Family Control of Auto Empire Could Erode

The last time one of the Ford boys died, in 1978, it touched off an unseemly family squabble that centered on a special type of stock in Ford Motor Co. Known as “Class B,” the stock is the ownership tool that has given the Fords effective control over their industrial enterprise through three decades of public ownership.

It’s too soon to know whether the death Tuesday of Henry Ford II will trigger any family feuds. But while his death doesn’t rob the family of any corporate power, it appears to be a natural step in the inexorable, long-term weaning of Ford Motor from control by the family that founded it 84 years ago.

The Ford scheme to retain 40% of the voting power in the company was hatched back in 1956, when the company first sold stock to the public. It was a model for other corporate families struggling with questions of succession and control over the enterprises that they created.

The public stock offering--itself an acknowledgment by the family that it couldn’t remain a private, mom-and-pop operation if it was to raise the money needed to compete with the likes of General Motors--was the biggest in history at the time.

But while it sold 88% of the equity in Ford Motor to outside investors, it sold just 60% of the voting power.

The family heirs were exclusively entitled to Class B shares with multiple voting power, and the special stock has remained at the core of the personal fortunes of the Ford family members. On a per-share basis, those fortunes have nearly quadrupled amid Ford Motor’s dramatic financial recovery in the past six years.

Today, the Ford heirs--with William Clay Ford the largest single shareholder--still control 40% of the voting power of the company. That control seems assured through the year 2000.

But with non-Fords managing the company, it is a control that has been wielded most of the time in gray corporate fashion. The family’s interests have been represented directly by William Clay--vice chairman of the company and a member of the board--and until now by Henry as chairman of the board’s key finance committee.

The Fords used to convene every Christmas in Dearborn or Grosse Pointe Shores, two Detroit suburbs, to discuss whatever corporate and family matters demanded their attention. But those meetings are said to be infrequent now.

At one notorious family gathering in 1979, at William Clay’s home on the edge of Lake St. Clair in Grosse Pointe Shores, disaffected heir Benson Ford Jr. wore hidden recording devices taped to his chest until the family’s own electronic surveillance system betrayed him. He was disrobed by his uncles and stripped of the gadgets.

At the time, Benson was fighting in court to overturn the will of his father, Benson Sr., the brother of Henry and William Clay who died the year before. The terms of the estate deprived young Benson of certain Class B stock because of his allegedly unsavory California life style. Benson called his father an incompetent drunk and even ran unsuccessfully for a seat on the board.

It was the embarrassing public flap with Benson that led Henry II to declare in 1979 that Ford Motor was no longer a family enterprise and that “ownership of B stock is no passport to a top position in Ford . . . . There are no crown princes in the Ford Motor Co.”

Though Henry’s son, Edsel II, William Clay’s son, Bill, and the recalcitrant Benson Jr. have managerial jobs at the company, it is a dictum that has more or less prevailed from the top on down. Now, the family loses the influential voice of Henry II on the board, leaving William Clay--who has often shown more interest in his Detroit Lions football team than in Ford Motor--the only Ford on the board.

In any case, a longtime family lawyer has predicted that the Fords’ voting dominance at the company will play out in 25 to 50 years as children and grandchildren proliferate, drift away, lose interest in Ford Motor and convert their special family stock into common shares to raise personal funds.

The big villain is estate and inheritance taxes, wrote Detroit attorney Pierre Heftler in documents made public during Benson Jr.’s legal assault on the Ford empire. To raise money for estate and inheritance taxes that in the case of Benson Ford ran to $35 million, family members would turn to their Class B shares.

There are two choices--selling the B stock to other family members or converting it to common shares and selling it to the public. And the far-flung heirs have shown little interest in the Class B shares offered from time to time, the lawyer said.

Heftler wrote that the voting control automatically drops to 30% and then to 3% as the number of B shares drops below specified levels.

“Somewhere between 25 to 50 years, I foresee the B stock falling to less than 3 million shares, with consequent loss of the special vote,” Heftler wrote. “Purchase of B by the family members will delay the loss of the special vote, but it will happen sometime.”