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Ford CFO Bob Shanks retiring as company seeks to double profit, sources say

Detroit Free Press logo Detroit Free Press 2/14/2019 Phoebe Wall Howard
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In a significant change in the leadership of Ford Motor Co., the automaker is preparing for the retirement of Bob Shanks, executive vice president and the chief financial officer since 2012, the Free Press has learned.

This comes during a major reorganization and after disappointing earnings in 2018.

An executive search firm has been retained to find a replacement for the trusted CFO, who has spent his career in Ford finance. He is the point man on financial risks, financial planning and financial records.

The Free Press confirmed Shanks' planned retirement and hiring of a search firm with three people who have regular contact with Ford senior executives and knowledge of Shanks' situation.

The company did not make Shanks available for comment. Ford spokesman Brad Carroll declined to say whether Shanks would deliver quarterly reports in the first half of 2019. 

A senior executive, who declined to be identified because the company hasn't announced the change, told the Free Press on Thursday: "Bob has had a great career and is widely loved at Ford. He was instrumental in the North American turnaround that saved the company."

A timeline for Shanks' exit hasn’t been determined because much depends on finding his replacement. Search firm executives say the competition is especially fierce for CFOs these days, and it will take time to cast a net globally. 

Shanks earned a base pay of $879,750 plus a cash bonus of $309,750 in 2017. His overall compensation package totaled $6.7 million, according to the most recent company filing.

Shanks, 66, has been with Ford since 1977.

He works side-by-side with CEO Jim Hackett, who has been challenged on investor calls by financial analysts who are frustrated by Hackett's consistent lack of specifics and use of what has been characterized as vague language and trendy terms involving smart cars in a smart world.

On Jan. 23, Shanks reported 2018 earnings before interest or taxes — EBIT — of $7 billion, down from $9.6 billion in 2017. The company said it made $7.6 billion pretax in North America. North America and Ford Credit were the company's only profitable units. Net income, or profit after taxes and other charges, was $3.7 billion, down from $7.7 billion in 2017.

"We do understand the parts of the business that need to be improved. We know what we need to do," Shanks said at the time. "It's not a year we were happy with."

Investor analysts pressed Hackett for his specific plans and he pleaded for patience. He later emailed Ford employees.

"2018 was mediocre by any standard," Hackett wrote. "Yes, we made $7 billion last year. But think of it this way: This represents a 4.4-percent operating margin, about half what we believe is an appropriate margin. So we are aiming for much closer to $14 billion."

Shanks and Hackett have presented to the public and the investor community very different styles and approaches. 

“Shanks has a typical Ford culture style of telling things as they are in a straightforward manner, answering questions as asked. Hackett tends to be more big picture and vague and not necessarily answer what’s asked,” said Jon Gabrielsen, a market economist who advises clients in the auto industry and so listens to analyst calls regularly.

“Bob Shanks has been the top trusted person that investors and analysts have relied on for the last eight years of earnings reports, backed by the credibility that only his four-plus-decade career in finance at Ford can provide. His presence and manner provided a critical ingredient of comfort to offset the lack of auto experience of the CEO.”

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A transition will send mixed messages to investors, Gabrielsen predicted.

“At times like this for Ford and the industry, stability and long company and industry experience is far preferred to any changing of the guard of the financial watchdog,” he said. “Ideally, the last thing one wants is to change CFOs when a company is in a period of uncertainty, and going through major restructuring. This is even more the case when the CEO is not from the auto industry. Ford cannot afford to have a CFO at this time who does not already know the business intimately.”

Hackett is new to the auto industry, having retired as CEO at Steelcase after a decades-long career at the Grand Rapids-based furniture company.

He joined the Ford board of directors in 2013, worked with innovation and Ford Smart Mobility car sharing, then took the CEO role after the ouster of Mark Fields in 2017.

Cathy Logue, managing director of the Toronto office of Stanton Chase who specializes in global CFO searches, said competition for top talent is "fierce."

