This document serves the purpose of evaluating the corporate governance arrangements and practices at Ford Motor Company. All the information obtained to establish this paper is in the Annual Proxy Statement of December 2017.
The format of this document should be as follows: We will start with mentioning the governance arrangements as disclosed in the official document, then a small evaluation of the company’s composition of the boards and lastly, a brief analysis of the compensation of the CEO and executives at the company.
1. CORPORATE GOVERNANCE ARRANGEMENTS
Corporate governance at Ford is taken very seriously and it is stated in the Definitive Proxy Statement of December 2017 to be one main concern on the company, and one that has been present in the company for long years. It also refers that this concern is bringing the company sustainable growth.
Last year Ford stated that their corporate governance priorities were the following ones:
· Risk management and fitness redesign
· Director experience
· Director tenure
· Governance practices
· Executive compensation
· Sustainability practices
Information obtained from Ford’s “Corporate Governance Review” from November 2017.
With this quick sum-up provided let us briefly discuss each item.
By Risk management and fitness redesign Ford is presenting the ways they interact with risk, providing many areas where risk appears and the way the deal with them. They state that board and senior management are primarily in charge of dealing with this matter, while involving the different Business Units. However, they delegate the responsibility to act to a certain Committee of the Boards. My reading about this is that they identify the sources of risk and to eliminate them delegate it to different persons across the Board.
Their main strategies are improving their vehicles in terms of technology, turning them “smarter” to the buyers, while at the same time they are trying to reduce costs and raise financial growth. Ford is also trying to be up-to-date to where capital might be needed in the future and therefore allocating it in those that will require. One of the main goals of the firm is to manage to have their vehicles focused specially to human inside them. By applying this strategy you can definitely expect future Ford interiors to become richer in quality and quantity of gadgets. They have also focused on the improvement of team work, allowing them to solve work in an effective way.
As stated previously Ethics are a main focus and concern of the company and this is proven by the number of consecutive years that Ford has been receiving the award for “World’s Most Ethical Companies” and Ford is always focused on emphasising and applying ethical behaviour.
Ford Motor Company is also treating environmental sustainability as it should nowadays. They do this in three different areas: in products like investing in electric vehicles, to satisfy the needs of suitable transportation need in a city, the recycle of old Fords to be reused and remanufactured, and the implementation of technologies to enhance safety; in operations Ford is committed to reduce and minimize the impact of every stage of the operations allied with a water saving strategy; and in Social sustainability, where the main focus is the improvement of working conditions, an approximation to the community in which Ford operates and the promotion of volunteering to the employees.
According to the Proxy Statement of 2017, so in reference to the year before, ownership of the company is, as usual in such big companies listed in NYSE, held by 26.5% by 4 different large corporations in amounts around to five percent with the exemption of State Street Corporation and certain of its affiliates which have a total of 9.3 % of Ford’s Common Stock. Class B Stocks are held in majority by Voting Trust, in which trustees are Edsel B. Ford II, William Clay Ford, Jr., Benson Ford, Jr., and Alfred B. Ford. Directors and Executive Officer also have some common stocks of Ford, a total amount of 25.44% or 18.024.747 common stocks. CEO Mark Fields owns around 4.6 M, Edsel B Ford 2.5 M and William Clay Ford 6 M. In conclusion, although many board directors have some shares, the power is concentrated in the Ford family and in the CEO Mark Fields. They have the majority of the shares available in the company.
2. BOARD OF DIRECTORS
Here are the board of directors in Ford Motor Company, which at the end of 2016 was composed by 14 members:
1. Stephen G. Butler
2. Kimberly A. Casiano
3. Anthony F. Earley, Jr.
4. Mark Fields
5. Edsel B. Ford II
6. William Clay Ford, Jr.
7. William W. Helman IV
8. Jon M. Huntsman, Jr.
9. William E. Kennard
10. John C. Lechleiter
11. Ellen R. Marram
12. John L. Thornton
13. Lynn M. Vojvodich
14. John S. Weinberg
This board is a very interesting one, and a much diversified one in terms of areas of expertise of its members. First of all it is important to state the average time a director stays in the company is 7.6 years if we do not consider the members who are from the Ford Family. Of this 14 members, 6 served between 0 and for years, 2 between 5 and 9 years and the other 6 served more than ten years. The last two directors stated in the list above were elected very recently (Mrs. Vojvodich in 2017 and Mr. Weinberg in 2016). There is small amount of female directors in this company, which in my opinion is neither good nor bad for the company in terms of performance, but would probably work in favour in terms of image transposed to the outside of the company and to female employers. Out of the 14 members only 3 are female directors and one of them was elected two months ago, in November 2017.
