to buy. He did concede that they would accept access to a government line of credit if the recession turned out to be longer than they expected. The response from the American public to Mulally’s performance was immediate and overwhelmingly positive.

Mulally and Ford did stick to the plan and began to see the light at the end of the tunnel while picking up market share. Mulally had insisted they not scrimp on their design capability as they pared back during the great recession and by the end of 2009 the worst was over for Ford. Sales were still depressed but their stock was outperforming the market, perhaps due to the intuition of the market, but certainly to some extent to Mulally’s transparency before congress a year earlier.

Even in the darkest days of recession Ford never lost focus on their product development initiative, increased their initial quality rankings (according to J.D. Power) to surpass Honda, and at the same time through the will of Alan Mulally improved the toxic corporate culture. 9 - Bundy As the great recession wound down in 2009 the company reported a net profit of $2.7Bil and has recorded multi-billion net profit every year since including a $20.2Bil net in 2011.

Alan Mulally proved to be a more than able leader at Ford. He inspired thousands of employees and millions of Americans with his tenacity and leadership skill. He re-made the corporate culture into a results-oriented environment where workers from the C suite down could come to work inspired and empowered, one that most observers of the company would have thought impossible. He shared his values, communicated his vision for Ford, and walked the talk.

Jim Cramer of CNBC proclaimed Mulally “one of the greatest CEOs of all time”. USA Today, in an observation of the obvious, called him the best CEO in Ford history. Mulally received worldwide acclaim from throughout the business press including being named to Fortune’s “World’s Greatest Leaders” list.

I don’t know if he’s the greatest CEO in American business history, but I am certain he is an extraordinarily talented and gifted leader. Alan Mulally brought to Ford a set of collaborative skills rarely seen in business much less the American auto industry, a deep understanding of the complexity of global manufacturing, and the intellect to piece it all together to the benefit of the company he ran, it’s shareholders and the country. 10 - Bundy