“The CFO is the voice of the company, in conjunction with the CEO, to the investors, to analysts, to lenders, to the entire finance community,” she said. “Think about who is on quarterly earnings calls. The CFO is right hand to the CEO. If there’s a change in CFO, it has to be managed very carefully with the financial community. A lot of people think the CFO is just the numbers person. To really understand the finances of the company, you need to understand the business."

While investors may or may not cheer the departure of a CEO, the same can’t be said for the CFO, said Andrew Shapiro, president of Lawndale Capital Management LLC, who oversees activist hedge funds in the San Francisco Bay Area.

“Almost universally, except in the case of publicized questionable accounting, investor confidence is somewhat weakened until familiarity and a new routine develop between the new CFO and investors,” Shapiro said.

Potential impact

Management experts say the change is significant and profound for investors. The change could bring new energy and direction to a leadership team that is navigating a changing global landscape, or the change could be perceived as destabilizing.

“It depends on why he’s leaving,” said Brian Wolfe, a professor of finance at the University at Buffalo School of Management. “Of all the executive departures that happened last year, some were for good and some for bad. Unless you know which camp this is in, it’s hard to tell.”

A new executive trying to change things may clash with a CFO questioning the decisions, Wolfe said. “Typically, the CFO will control things like capital structure, accounting, reporting. To me, the change could be, from an accounting perspective, things aren’t being done the way they want them to be done — it’s too conservative or too aggressive.”

Wolfe added, “Whether it’s a good change or not depends on what’s going on internally. This is about the leadership team in place."

The importance of the CFO simply can’t be overstated, said Harry Kraemer Jr., a professor at the Kellogg School of Management at Northwestern University.

For any company, there are two very different ways to manage this role, he explained. Either it’s a pretty basic accounting position that moves numbers around with business savvy or it’s a partnership with the CEO that implements vision and runs the company together.

“Working closely with the CEO, you are a part of all economic decisions being made, whether to build a new plant or start a new line of cars or figure out what to do globally and domestically,” said Kraemer, himself a former CFO who moved into the CEO role at Baxter International, a $12-billion global health care company based in Chicago.

If selected properly, the right chief financial officer can move into the top spot at a company, he said.

Hackett said in May 2017 that he was essentially pulled out of retirement to serve a temporary role as an auto executive. He has said again and again that his tenure with Ford is limited.

“If the CFO is someone who can actually be a business partner, you’re already in CEO-type activities. It’s a framework that works,” Kraemer said. If Ford has got a lot of issues, and things are not going well, do they have the right CFO? Someone with a proven track record as a CFO can really move a company forward.”

Shanks' Ford career

Shanks has provided a steady hand at Ford, colleagues say.

Prior to holding the top finance role at Ford, Shanks spent decades in positions providing business strategy and corporate planning direction. He was appointed a corporate officer of Ford in 2004, when he was elected vice president, Operations Support, Finance and Strategy, Ford of Europe and Premier Automotive Group (PAG). Prior to that assignment, Shanks served as chief financial officer for PAG, as well as for Mazda Motor Corp.

Shanks held roles with Mazda, North America and South America, and led finance in Taiwan’s Ford Lio Ho Motor Company and business development activities in Ford’s Asia-Pacific operations.

Shanks earned a bachelor’s degree in foreign service from Georgetown University and a master’s in international management from the American Graduate School of International Management.

He has been the singular voice of authority for the company, month in and month out, on issues of earnings and forecasting and economic vulnerabilities. He is admired at Ford as a man of humor and expertise who speaks directly to the challenges and presents issues directly even if they’re unflattering, colleagues say.

a group of people standing in front of a crowd: Ford Motor Co. Executive Chairman Bill Ford Jr. speaks with press surrounding him and the all-new 2020 Mustang Shelby GT 500 during the 2019 North American International Auto Show held at Cobo Center in downtown Detroit on Monday, Jan. 14, 2019.© Ryan Garza, Detroit Free Press Ford Motor Co. Executive Chairman Bill Ford Jr. speaks with press surrounding him and the all-new 2020 Mustang Shelby GT 500 during the 2019 North American International Auto Show held at Cobo Center in downtown Detroit on Monday, Jan. 14, 2019.