Director independence is determined by NYSE as one who has no material relationship with the listed company. These standards are listed as followed:
· A director should not be one if he or she was a former employee of the company until after three years of the termination of the contract,
· He or she should not be associated with or employed by the current or former auditor employed by Ford until after three years of the termination of the contract with the auditor;
· The director is not an independent one if he or she has been employed in the last three years by one executive officer who serves on the compensation committee of another company that employs the director;
· The director can be independent if he or she is receiving, or in the last three years has received, more than $100,000 during any 12-month period in direct compensation from the Company, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service).
· The director cannot have family members in the before listed categories and conditions.
Ford has an annual election of all the Directors and each director must be elected by a majority votes cast. The company’s leadership structure is now set as having Jim Hackett as President and CEO, and William Clay Ford, Jr., as Chairman of the Board of Directors as well as Executive Chairman. The aim of this practice is to allow Mr. Hackett, the current CEO (2018) to focus on leading the organization and Mr. Ford to be in charge of leading the Board of Directors.
The roles and duties of the directors is an important item to mention in a document like this one. Therefore, after carefully analysing each member, these come as follows (report of 2017):
William Clay Ford, Jr age of 60 is currently the Executive Chairman of the Board of Directors and is part of the Finance Committee, in which he is also the Chair, and he is additionally part of the Sustainability & Innovation Committee. He has been a director of Ford since 1988 and since then he was also the CEO of Ford in the early 2000s. He has an impressive understanding of the Company due to his life-long commitment to Ford.
Current CEO of Ford, Mr. Mark Fields, age of 56, is only since 2014 in this position. He joined Ford in 1989 and served many executive management positions until he reached CEO. He is included in the Committee of Finance. He was appointed to CEO so that Ford could benefit from his strategic and management skills that he acquired along the years especially in the automotive industry. He is very focused on growing Ford domestically and globally, continuing to create value for Ford and for the Stakeholders.
Stephen G. Buttler, age of 69, is an independent director since 2004 and is Chair of the Audit Committee, and part of Nominating and Governance Committee. He had a 33-year long career at KPMG, even being CEO of KPMG, LLP. His former job speaks for the reasons why he is Chair of Audit Committee, but his experience of international relations give the reason why he is a director of Ford and why he adds value to the company.
Kimberly A. Casiano has 59 years of age and is an independent director since 2003. She is a member on the Audit, Nominating and Governance, Sustainability and Innovation Committees. She is CEO in her own company that provides advisory services in marketing, recruiting, communications and advocacy. The Reasons for her nomination are based on her marketing skills and her knowledge and experience in the Hispanic Community markets.
Anthony F. Early is an independent director since 2009. He is 67 years old and is the Chair of the Compensation Committee and member of the Nominating and Governance and Sustainability & Innovation Committees. He was nominated because of his vast experience in different companies such as PG&E Corporation, DTE Energy, Long Island Lighting Company and chief engineer officer in the United States Navy nuclear submarine program. Ford would benefit from his leadership skills and expertise in electrical infrastructure that Ford can benefit from when dealing with its electrical vehicles strategy.
Edsel B. Ford, age of 68 is director since 1988 and part of the Finance, Sustainability and Innovation Committees. He was nominated for his deep knowledge of the company’s business, he worked for many years as a consultant for Ford, and his affiliation with the company over many years provides the Board a historical perspective and a focus on the long-term interests of the Company. His experience in creative and technology-driven marketing allows him to provide valuable insight in developing marketing strategies supporting our goal of profitable growth for all.
William W. Helman, with age of 58 is an independent director since 2011 and is part of the Finance, Nominating and Governance, and Chair of the Sustainability and Innovation Committees. His experience in investing in new innovations offers the Board valuable insight as Ford continues to invest in connectivity and mobility technologies in order to deliver the innovative products our customers want and value. His vast experience in social media marketing and healthcare issues was also taken in to consideration when appointing him member of the board, as long as new legislation about healthcare.
