http://www.businessweek.com/articles/2012-11-15/fords-slow-motion-ceo-succession-plan

Management

Ford's Slow-Motion CEO Succession Plan


Ford Motor executives, from left, Bill Ford, executive chairman; Alan Mulally, chief executive officer; Mark Fields, president for the Americas; and Martin Mulloy, vice president for labor affairs

Photograph by Jeff Kowalsky/Bloomberg

Ford Motor executives, from left, Bill Ford, executive chairman; Alan Mulally, chief executive officer; Mark Fields, president for the Americas; and Martin Mulloy, vice president for labor affairs

In 2006, Alan Mulally, nearly three months into his job as chief executive officer of Ford Motor (F), was growing increasingly frustrated with the crew of managers he’d inherited. To foster candor, the ex-Boeing (BA) executive instituted a weekly reality check: a Thursday morning meeting where top managers reported on their initiatives using a green, yellow, or red code to indicate progress, caution, or a problem. Ford’s auto business was on its way to losing $17 billion that year, yet all Mulally saw every Thursday was a sea of green.

Finally, someone broke ranks: Mark Fields, the head of Ford’s vast North American business, revealed he had to halt production of the new Edge sport-utility vehicle because of a balky tailgate latch. “When I showed that first red, there was a lot of tension in the room,” Fields recalls. “Then Alan clapped.” The applauding CEO offered praise: “Great visibility, Mark,” Mulally remembers saying. “Is there anything we can do to help you?”

So began the rise of Mark Fields, whom Ford’s board elevated to chief operating officer last month in a move that was seen by many as an anointing of the next boss of the House that Henry Built. Fields earned his stripes by transforming Ford’s North American business from record losses in 2008 to a record profit of $6.47 billion in the first nine months of this year. To cement the arrangement, Mulally put Fields in charge of the critical Thursday morning meeting, the ultimate sign that he has taken the keys.

Mulally, though, is in no rush to leave. The man acclaimed for leading Ford through the financial crisis without taking a federal bailout or declaring bankruptcy says he’ll remain as CEO through at least 2014—when he’ll be 69. “I’d like him to stay forever,” Executive Chairman Bill Ford Jr. said in announcing Fields’s promotion on Nov. 1.

While Mulally says that he’s turning over control of Ford’s day-to-day operations to his protégé, the CEO will remain in the room on Thursday mornings and continue to set the strategic direction at the carmaker. “I think I’ll be able to help him out a lot,” Mulally said on Nov. 1.

The 51-year-old Fields may not need that much help. He’s already been CEO of Mazda Motor and isn’t exactly known for being submissive. During a Ford executive meeting in 2006, Fields nearly came to blows with then-Chief Financial Officer Don Leclair. The CFO was insisting on budget cuts to Fields’ “Bold Moves” ad campaign, according to American Icon, a 2012 book on Ford’s turnaround by Bryce Hoffman. “When you run the f—ing business, you can do it,” shouted Fields, who leapt across the table and had to be restrained by Bill Ford. Fields doesn’t deny the incident and says he always felt “passionate” about the business when asked about what happened.

Photographs by Bloomberg(2); Reuters(2)

A typical transition of power lasts about 12 months, says Paul Hodgson, chief research analyst at GMI Ratings, which advises investors on corporate governance. Mulally’s long goodbye could also create confusion at a company that seems to have finally found focus. “This is an awful long time for Mulally to pass the flame,” Hodgson says. “It could create issues of authority. The question may be, Who is really making the decisions?”

The hardest thing for Mulally will be stepping back and allowing Fields to step up, say those close to Mulally who didn’t want to be named because the discussions were private. Mulally acknowledged “I’ve not had a COO before” and said he doesn’t intend to become a lame duck.

“It will test the kind of teamwork and chemistry they have,” says Adam Jonas, an auto analyst with Morgan Stanley. “Fields might feel like, ‘Hurry up already. I’m ready.’” It also increases the risk of Fields getting poached by a rival such as General Motors (GM) that may be ready to give him the top job before 2014, says Hodgson.

There are good reasons for Mulally to want to stay. By 2014, Ford will be nearing its “mid-decade” promise to turn a profit in Europe, where the automaker says it’ll lose more than $1.5 billion this year. Also in 2014, Ford will debut a redesign of its flagship F-150 pickup. After Mulally left Boeing, the 787 Dreamliner he was in charge of developing became riddled with setbacks. “He wants to make sure that doesn’t happen with Europe or the F-150,” says Brian Johnson, an auto analyst with Barclays (BCS).

Mulally has more than 2 million stock options that are currently worthless with Ford’s share price having fallen 41 percent since peaking at $18.79 in January 2011. In the last two years Mulally has been awarded stock worth more than $100 million. By staying, he may walk away with an even bigger payout. “Why would Alan Mulally want to leave the top seat with his stock at $11 and so much upside potential to come?” wrote Jonas, who predicts Ford’s shares will reach $17 within the next year.

If Fields and Mulally can share the wheel, it could ensure that the new culture of openness Mulally created will continue, analysts say. One thing’s for sure: Ford’s Thursday morning meetings are about to get very interesting.

The bottom line: Ford CEO Alan Mulally will stay on through 2014 to restore Europe’s profitability, while protégé COO Mark Fields waits his turn.

Naughton is a reporter for Bloomberg News in Detroit.
Green is Detroit bureau chief for Bloomberg News.

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