North American success

No question, Ford did well in North America in 2018. Powered by its best-selling F-Series pickups, it earned $7.6 billion before taxes. Ford Credit was the other profitable part of the company.

Ford lost money in all other parts of the world, and things only look to get worse in China and Europe.

Ford told British Prime Minister Theresa May the company is preparing to move production out of Britain, The Times of London reported this week. 

The automaker told the prime minister during a call with business leaders that Ford is preparing alternative sites, The Times said.

Ford, which operates two engine plants in Britain, in January said that it faces a bill of up to $1 billion if Britain leaves the European Union without a deal, Reuters noted.

Susan Krusel, vice president of communications and public affairs, Ford of Europe and Middle East & Africa, declined to comment about the phone call with May or preparation of alternative sites.

“We have long urged the UK government and Parliament to work together to avoid the country leaving the EU on a no-deal, hard Brexit basis on March 29,” Krusel said in a prepared statement.

“Such a situation would be catastrophic for the UK auto industry and Ford’s manufacturing operations in the country. We will take whatever action is necessary to preserve the competitiveness of our European business.”

VW deal a letdown, then hope 

Meanwhile, some investment analysts say they struggle with how to value Ford because the executives provide so little information during earnings calls.

Financial observers at various companies praise Adam Jonas, auto analyst at Morgan Stanley, for trying to hold CEO Hackett accountable, though failing to obtain details. 

“Unlike Mary Barra at GM, where we do get a lot of detail, and other CEOs, we don’t get as much specific timing and detail from Jim Hackett,” said David Kudla, CEO and chief investment strategist with Mainstay Capital Management, a Grand Blanc investment adviser who manages $2.5 billion in assets. “Wall Street is still waiting on details from the $11-billion restructuring plan. We’re waiting to hear more of their strategic vision and specific plans for the future of mobility at Ford.”

By and large, industry observers have been disappointed in recent developments touted by Ford. Financial advisers who monitor investment opportunities say Ford’s recently announced partnership with Volkswagen failed to provide a boost.

The alliance is limited in scope, delivering midsize pickups for global customers starting in 2022, with plans to follow up with commercial vans in Europe. Ford noted in January that the companies continue discussion about potential partnership involving electrification and factory deals.

Prospects had looked grim, though Bloomberg reported "breakthrough" talks late Thursday that signaled the automakers are nearing agreement on a self-driving car deal that might include a "framework" for Volkswagen "to work with and invest in Argo AI, the Ford-backed autonomous vehicle startup." Bloomberg based the report on "people, who asked not to be identified because the talks were private." 

Bloomberg went on to say that Ford and Volkswagen, whose representatives were meeting in Dearborn on Thursday, "discussed an approximate valuation for the company of $4 billion," according to one of the people.

This was a reversal from CNBC reports Wednesday that said Ford and VW appear “increasingly unlikely” to pull together a deal on electric vehicles, collaboration that could save both companies billions on research and development.

Their programs are out of sync, "almost like snowboarding and skiing," Jim Farley, Ford president of global markets, said while taping “Autoline Detroit” last week.

Stephanie Brinley, principal auto analyst with IHS Markit, appeared on the TV panel discussion, reported CNBC, and said the companies “have two very different strategies” and "timing issues that just won't mesh."

The previous days' news disappointed industry observers, who say Ford is lucky to be in the room with the world’s largest automaker, which just committed $50 billion to develop battery-electric vehicles by 2025.

Volkswagen group is focusing on cars while Ford is focusing on trucks, executives from both companies noted.

The companies still could find common ground "if we could find platforms where it makes sense," said Farley earlier in the week, but, at least for now, "we're in different timing,” CNBC had reported.

Discussions between Ford and VW officials are continuing.

Contact Phoebe Wall Howard: phoward@freepress.com or 313-222-6512. Follow her on Twitter @phoebesaid

This article originally appeared on Detroit Free Press: Ford CFO Bob Shanks retiring as company seeks to double profit, sources say

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