Jon M. Huntsman, Jr. is an independent director since 2012 and is part of the Compensation, Nominating and Governance, Sustainability and Innovation Committees, His Experience as Chairman of the Atlantic Council of the United States and Chairman of the Huntsman Cancer Foundation since 2012 made him be nominated to Ford Board of Directors. Governor Huntsman was twice elected Governor of Utah and served from 2005 to 2009. His extensive experience in Asia brings a well-informed and international perspective to Board deliberations and his experience in government service provides the Board with important insight on government relations at the state, federal, and international levels.
William E. Kennard, independent Director since 2015 and age of 60, is a board director member of Finance, Nominating and Governance, Sustainability and Innovation Committees. His Experience as Chairman and co-founder of Velocitas Partners LLC and a member of the Operating Executive Board of Staple Street Capital since February 2014 and also as chairman of the U.S. Federal Communications Commission (FCC) from 1997 to 2001, as long as U.S. Ambassador to the European Union from 2009 to 2013, made the reasons for his nomination and with this experience he could create value for Ford in areas such telecommunications law and private and equity fields. His reputation in understanding consumers in digital age is very worthy to Ford relations to clients.
John C. Lechleiter is an independent director since 2013 and is part of the Compensation, Nominating and Governance Committees. With 63 of age he has had executive functions on companies like Eli Lilly and member of the American Chemical Society. He has been nominated to Ford’s board of directors not only because of his multinational companies experience but also because of his knowledge in the field of science. The fact that he has a vast experience in big multinational companies helps Ford deal with regulatory issues that appear when size of the firm is as big as Ford’s.
Ellen R. Marram, one of the female board members and director since 1988, is in the Committees of Compensation, Nominating and Governance, Sustainability and Innovation. Her experience in Barnegat Group, LLC, Brock Capital Group LLC, North Castle Partners, LLC, Tropicana Beverage Group, Nabisco Biscuit Company as member of board in this companies, made her be chosen to Ford’s board of directors so that Ford can benefit from her experience in management and marketing. The fact that she has built many profitable brands during her 30 year career played a role in her nomination and these qualifications give her important characteristics that have been helping Ford.
John L. Thornton, age of 63 and member of the Compensation, Finance, Nominating and Governance Committees, served as Chairman of Barrick Gold Corporation since April 2014, as Chairman of Silk Road Finance Corporation, an Asian investment firm, and as non-executive Chairman of PineBridge Investments, a global asset manager. He is also Co-Chairman of the Board of Trustees of the Brookings Institution and advisory board member of China Investment Corporation. He is Professor and Director of Global Leadership at Tsinghua University School of Economics and Management in Beijing, China. Mr. Thornton retired as President and Director of the Goldman Sachs Group, Inc. in 2003. He was nominated because of his extensive international business and financial experience; therefore he brings valuable insight into emerging markets as he expanded the presence of Goldman Sachs Asia, where he served as chairman. Lynn M. Vojvodich, age of 49 and member of the Audit, Nominating and Governance, Sustainability and Innovation Committees is an independent director since 2017. She was Executive Vice President and Chief Marketing Officer of Salesforce.com, Inc. from September 2013 until February 2017. In this role, she led Salesforce’s branding and positioning, public relations, digital marketing, content marketing, marketing campaigns, and strategic events. Before joining Salesforce, Ms. Vojvodich held marketing leadership roles at Microsoft and BEA Systems, and served as a partner with venture capital firm Andreessen Horowitz. She is the founder of Take3, a marketing strategy firm. She was nominated because of her wealth of expertise in marketing technology and innovation, market analysis, and the software industry. As Ford continues to transform itself into both an auto and mobility company, Ms. Vojvodich will provide valuable guidance regarding how the Company should market and position itself in both its core business as well as in emerging opportunities.
John S. WeinBerg is an independent director since 2016 and is part of the Finance, Nominating and Governance, Sustainability and Innovation Committees. He became Chairman of the Board of Directors and Executive Chairman of Evercore Partners Inc. in November 2016. Previously, Mr. Weinberg served as Vice Chairman of the Goldman Sachs Group from June 2006 until October 2015. His career at Goldman Sachs spanned more than three decades, with the majority of his time spent in the banking division. Mr. Weinberg currently serves as a board member of New York-Presbyterian Hospital and Middlebury College. He also is an advisory committee member of The Steppingstone Foundation. He was nominated for his extensive experience in finance, banking, and capital markets, as well as a deep understanding of Ford, its history, and the needs of its business. As Ford continues to expand its business model, Mr. Weinberg’s financial expertise will aid the Company in financing its plan to create profitable growth for all.
