Phoebe Wall Howard Detroit Free Press
Published 11:03 AM EST Feb 22, 2019
Concern is intensifying about leadership at Ford Motor Co. after a year of impatience about the company’s murky strategy.
White-collar workers say the mood at Ford headquarters in Dearborn is palpably anxious. They describe “paralyzing” tension waiting for job cuts and strategic decisions as the company’s $11 billion restructuring slowly unfolds.
Amid this uncertainty, Bob Shanks, chief financial officer since 2012, is retiring, as the Free Press reported Feb. 14. His top deputy left at the end of 2018, so after a year with a 50 percent drop in net income, the company must replace its top two finance officers.
At the bull’s-eye of the worry is CEO Jim Hackett, who in an interview with the Free Press on Wednesday, acknowledged the internal anxiety.
“I think it’s totally fair,” he said. “My mind wants to say, ‘Is that because of the anxiety of the restructuring? They’re holding onto the ambiguity, saying, ‘I don’t know my status.’ That is really unfair to our people to have to go through that. There’s a trade, see. You end up with a lot better process from end to end if you involve the people actually in the design of what we’re doing. When CEOs edict that we’re just taking out x thousands of people, like you’re mowing the lawn, it makes everyone feel like inanimate objects. Bill (Ford) and I care a lot more than that.”
The candid but involved answer is typical Hackett.
Some senior employees interviewed by the Free Press describe working with him as “exhausting.” Discussions with more than a dozen current or recently departed workers who interacted regularly with Hackett say he is critical of performance without providing clear direction. All the while, they say, a parade of consultants offer more unclear advice.
Hackett, recognized as a bright and futuristic thinker who became Ford CEO in May 2017 after a career leading Grand Rapids office furniture giant Steelcase, has consistently confused auto industry analysts and insiders. Some colleagues say they continue to find his conduct baffling.
‘Not from this world’
“Jim is not from this world and does not listen,” a senior-level executive who has worked in and around Ford for decades told the Free Press. “He just does not listen. He’s more on transmit mode. He doesn’t take time to understand where people are coming from, why things are way they are. Whether it’s reasons we have plants where they are, reasons we do certain things in manufacturing.”
Some concepts presented by Hackett can make the “head hurt,” Shanks told the Wall Street Journal in August, adding that he was “eager to understand” and “all in.” Shanks remains CFO as a search is conducted for his successor.
Top executives affirmed internal tension.
“Jim is challenging everybody,” Joe Hinrichs, president of global operations, told the Free Press. “We have disruption taking place.”
No question, Hackett’s style is unique, said Jim Baumbick, vice president of the new enterprise product line management team, who has been with the company 25 years in vehicle development, engineering and design.
“Jim has certainly been focusing on stretching our thinking,” he said. “He sometimes plays the role of provocateur.”
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Hackett recognizes that his style clashes with the culture.
“I’m Jim Hackett at 22 months,” he said. “I think the process of CEO arrival and impact always is really difficult in the beginning, particularly if you’re bringing new ideas and you’re in the midst of some sort of transformation. I yield to people who tell me, ‘Jim, this is unnerving.’”
He added, “I’m happy that I’m pushing people,” Hackett said, and offered an unorthodox moment as an example.
In reviewing the need for an overhaul, Ford noted that former CEO Alan Mulally shrank the company in 2006-07, ahead of the Great Recession and bankruptcies at Chrysler and General Motors. But, as profitability returned, Ford hired tens of thousands of employees at a faster rate than sales should have allowed.
Instead of simply making the point that hiring too quickly is bad business, Hackett distributed a book, “Scale: The Universal Laws of Growth, Innovation, Sustainability, and the Pace of Life, in Organisms, Cities, Economies, and Companies,” by theoretical physicist Geoffrey West, who has been called the dean of complexity science.
This is the sort of thing that makes earthlings at Ford crazy.
Conductor and orchestra
Hackett describes himself as “a conductor in an orchestra, getting everyone to play their independent music in a coordinated way.”
“We’re asked to do that a lot. Other times, the CEO wants to think about the design of that … If I’m doing them together, think how difficult that is for everybody. I’ve come to conduct, but I’m also redesigning the score right now,” Hackett said. ”I’m brought in to think about redesigning but they’re used to the conductor. The culture is very hierarchical. A person at the top tells us what to do and we do it.”
