“If you have an issue, take it up with Alan,” he said to each one. “I agree with everything he’s doing.”
On October 23, Ford released its financial results for the third quarter—the first since Mulally joined the company. Ford posted a net loss of $5.8 billion for the months of July, August, and September—its worst quarterly loss in fourteen years.*
“Let me make it clear: these results are unacceptable,” Mulally said during a conference call with analysts and reporters that morning. “We know where we are with our business, and we know why we are where we are. We are committed to moving from here to create a viable business going forward. As I have examined our performance, I clearly see the opportunities that will allow us to do so.”
It was just the sort of honesty and transparency Mulally demanded of his subordinates. He led by example. He arrived early and often worked seven days a week. With his family back in Seattle, he spent his nights poring over reports from Ford’s operations around the world.
Early on, a friendly competition developed between Mulally and two of his executives, Don Leclair and Michael Bannister, to see who would be the first one into the office each morning. Getting there first had long been a badge of honor for the finance guys—a way of establishing that they were the ones who really ran the place—and no CEO was going to deny them that pleasure. Each morning, they would get up a little bit earlier and drive a little bit faster. But Mulally was always at the office first. Bannister gave up when he realized that 5:30 A.M. was still too late.
You guys can win this one, he thought. After all, Mulally just lived a few minutes away from World Headquarters. Ford had given him a luxury condo in the gated Tournament Players Club of Michigan, a private golf community built around a Jack Nicklaus–designed course a mile from the Glass House.
Leclair refused to give up, despite the fact that he lived one county over in Plymouth. To arrive in Dearborn by 5:30 A.M., he had to get up at 4:30 A.M. at the latest. But that was the sort of person Leclair was—a fact not lost on Mulally.
Though he had worked at Ford for thirty years, Leclair was in some ways as much of an outsider as Mulally. While most of Ford’s top executives favored loud talk and expensive suits, Leclair was a quiet midwesterner who spent most of his days alone in his office with his shoes off. They wore their cocky overconfidence like pinkie rings. Leclair knew just how bad things were and showed it. They would dismiss dire predictions with a wave of the hand and a reminder that Ford always triumphed in the end. Leclair checked his numbers, checked them again, and saw that time was running out.
Leclair’s pessimism and drab personality left him with few friends at the company. But if his fellow executives thought little of him, Leclair thought even less of them. He knew he was the smartest guy in the room, and tended to act like it. As Bill Ford had warned Mulally in their first meeting in Ann Arbor, Leclair was pursuing his own agenda with little regard for what anyone else in the company thought.
But Mulally appreciated Leclair’s honesty, as well as his grasp of the minutiae of the business. His knowledge of Ford was encyclopedic. Leclair did not just know finance; he recalled the details of every product program and engineering decision, as well as who was responsible for each one. Mulally’s BS detector had been going off like a smoke alarm since he walked into his first BPR meeting. With Leclair, however, it was silent. He was the first person with whom Mulally felt like he could have a genuinely frank conversation.
Mulally called his new CFO into the office on a Sunday for the first of many weekend one-on-ones between them. They spent five or six hours going through all of the company’s finances. Leclair walked him through the entire business. Everything Mulally heard confirmed his worst suspicions about the state of the company and reaffirmed the underlying theses of his preliminary plan. At the end of the day, Mulally outlined the major points of his strategy for Leclair. He told Leclair that the BPR process was essential to making it all work.
“We’ve got to get everybody at the table,” he said. “We can’t do this with just five or six of us. We need everybody.”
Mulally had shared all of this with the board of directors, but Ford’s executives were all still wondering what the new boss really had in mind. Leclair seemed visibly moved by the vision of the company that Mulally offered.
“We’ve never had a CEO who knew what to do,” Leclair told him. He pledged his support but warned Mulally that many of the other executives would fight this.
“They all don’t get it,” Leclair said. “None of them are qualified for the jobs they have.”
“I’ll take care of that,” Mulally assured him.
Mulally paid close attention to what Leclair had to say, both at that meeting and during their many subsequent discussions. In the coming weeks and months, the two men would spend hours together in Mulally’s office—going over the books, dissecting each line item, and stress-testing each projection. But Mulally was worried about how negative Leclair was. He was not convinced anybody could save Ford, and his pessimism would only increase as the company’s finances deteriorated. However, Mulally’s biggest concern about his hardworking CFO was Leclair’s apparent inability to work with the rest of the leadership team.
Don knows the business better than anybody, Mulally thought as he listened to Leclair. But he’s not a team player, and he never will be. He’s smart, but he can’t join me in pulling everyone together.
As a result, Mulally knew Leclair’s days at Ford were numbered. But he was determined to draw out as much knowledge from his CFO as he could before the situation came to a head.
Mulally was quick to appreciate the immense—and too often untapped—pool of talent that surrounded him at Ford. When he found someone who knew what was going on and was not afraid to say so, he brought that person to his office and listened—sometimes for hours—as he explained the flaws in some aspect of Ford’s operations and suggested ways these problems could be fixed.