The only concern about this board of directors could be its average age; one might consider it too high for modern days, due to the extra capacity of young minds to innovate. However, it is likely that these board members have seen lots of innovations and became themselves innovative thinking.
As we can see there are different Committees in Ford Motor Company: the Audit Committee, the Compensation Committee, the Finance Committee, the Nominating and Governance Committee and Sustainability & Innovation Committee. As we see it, they are especially connected through the different members they have in common which facilitate the decision making process of the company.
The Audit committee has the responsibility of choosing the accounting firm and determine its compensation, all with the approval of the stakeholders. They also verify all the information in the reports done by the accounting firm especially when internal quality control procedures. When choosing the accounting firm, they evaluate the company in different aspects like organization structure and qualifications.
The compensation committee is in charge of establishing and reviewing the plan for compensating the executive board and approving goals and objectives related to the Executive Chairman and CEO. They also have an important task of viewing risk management in relation to compensation. A report about the compensation plan must be made every year and presented to the board.
The Finance Committee deals with the policies and practices related to the management of the company’s financial affairs that should consist with the law and specific objectives of the board committee. It’s also in charge of managing company’s retirement and pension plans, as well as the company’s savings.
The Nominating and Governance Committee has as main function the election and nominations of the board of directors, as well as the determination of its size and compensation plan. It’s this committee that form the criteria for selecting the directors and suggest the principles and guidelines for the board. They also need to evaluate the By-Laws and reflect about the adequacy of them in current times.
The Sustainability & Innovation Committee focuses on having the company follow innovative practices and technologies that improve environmental and social sustainability. They discuss how they will implement them so that they reach the customers and report to the Board of Directors about all these matters.
Basically, what is happening in the Board of Directors is that between the 14 directors, each has a function that they discuss in small groups (Committees), after discussing them they present their end results to the Board of Directors for them to approve. And that’s how Ford is able to make all management decisions effectively.
3. CEO AND EXECUTIVE COMPENSATION
The compensation determination is crucial to the well be of the company as it gives board members incentives to work harder and lets Ford be seen as one that compensates the executive members well. In fact, this will attract more interesting people with capabilities to help Ford grow.
The compensation takes place in different forms and its structure is therefore balanced among them. The compensation committee is the one in charge of balancing this forms out and in order to do so they look at their competitors, their results and their strategic goals of the year. The elements of compensation are 21% as salary, 19% as incentives and bonuses and 60% as long-term incentives. When comparing them as fixed and variable, Ford states that it is mostly variable, 80%, leaving the rest 20% to be fixed. Equity is the way preferred to remunerate executive directors, representing 60%, while cash only 40%. The Long term incentives are granted in Time-Based Restricted Stock Units and Performance Units with a three year performance period.
The Nominating and Governance Committee shall have the responsibility for
recommending to the Board compensation for non-employee directors. In discharging this
duty, the Nominating and Governance Committee shall be guided by the compensation which should be competitive and fairly compensate directors for the time and effort
required of Board and Committee members in a company of Ford’s considerable size and
scope; the compensation should also align directors’ interests with the long-term interests of
shareholders; and the structure of the compensation should be simple, transparent and
easy for shareholders to understand. Each year, the Nominating and Governance
Committee shall review non-employee director compensation.
In the year of 2016 Bonuses were distributed according to business performance factor that is calculated via three metrics: “Things gone wrong”, “Customer Satisfaction” and “Warranty Spend”. The amounts distributed can be seen in Table 5 at the end of this paper.
Table 6 shows a summary of the compensations where we can see that every person gets a bigger compensation on Stocks than on the salary they own. This table is showing us the year of 2016, where Mark Fields was still CEO. He receives more in non-equity incentive plans (bonuses mentioned before) than on salary. He also need to notice that option awards vanished since 2014 for everyone, however this has to do with some accounting changes in accordance with FASB, and is therefore not related with better or worse performance of the company.
Here is the part where we end our report. In general we think we would definitely invest in this company, especially because of its meticulous care about stakeholders. It is evident that they make a big effort on maintaining them up-to-date on all issues. One of the main reasons why we enjoyed reviewing this company is the sense of justice they pass to stakeholders, in terms of compensation politics for example, they are transparent and fair with the board members when remunerating them, the way they are making an effort on approximating their cars to the customers and, because it is a major company in the US, their board members have the experience they have, and some of them even have political influence in the US. This is an excellent company and we learnt a lot by analysing it.