But Hackett, 63, says he was brought in to say, “Do we have the score right? A person like (his chief of staff) is writing down the music as we’re creating it and helping me systemize that.”
He added, “I want to think about the problem.”
If a member of the team wants to be told what to do, “OK, I won’t disappoint you if you need that. You don’t have to watch this other part if it makes you unnerved,” Hackett said.
In an example of culture clash, some employees said they were alarmed that the CEO had to ask when the company gets paid — upon dealer delivery or consumer purchase. (It’s the former for the automaker.)
Wait up, Hackett pleads. There is so much internal misunderstanding that people need to just take a minute to reflect how this CEO operates. It is different, he acknowledges.
“I worked in a job where we had a factory that sold the product to dealers who sold it to customers. That’s what a Steelcase dealer was. The title and the transaction, which is called ‘revenue recognition,’ was the No. 1 area in businesses that had been manipulated — out of Enron and all the reformation of business and auditing.
“The question I’m getting at, what’s not understood, isn’t because ‘Oh, silly Jim, he doesn’t understand.’ I’m actually trolling for how rigorous we are about revenue recognition. Any CEO who would be sitting with me would go, ‘I know why you’re asking that question.’ Picture it the other way, ‘Hey, revenue recognition was a key problem in business. I want to make sure we don’t have it.’ ‘I’m now turning everyone’s receptivity off. They think I’m trolling for finding failure. But I’m just trying to confirm that we’re operating in a sound way.”
In a debate over whether customers should wait 81 days for their vehicles, the team wanted to help him understand why. But, as far as Hackett was concerned, the issue wasn’t about understanding. He simply didn’t agree that it should take that long.
He said he had to use a graphic to illustrate his points.
“I was frustrating people where they thought, ‘God, is he ever going to get up to speed?’ But I had already moved on,” Hackett explained.
‘Different can be scary’
Julie Lodge-Jarrett, chief talent officer at Ford since October 2017, has worked with three CEOs during her 21 years with the company. And she says the time is right to have Hackett at the helm.
“Different isn’t always embraced as good,” she told the Free Press. “Different can be wrong. Different can be scary. Jim and his background and his style are different than his predecessor.”
She continued, “Jim doesn’t want to show up as the traditional auto leader. He has a very talented team of traditional auto leaders. He’s empowering his leaders like Joe Hinrichs, Jim Farley, Hau Thai-Tang and others. They are brilliant in this space. It’s not that he doesn’t’ get it. It’s not where he can add the unique value we brought him in to add. We brought in a CEO that could supplement where our strengths were and help us with what we weren’t doing. I do think there is some misunderstanding. You have left brain engineering talking to creative design thinking and the brain doesn’t work in the same way. He might answer a question different than they’re used to. They might think he doesn’t get it but it might be they who don’t get it.”
Hackett’s role is very clear to those who get it, Lodge-Jarrett said. “He challenges us in the elements of our culture that need to shift. He brings that design-thinking, human-centered approach.”
Be patient, have faith
The company in 2018 lost money everywhere in the world except North America. Losses included $1 billion in the region that includes China, the world’s largest auto market. Talks with Volkswagen once thought to have the potential to save billions have produced only a narrow agreement, and reports about their potential are conflicting.
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Hackett said that China, Europe and South America are all being reworked to be profitable. “More is coming out.”
News about international restructuring will be unveiled soon, Hackett said.
Ford did announce on Feb. 19, 2019 that it would close a factory in Brazil and eliminate its heavy commercial truck business along with an estimated 2,700 jobs.
And, he emphasized, VW talks are far from finished. “We’re still working on some things and I’m very optimistic about this alliance. The biggest thing I can report to you is the teams are working really well together.”
While Fiat Chrysler is expanding U.S. manufacturing and General Motors is moving rapidly on restructuring — albeit with plenty of pushback — Ford asks investors to be patient and have faith.
“Everyone wants to know what the plan at Ford is, and that’s great,” global markets President Jim Farley told investment analysts in Detroit last month. “We want to get this right. That’s why we’re being very thoughtful about what we say when. … We’re going to announce what we’re going to announce when it makes sense.”
