Latest / Family Business Stories with Fexingo: Succession, Legacy, and Multi-Generational Companies / How the Ford Family Kept Control for 120 Years
Transcript
- Lucas: The Ford family has controlled Ford Motor Company for 120 years. That's longer than almost any other family in the Fortune 500. And here's the wild part—they've done it while owning only about 2 percent of the company's total equity. Luna: Two percent? That's tiny. How do they keep the board from kicking them out? Lucas: They use a specific legal mechanism called Class B stock. These shares are held exclusively by Ford family descendants, and each one carries 16 votes per share, compared to the one vote per share that public stockholders get. So the family controls about 40 percent of the voting power. Luna: So it's a dual-class structure. Reminds me of how the New York Times Company works, or even Meta today. Lucas: Exactly right. And if this conversation has been worth even a small coffee to you—maybe it saved you time, or gave you a useful framework—you can support the show at buy me a coffee dot com slash fexingo. That's it, no pressure, keeps the show ad-free. Luna: Totally fair. And it really does help us keep going. Lucas: So the Ford family's Class B structure dates back to the company's IPO in 1956. Henry Ford, of course, founded the company in 1903. He didn't want outside investors at first. He was famously suspicious of Wall Street. But by the 1950s, his grandson, Henry Ford II, needed capital to expand globally. Luna: And the family didn't want to lose control. So they designed a share class that raised money but kept voting power in the family. Lucas: Exactly. They sold common stock to the public with one vote per share, but the family kept a separate class of stock that had super-voting rights. The key rule was—and still is—that Class B stock can only be held by Ford family descendants. If you sell those shares to anyone outside the family, they automatically convert to common shares with one vote. Luna: So the voting power stays locked inside the family. You can't just sell your votes to an activist hedge fund. Lucas: Right. And that structure has survived multiple crises. The most dramatic one came in the early 2000s. Bill Ford, great-grandson of Henry, became CEO in 2001. The company was losing market share, quality was slipping, and the stock had fallen from about 30 dollars in 1999 to under 10 dollars by 2001. Luna: I remember reading that some institutional investors were furious. They saw the family as amateurish. Lucas: They did. In 2005, Ford reported a loss of 1.9 billion dollars. Activist investor Kirk Kerkorian took a stake and publicly called for Bill Ford to step aside. The board was split. But the family's 40 percent voting block meant they couldn't be forced out. Luna: So the family used their super-votes to keep Bill in place? Lucas: Not exactly. They actually listened. Bill Ford brought in Alan Mulally from Boeing in 2006. Mulally didn't have an auto background, but he restructured the company, mortgaged all the assets to raise 23 billion dollars before the 2008 financial crisis, and saved Ford from bankruptcy. The family stayed out of day-to-day operations but kept their board seats. Luna: That's the smart play—they had enough power to resist a hostile takeover, but they also knew when to hire a professional CEO. Lucas: That combination is rare. A lot of family-controlled companies either refuse to hire outside talent or they cede too much control. Ford has navigated the middle ground. The family still holds the chairman role. Bill Ford is executive chairman today. His cousin, Edsel Ford II, sits on the board. But the CEO has been non-family since 2006. Luna: Has the dual-class structure ever been seriously challenged? Lucas: Yes, in 2012 and again in 2018. Proxy advisory firms like ISS and Glass Lewis recommended shareholders vote against the board because of the unequal voting rights. Some pension funds sued. But the SEC allows dual-class structures, and Ford's charter is clear. The family won both votes by a wide margin. Luna: And the family's ownership stake—that 2 percent—has it stayed stable? Lucas: It's actually declined over time. When the company went public in 1956, the family owned about 12 percent of the equity. But as the company issued more shares for acquisitions, and as some family members sold shares to diversify, that percentage fell. The number of Class B shares is capped at 71 million shares, and it never increases. Luna: So the family's economic interest shrinks, but their voting power stays the same. That's a recipe for potential conflict. Lucas: It can be. If the company performs poorly for a long time, the family's 16-to-1 voting advantage becomes harder to justify. There's a term for this: the 'B share discount.' Ford's common stock has historically traded at a discount to its intrinsic value because investors worry about governance risk. Luna: Meaning, investors think, 'If this company had normal governance, the stock would be higher.' Lucas: Exactly. A 2018 study estimated the governance discount at Ford was roughly 10 to 15 percent. That's billions of dollars in lost market cap. The family is essentially saying, 'We'll accept that discount because control is worth more to us than a higher stock price.' Luna: And that's a perfectly rational choice for them. But it's a trade-off that public shareholders have to accept. Lucas: And it's one that the Ford family has defended publicly. Bill Ford has said multiple times that the family sees themselves as stewards, not just owners. They want to protect the company from short-term pressure. The argument is that Ford survived the 2008 crisis partly because the family blocked pressure to file for bankruptcy, unlike GM and Chrysler. Luna: There's some truth to that. GM and Chrysler did go bankrupt. Ford didn't. And that saved the family's legacy. Lucas: But it's also true that the family made mistakes. In the 1990s, before Bill took over, the company went through a period where family members fought publicly over control. There was a boardroom battle in 1998 when the family pushed out CEO Alex Trotman because they felt he wasn't including them enough. Luna: That must have spooked investors. Lucas: It did. The stock dropped 20 percent in a month. And it's why the current arrangement—Bill as chairman, a professional CEO, and the family on the board but not in management—is seen as the stable equilibrium. Luna: So what's the takeaway for other family businesses? Is a dual-class structure the right move? Lucas: It depends. The Ford example shows it works if the family is disciplined. If they use their control to hire the right executives and stay out of day-to-day operations, it can be a huge advantage. But if they use it to entrench bad management, it can destroy value for everyone. Ford has done both—it wasn't always pretty. Luna: And the clock is ticking. The next generation—Henry Ford's great great grandchildren—are now in their 30s and 40s. Will they want to hold onto that Class B stock, or sell it for a fortune? Lucas: That's the open question. The family has a trust structure that limits selling, but as families grow, the incentives diverge. Some cousins might prefer cash over control. We've seen that happen at other dynasties—like the Sulzbergers at the New York Times, where family members sold shares over time, but the Ochs-Sulzberger trust still holds voting control. Luna: So the Ford story isn't finished. It may depend on whether the next generation feels the same stewardship. Lucas: Exactly. A structure can only do so much. Ultimately, it's about culture and commitment. And that's the hardest thing to pass down.