Ford Promotes Fields to COO As Mulally Stays Indefinitely

Ford Motor Co. (F)’s board sent mixed signals about succession at the top of the No. 2 U.S. automaker.

Ford promoted Americas leader Mark Fields, 51, to chief operating officer in an Oct. 19 board vote, which makes him the clear front-runner to replace Chief Executive Officer Alan Mulally. At the same time, Ford gave Mulally, 67, an open-ended extension, saying he will be on the job at least through 2014 and maybe longer.

By staying at least 26 more months, Mulally reassures some investors who had been concerned about losing the man credited with saving the U.S. automaker without a federal bailout or bankruptcy. His lingering presence, however, could raise questions about who’s in charge and leave Fields exposed to offers to become a CEO elsewhere, said Paul Hodgson, chief research analyst at GMI Ratings, which advises investors on corporate governance.

“This is an awful long time for Mulally to pass the flame to Fields,” said Hodgson, who is based in Portland, Maine. “It increases the risk that someone like GM, looking for a new CEO, might try to steal him away if he gets tired of waiting.”

Executive Chairman Bill Ford, 55, said in a conference call yesterday that the board has made no decision on who the next CEO will be and warned against reading too much into Fields’s promotion and Mulally’s extended stay.

“I’d be surprised if we didn’t have the next CEO come from inside” the company, Ford said. “One of my responsibilities is to always look at talent not only internally, but externally and we’ll continue to do that.”

Probable Successor

None of that is likely to keep Fields from ascending to the top job at Ford when Mulally eventually departs, said Jeffrey Sonnenfeld, senior associate dean at the Yale School of Management, who studies CEO leadership.

“This is a graceful handing off of the baton,” Sonnenfeld said yesterday. “For contrast, you only have to look at the turnstile leadership over at GM and how confusing that is,” he said, referring to the four CEOs General Motors Co. had from 2009 to 2010.

Key to the transition is Fields taking over the Thursday morning business-review meeting Mulally instituted when he arrived from Boeing Co. (BA) in 2006. The CEO created the meeting to instill accountability and encourage candid dialogue among executives who had previously been known to undermine each other in pursuit of individual glory and enrichment.

“I’ve seen the before and the after,” Bill Ford said. “The culture that exists at Ford here today is so different and so much healthier. People just enjoy it and nobody wants to go back to the days of empire building and backbiting.”

Buck Stops

Asked if the buck will truly stop with Fields at the Thursday meeting, Mulally said: “It will be really clear to everybody when Mark is running the business-plan review. And I’ll be there, I’m not going anywhere. I’ll be there with him and supporting him.”

Mulally’s presence at the meeting he created and that became his signature management tool could cramp Fields’s style, Hodgson said.

“It could create issues of authority,” Hodgson said. “The question may be, ‘Who is really making the decisions? Who do we go to?’”

It also will test Fields’s ability to step up and Mulally’s ability to step back, said Adam Jonas, an analyst for Morgan Stanley who recommends buying Ford shares.

“It will test the kind of teamwork and chemistry they have,” Jonas said yesterday in an interview. “And it will test whether Fields might feel like, ‘Hurry up already. I’m ready.’”

Ford’s board, though, must believe the company can continue to benefit from Mulally’s guidance as it navigates the crisis in Europe and seek to make inroads in Asia, said Richard Spitzer, managing partner for the automotive practice at Heidrick & Struggles.

“If his board and his team thinks it’s the right decision for him to stay on through 2014, it probably is,” Spitzer said, “even though it might seem a little elongated.”

Other Promotions

Field’s elevation set off a cascade of promotions. His replacement as head of North and South American operations is Joe Hinrichs, who has been running Asian operations. Stephen Odell, head of Ford of Europe, adds responsibility for Africa. Jim Farley, global marketing chief, was also named the senior global leader for the Lincoln luxury brand. David Schoch becomes group vice president for Asia Pacific, while John Lawler becomes CEO of Ford Motor China.

Jonas said Mulally’s extended stay puts some of those executives, especially Hinrichs, in competition with Fields for the CEO job.

“If you asked most people yesterday, who is the successor, it would have been clearly Fields and a decision would be made soon,” Jonas said. “Now it could be one of a number of internal candidates and possibly external candidates and that Ford is not near a decision yet.”

Staying Longer

Mulally is staying longer to have more time to translate his vision to the next generation as well as repair Ford’s money-losing business in Europe and quality problems in North America with touch-screen dashboard controls, Jonas said.

“The stock is also not a whole lot higher than when he joined,” Jonas said. “I think he genuinely feels like 24 months from now Ford will be a lot higher share price and it’s a lot better to hand it over then.”

Ford rose 0.8 percent to close at $11.25 yesterday. The shares have risen 34 percent through yesterday from $8.39 on Sept. 5, 2006, the day Ford named Mulally the new CEO.

Since then, Fields led a transformation of Ford’s North American operations from record losses four years ago to record profits this year. The company earned $6.47 billion in North America in 2012’s first nine months and had an operating profit margin of 11.2 percent in an industry where a 5 percent margin is considered respectable.