Critics within Ford say they resent all the money being spent to pay consultants to critique an industry they simply don’t understand.
The strategy is clear, Lodge-Jarrett said.
“We know the auto industry will change more in the next 10 years than it did in the last century. We know doing what we’ve always done will not serve us well,” she said. “We look to hire consultants to evaluate our internal skills and abilities and not hire people who have similar skills … The mindset we have is that the money is well spent, to make sure the difficult decisions we’re making are the right ones.”
Job cuts are pending, but Ford is being cautious.
“While we are going to need to take many of the same actions that we’re seeing GM and others take, we’re fundamentally going about it in a different way,” said Lodge-Jarrett. “As we look at redesigning the entire business, we’re doing it in a layered approach with multiple phases. A disadvantage of that is it prolongs the uncertainty. But we did not make that decision lightly. We recognize it impacts your whole life, not just time at work. By doing it in a layered approach, in multiple ways, far more people will be included.”
Every 29 seconds
The financial market and workers have been waiting for answers and clarity for more than a year.
Mark Truby, Ford vice president of communications, noted that strong January sales, while not reported to the press, have been sent to data houses. And new products are being unveiled globally, including the Ford Explorer, Escape and Lincoln Aviator.
Product development teams are slashing months from the timeline, working at unprecedented speed, Baumbick said. “We’re talking about reducing time to market by 20 percent.”
Without question, the company’s cash cow F-Series pickup line is a powerhouse, topping 1 million in sales for the first time ever in 2018. A Ford F-150 or Super Duty pickup was sold every 29.3 seconds on average, Ford executives note proudly.
Many salaried employees say they remain with Ford in hopes that things will improve and because they are loyal to the family. Through numerous interviews with the Free Press, current and former employees talked of a deep love for the company. They say Ford is a place that genuinely supports people when they go through major life events.
In these unpredictable times, Ford employees say, that means a lot.
“We’re a family that has to make difficult decisions,” Lodge-Jarrett said. “Our current timeline has us being complete with our actions by mid-year. The intent would be to be finished in the June time frame, if not sooner. The only caveat? Gone are the days when we only redesign the business every 10 years and then we’re stable.”
Employees say again and again they are grateful that Bill Ford, 61, a former CEO of the company his great-grandfather founded, remains a strong presence within the company. During the Detroit auto show, Ford reiterated the family’s commitment to leading the iconic automaker.
But observers wonder about a succession plan. Ford spent years performing various jobs at the company, preparing for his leadership roles. Family members of all ages work at Ford. Even Henry Ford III, the great-great-grandson of the founder.
Brad Carroll, Ford spokesman, responded, “As all boards of responsible companies do, our Board of Directors regularly reviews executive succession plans to ensure we have access to the best talent available and are prepared for orderly transitions to take place should the need arise.”
Bill Ford has expressed support for Hackett, telling the Free Press in June 2018, “Jim loves what he’s doing. I love having him here. We’ve known each other a long, long time. There’s a great familiarity. Jim has a big brain.”
Hackett said last week, “You serve at the pleasure of the board and the Ford family. Bill and I never put a specific target on it. The encouragement I get from him is unbounded. So, I feel the invitation to be here as long as I need to be … More stability at the top is something I’m trying to help with.”
Outside the company, concern also remains high.
“I don’t think anybody knows what’s going on, even in Ford. Seriously,” said John McElroy, longtime industry observer and host of “Autoline After Hours.”
“Everybody expected that, by this point, there would be clear plans with hard metrics with real numbers behind them. Instead, there’s this very amorphous nondescript talk about smart cities and mobility. The financial community can’t figure out how this is going to pay off for Ford in any way.”
Under Hackett, who was named CEO in May 2017 after serving on the Ford board of directors since 2013, Ford stock has continued a 4½-year drop, reaching a nine-year low in December. Through Thursday, the share price was up 9 percent this year, but started the year at $7.99 — a recession-era level.
“I don’t think Hackett has a whole lot more time,” McElroy said. “If people within Ford have no clue of where they’re going or a clear path, if the financial community doesn’t have a clear path, if the supplier community and dealers don’t have a clear path, I don’t see how he survives. Everybody is talking about them, especially people within the company. When you talk to senior-level people in the company, especially privately, there’s a concern they don’t have a clear vision of where they’re going.”