Another early member of Mulally’s brain trust, George Pipas, was a veteran sales analyst and forecaster who was getting ready to retire. After watching Ford’s share of the U.S. car market decline for the better part of three decades and spending most of that time whispering under his breath about ways to stanch the loss, he had bought a house on Hilton Head and was getting ready to put Ford’s woes and Michigan’s harsh winters behind him. Mulally called him in South Carolina and asked him to get back to Dearborn as soon as he could.
“I really want to understand the history,” Mulally told Pipas when they finally met. “What do we need to do from a product standpoint to create a business that’s going to grow?”
The two men spent the better part of a week closeted in Mulally’s office, starting early, working late, taking their meals at his conference table. Pipas held nothing back. He walked Mulally through every aspect of the automobile business. He outlined the vehicle segments, from subcompacts to full-size pickups. He guided him through the competitive landscape, detailing each automaker’s strengths and weaknesses. He explained how Detroit’s foreign rivals had outmaneuvered the Big Three, and he charted Ford’s own dramatic decline. They talked about the seasonality of demand, Ford’s addiction to pickups and sport utility vehicles, its failure to maintain investment in key products like the Ford Taurus, and its confusing array of nameplates and options. In the end, Mulally asked Pipas to rethink his retirement. He told him he could telecommute from South Carolina as long as he agreed to come back to Dearborn each month and brief him on the sales results. Now that Ford had a leader who listened, Pipas was happy to stay.
Mulally continued to rely on Joe Laymon and Charlie Holleran as well. But he knew their real loyalty was to Ford the man, not Ford the company.
Holleran walked Mulally through the media landscape, explaining which publications and programs were important to Ford and why. The press coverage surrounding Mulally’s hiring had been predominantly positive, but Holleran warned him that the honeymoon would be over soon. He told him t
o stay on message and start preparing for the tough questions that were bound to come.
Before Mulally’s first day in Dearborn, Laymon went over the corporate roster with Mulally. He offered two assessments of each executive—an objective one and his own uncensored view, which was often quite cutting. But Laymon advised him to move slowly with any reshuffling.
“You can’t change the team you have for a while,” he cautioned. “You don’t know how to build a car.”
Mulally agreed, but insisted on one change: He wanted Steve Hamp out. Mulally neither needed nor wanted a chief of staff. He thought the position added an unnecessary layer of insulation between a CEO and his executive team. And he certainly did not want one who was the executive chairman’s brother-in-law.
“You’ve got to tread very carefully,” Laymon warned Mulally. “Steve didn’t hire himself. He was put here by certain members of the family. He and Bill have struggled, but he is the chief of staff.”
“My team reports directly to me,” Mulally replied. “Before I get there, you’ve got to tell Bill that.”
But Laymon warned Mulally that moving against Hamp could turn the family against him before he even started. He told Mulally to give him a chance. However, Hamp’s negativity was something Mulally could not abide. Like Leclair, Hamp remained pessimistic about Ford’s future and missed no opportunity to share his views. Bill Ford was losing patience with his brother-in-law, too. A few weeks after Mulally started, the two men had a frank discussion about Hamp. When it was over, Ford summoned Laymon to his office.
“Hamp has to go,” Ford told his human resources director. But he reminded Laymon that this would be a delicate operation. Ford had not moved against his brother-in-law previously out of fear that it would deepen the rift in the family. Hamp and his wife had their allies. They could still make trouble for Bill and his new CEO.
“Do your magic,” Ford told Laymon. “Just make sure it’s tight.”
Laymon drafted an exit agreement that included some of the strongest nondisparagement language he had ever written. It also included generous compensation. On October 12, the automaker announced that Hamp was leaving the company and that the position of chief of staff was being eliminated. Hamp’s departure still created a stir in the Ford family. But Bill and Edsel were able to keep it from blowing up—at least for the time being.
Mulally would have to work to keep more talented executives from following Hamp out the door.
The first BPR meeting had been a bit overwhelming for Ford Credit chief Michael Bannister. He had not been expected to know much about the rest of the company’s operations, let alone the rest of the automobile business. Though he struggled to decipher the dizzying array of acronyms and technical terms that were being thrown around by his colleagues, Bannister was fascinated to find out what was really going on in the rest of the company. However, it only confirmed his suspicion that Ford was a wreck. He found Mulally’s approach inspiring, but he was already thinking of retiring and was not sure he wanted to wait around and see how long the well-meaning CEO would last.
A bespectacled moneyman with a Tennessee drawl, Bannister had been working at Ford Credit since 1973. The company’s lending arm was founded in 1959 to support the sale of Ford’s vehicles, providing financing to customers and dealers alike. That started to change in the late 1990s when first Alex Trotman, then Jacques Nasser began bringing in outside financiers who treated it more like a stand-alone banking enterprise. They focused on maximizing profits instead of moving metal. Bannister was in Europe at the time, largely insulated from the big changes going on back in Dearborn. When Carl Reichardt came on board to help Bill Ford, he put Bannister in charge of Ford Credit’s international operations and taught him a more disciplined approach. After the North American credit business started to spin out of control, Reichardt asked Bannister to come back and take over the entire operation in 2003. It did not take him long to get Ford Credit back on track. In fact, it had become the only reliable source of profits in the entire enterprise.