“Mark Fields has proved his worth and proved that he has substance,” Rebecca Lindland, a Boston-based analyst for consultant IHS Automotive, said in September. “This is somebody who has been in the trenches, who was there before Mulally and will be there after. He can bridge the two worlds and continue the cultural change.”

Attracting Attention

Fields’s success has attracted the attention of other companies and he has been the target of headhunters offering him top jobs elsewhere, said Sonnenfeld, who advises top corporate executives.

“He’s had those opportunities in the past and has declined,” Sonnenfeld said. “He really feels a tremendous loyalty. Mark is pretty pleased with his partnership with Alan and Bill. And the Ford legacy really means something to him.”

Fields was not available for an interview, said Jay Cooney, a Ford spokesman.

Mulally will continue to have the chief financial officer, the head of human resources and the general counsel reporting to him. Reporting to Fields will be all automotive business units, including the head of Ford’s operations in the Americas, Asia and Europe.

Asked if he worries about becoming a lame duck, Mulally responded: “I sure don’t,” and added, “I’ve not had a COO before and I am really looking forward to nurturing and supporting Mark and supporting this team, but also contributing.”

‘Firm Handshake’

Mulally said he doesn’t have a contract that specifies when he may leave.

“My contract is a very firm handshake with the chairman and always has been,” Mulally said.

Bill Ford, who preceded Mulally as CEO, promoted Fields in 2005 to head of the Americas, Ford’s largest business unit. Initially, the youthful looking Fields was chided in the press as a Jersey boy with a mullet haircut.

“I put Mark into that job seven years ago and the growth that we’ve all seen in him over that period has been remarkable,” Bill Ford said. “Alan has done a tremendous job of mentoring Mark. You’ve just seen the third-quarter results in North America, and they’re truly outstanding.”

Early Praise

Fields won early praise from Mulally in 2006 for going against Ford’s culture of hiding bad news by becoming the first executive to admit a problem to the new boss. In the Thursday meeting, top executives are required to report on their initiatives using a green, yellow or red code to indicate progress, caution or a problem.

Fields was the first to put up a red light because a balky tailgate latch had halted production of the Edge sport-utility vehicle in late 2006. Mulally, frustrated no one was reporting problems even though Ford was losing $17 billion in its automotive operations that year, began applauding. “Great visibility, Mark,” Mulally recalled saying in a 2010 interview. “Is there anything we can do to help you?”

Under Mulally, “Fields has grown into a CEO-ready executive,” Peter Nesvold, an analyst for Jefferies & Co. who rates Ford a buy, wrote in a note to investors yesterday.

Thursday Meeting

“Fields will assume responsibility for running Mulally’s signature Thursday morning business plan review -- a move that is not only symbolic, but also functional in that it helps ensure that the business process improvements that Mulally has made are truly institutionalized,” Nesvold wrote.

Ford’s operating profit in South America fell 91 percent in the year’s first nine months to $68 million, as heavy price discounting, weakening currencies and changes in government policies ate into earnings. Ford is losing money in Asia, where it’s spending $4.9 billion to expand in China. The automaker projects more than $1.5 billion in European losses this year and again next year.

Those challenges now fall to Fields as he becomes Mulally’s second-in-command and COO.

“Mark has got to help him figure out Europe, South America and Asia,” Lindland said of Mulally. “They still have an awful lot of work to do. They’re not out of the woods yet.”

Open Culture

Fields also will be tasked with continuing the new culture of openness Mulally created at the company. Ford has cited its desire to identify problems early as a reason for the three quick recalls of its redesigned Escape sport-utility vehicle since it debuted in May, including one in which owners were instructed not to drive affected vehicles to the dealership because of the risk of an engine fire.

“It’s all about how do we keep our positive relationships with our customers and our dealers and let them know real-time what the state of the situation is,” Fields said in a 2010 interview. “I always find it annoying when I’m on a plane that’s delayed and I never hear from the pilot. I can stomach the delay a lot more when the pilot is giving us frequent updates.”

Before he began overseeing the Americas in 2005, Fields gathered extensive experience overseas. He was executive vice president of Ford of Europe and also ran the automaker’s European luxury brands, Jaguar, Land Rover, Aston Martin and Volvo, which Mulally later sold.

From 2000 to 2002, Fields was CEO of Mazda Motor Corp. (7261), in which Ford had a controlling stake at the time. He led a turnaround at Mazda with several Ford executives with whom he later worked closely to revive Ford’s North American business. Ford lost $30.1 billion from 2006 through 2008 and earned $29.5 billion in the last three years, mostly in Fields’s North American operations.

Truck Margins

Ford’s profit margins in North America this week drew the praise of Sergio Marchionne, chief executive officer of Fiat SpA (F) and Chrysler Group LLC.

“Everybody in this business has dreams at night,” Marchionne said on Fiat’s quarterly earnings conference call on Oct. 30. “I dream of selling as many pickup trucks as Ford, and then I think we can get to double-digit at the same level of speed with which Ford got to. I like the pickup truck business a lot. I drool over it, actually.”

To contact the reporters on this story: Keith Naughton in Southfield, Michigan, at knaughton3@bloomberg.net; Jeff Green in Southfield, Michigan, at jgreen16@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net

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