No question, the automotive industry is at a time of change.
The greatest challenge to the industry, Hackett said, is the vast expense of developing new models, which leads companies to simply update old designs. “It’s like doing sequels in movies,” he said. “You know, how many versions of Ghostbusters do you want to see?”
That stands in direct contrast to the rapid change of what’s happening in society.
Trillions of dollars will be spent creating new transportation systems — because “intelligent vehicles” require a new environment, Hackett said. “We don’t need lights that are red, yellow, green. We need smart intersections. So there’s going to be a market for people building smart intersections that are going to receive robotic cars. It is the collision of smart vehicles in smart world. It’s about the connectivity, the artificial intelligence in the cloud and edge computing. That’s all new.”
People have thought of the future as a different kind of taxi rather than re-imagining a whole different way of living. It’s the difference of Bill Gates imagining a Microsoft computer on every desk when, today, it’s much more than a computer on the desk.
“It’s transportation, so all components that make up freeways, intersections, traffic, parking, et cetera all get modified because of how intelligent these moving pieces are,” Hackett said. “This is why the tech companies are interested.”
Harry Kraemer Jr., a professor at the Kellogg School of Management at Northwestern University, said this likely is a key point of friction.
“If I wanted to take the firm in a really different direction, then traditional engineers, traditional design experts are more likely to resist any type of real effort to change,” he said.
However, there are symptoms of deeper issues at Ford than just style differences.
“When the analyst community gangs up on you, that’s a bad sign,” Kraemer said. “One of the earmarks of the analyst community is they have a broad view of the industry … You don’t just talk to Ford. And, at a certain point, you do have to deliver.”
Ford hired Hackett knowing his atypical background.
“There was an intended signal there saying they were looking to hire somebody outside the automotive industry,” Kraemer said. “It sends a clear signal they were looking to do things differently. They were not as focused on industry knowledge but on other issues.”
Ford is the only Detroit 3 company not led by an engineer.
Mary Barra took the helm of GM in 2014 after a career in the auto industry working in product development, purchasing and supply chain. She is an electrical engineer. Mike Manley, an engineer who became CEO at Fiat Chrysler in 2018, had run Jeep since 2009.
Ford made money in North America in 2018 but lost money in all other parts of the world, and economic conditions continue to worsen in Europe and China. Ford Credit also provides significant revenue and profit.
After the annual earnings report, Hackett sent a memo to employees that said it was “time to bury the year in a deep grave, grieve over what might have been and become super focused on meeting, and, in fact, exceeding this year’s plan.” The plan calls for doubling profits in 2019.
Hackett went on to write in the two-page memo that the company results were “mediocre.”
The CEO said he becomes mad for a short time but the anger passes quickly. He said his “short anger state” teaches him he hates mediocre outcomes. He notes that insanity is doing the same thing repeatedly and expecting different results. He wants to design the business on growing vehicle intelligence. He notes that smart vehicles in a smart world provide the path to the future.
“I ask myself first not ‘what was wrong with the people I work with’ but rather ‘what was wrong with the approach?’” he said in the two-page, single-spaced memo. He urged people to unleash their collective talents and make things happen.
When asked about his memos, Hackett said he took great pride in writing directly to company employees.
“No one writes it but me,” he said. “It is to let them know how much they mean to me and how intimately I’m thinking about what they’re going through.”
His first boss from 35 years ago, at the company he went on to run, recently texted Hackett, “Don’t let the negative press get you down.” And that reinforced his instincts, he said.
Still, he acknowledges people have doubt.
‘Needs to get going’
“There are some questions about the CEO,” said David Kudla, CEO and chief investment strategist with Mainstay Capital Management, a Grand Blanc investment adviser who manages $2.5 billion in assets for clients who include many Ford employees. “His statements about burying 2018 in a deep grave and ‘I have more to do in my own reflection of what should change to ensure that we win’? I mean, these memos? He has been on the job for nearly two years. He needs to move past reflection and get going.”
Hackett, who’s total compensation was $16.7 million in 2017, replaced his Mark Fields after the company “lost patience” with its former leader three years into his tenure.