Bannister wanted to believe in Mulally, but he had yet to see anyone stand up to Ford’s culture and win. Still, he liked the new CEO’s approach and decided to hold his own BPR at Ford Credit a few days after Mulally’s first one. It followed the same pattern as Mulally’s Thursday meeting, and it was just as much of a shock to Bannister’s staff. But they quickly saw the value of it. Over the next weeks and months, first one executive, then another began holding weekly BPRs in their own departments and business units. Some did it to score points with the new boss, at least initially. Others, like Bannister, did it because they saw the value of Mulally’s data-driven approach. Mulally could tell the difference, and he counted Bannister as one of his first converts. But word got back to Mulally that Bannister was getting ready to quit. So Mulally decided to pay him a personal visit.
Mulally showed up unannounced in the middle of a United Way fund-raiser. All the employees were enjoying a catered lunch and most of Ford Credit’s executives were locked up in a mock jail. The subsidiary’s chief counsel was sauntering around the office in a pirate uniform, complete with eye patch. Bannister was more than a little embarrassed, but Mulally just laughed and commended him for keeping his employees engaged with the community. Then he asked if they could speak in private.
“How are things going at the credit company?” Mulally asked as Bannister closed the door to his office.
“We have our fair share of travails, but not anything that we can’t handle,” Bannister replied.
Mulally nodded.
“I understand what you do. I understand what you want to do. Now my question is, are you going to stay or not?”
The frank question caught Bannister off guard, but he liked Mulally’s directness. It was something he had found in short supply in Dearborn. He looked Mulally in the eye, trying to read the depth of his commitment. He liked what he saw.
“If you are going to come, and stay and make a success out of the company, I’ll stay,” Bannister said.
“That’s the plan,” Mulally said, grinning.
Bannister was still there when Mulally walked into the Thunderbird Room a few days later. The first BPR meeting had lasted only until 3 P.M. There was more to go over, but Mulally was worried his new team was already overwhelmed. The second BPR would last all day.
He had given the executives a week to digest the basic concept and correct their numbers. Now Mulally introduced them to his color-coding system. Anything that had changed from the previous week would be highlighted in blue. The data itself would be presented in the form of bar charts, starting with the actual results for the most recent period and continuing five years out. Those projections would be updated constantly as new information became available. The BPR system was a two-track process, Mulally explained.
“We’re going to be checking our progress against the plan,” he told the team. “But, at the same time, we’re also going to be working on a better plan. It’s all about continuous improvement.”
The plan goals would be displayed as blue bars, while the current forecast for each period would be plotted as a red diamond. That made it easy to see if the forecast for any given piece of data—whether it be Brazilian sales, European marketing costs, or U.S. profits—was on plan, off plan, or ahead of plan. Similarly, the status of every program or project would be displayed as a colored box: green for those that were on track or ahead of schedule, yellow for those with potential issues or concerns, and red for those that were behind schedule or off plan. Any change in status would be reflected by a two-color box divided by a diagonal line—the top color showing what it was the previous week, the bottom color showing what it was now.
The point of the color codes was to make it clear what had changed since the previous meeting and where potential problems existed. Mulally encouraged the executives to apply the colors honestly.
“The neatest thing about this process is that we’re going to get back together next week,” he said. “I ju
st want to know that you know what’s happening, because I’m going to see you again next week—and I know you’re going to make progress by then.”
Mulally used those early BPR meetings as a bully pulpit to drive accountability, enforce cooperation, and ensure execution. If any of the executives in the Thunderbird Room still doubted that he was serious about changing Ford’s culture, those sessions quickly dispelled their illusions. If Mulally’s tactics seemed harsh, they needed to be. Having correctly diagnosed the disease that plagued the automaker, he set out to eradicate it with a surgeon’s skill. Yet as hard as he could be on the senior executives, Mulally also went out of his way to encourage each one of them and let them know that he was not blaming them for the faults he was finding with Ford.
“You have a problem,” he would say, with a squeeze of the arm and as smile. “You are not the problem.”
Mulally also worked hard to make each executive feel a part of a team—a team that could win. At the end of one meeting, Mulally got up and walked to the screen. It displayed a financial chart showing a long, steep decline followed by a modest rise at the end. It looked bad, he acknowledged, but he told the team he had seen worse at Boeing.
“Guys,” he said, pointing to the trough, “let’s get to the bottom as quick as we can, because let me tell you, the ride up is a lot of fun.”
By the end of October, Mulally had finished explaining the BPR process and the meetings were going a lot more smoothly. Instead of taking the better part of each Thursday, they were now over in a few hours. But Mulally was frustrated. He had explained the BPR process and had explained the color codes. He had assured the team that this was a safe environment. Yet all the charts remained green. By October 26, Mulally had seen enough. He stopped the meeting halfway through.
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