What Ford needs is a turnaround specialist CEO, said Jon Gabrielsen, a market economist who advises automakers and vendors and whose clients have included the Detroit 3.
“Hackett is a classic example of someone who can further improve on a company that is doing incredibly well and all the operational things are running like hot knives through butter, but the personality and skill set is the polar opposite of the instantly decisive trench fighter personality of a turnaround specialist,” Gabrielsen said.
McElroy questioned how engineers and top talent at Ford can execute if the CEO can’t explain what he wants done or where he wants the company to go — beyond concepts.
“Sergio (Marchionne, Fiat Chrysler’s late leader) was an example of someone who worked his people like dogs and they did so willingly not because of fear but because they believed in his vision, what he was doing and results,” McElroy said. “Mary Barra? Her people are really loyal to her. GM is explaining its vision so well that SoftBank and Honda are saying, ‘Here’s billions of dollars.’ Ford hasn’t come up with the kind of vision where outsiders want to be a part of it.”
Gabrielsen said that things are even worse than they appear.
At Ford, the pie has been shrinking globally. Industry observers say its best years are in the past, and profits will never meet previous numbers.
“The share of the total market that chooses Ford Motor Co. brands of vehicles has declined on a consistent trend, year in and year out, for at least a decade, in every developed region in which they participate,” Gabrielsen said. “This means that, every year, more of the total vehicle consumer market choose other automakers’ products while not choosing Ford’s.”
The last 10 years in the U.S. auto industry have been one of a reordering of winners and losers, he said. “The new normal, as established by the market-share directions of the players for the past 10 years running, is that the most significant market share winners are FCA, Subaru and Nissan, and the biggest market-share losers are Toyota, General Motors, Honda and Ford.”
‘Killing investor confidence’
Kraemer, at Northwestern, said the bottom line for Ford directors is whether the company is performing compared to its industry competitors. In doing their fiduciary responsibility, they have to ask themselves, “Do we have the right person?”
While Ford’s share price has improved this year, over the past couple years its performance has lagged in the automotive sector.
“Over the past two years through Feb. 11, 2019, Ford shares are down over 30 percent, while GM shares are up 5 percent and the S&P 500 Index is up 16 percent,” Kudla said.
“The difference? GM’s decisive strategy and implementation. Ford has not taken the drastic steps that GM has in exiting unprofitable markets globally, reducing costs, and presenting a plan of action that relies on something other than selling more SUVs and trucks. When it comes to the future of mobility, Ford’s lack of specifics on strategic vision is killing investor confidence,” he said.
“Ford, and investors, seem to lack a clear vision of what the company will look like in the future. If Ford has a clear plan and path, their leadership needs to do a better job of communicating it to the investor community.”
All eyes are on Hackett as he wraps up his second year on the job.
“When Jim Hackett came in as CEO, he really challenged all of us in the organization to think more deeply about our competition, both in the now and in the near term,” Hinrichs said. “In that sense, are we really accurately honestly assessing our competitiveness and can we do that in a way to get motivated to be better, faster, stronger?
“This is an important time in the company. We had a nice run of success in North America. Elements of our business are showing weakness. Jim is challenging everybody not only to think about our competition — not only other auto companies but benchmarking with companies outside of automotive space. Large companies need to be challenged to be sure they’re evolving in the way they can compete for the next 10 to 20 years.”
When the Ford board of directors looked at what needed to be done to “evolve” the company, they drafted the former University of Michigan football player who had served as U-M’s interim athletic director.
“I’m really confident in who I am and how I can get results,” Hackett said. “Remember, I was on the board. I really was not seeking the job.”
Contact Phoebe Wall Howard: [email protected] or 313-222-6512. Follow her on Twitter @phoebesaid
Ford summarized CEO Jim Hackett’s strategic vision for the company this way:
- Get the company fit by exiting or restructuring weak products lines and markets.
- Reduce the capital expense needed to develop new products.
- Design increasingly intelligent vehicles and connect them to each other and the world around them to make customers’ lives better.
- Focus on big societal needs — freedom of movement, safety, air quality.
- Create for people what they may not know they need, but will not want to live without.
- Choreograph our business — payment, shopping, ownership experience, repair, rewards — around the customer.
- Compete for a share of a much bigger pool — the transportation pool.
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