Dual Classes of Stock May Not Be in the Best Interest of Shareholders

Ford Motor Company recently fired its CEO, Mark Fields.  Its decision to do so was based on the stock’s poor price performance and belief that the company was not agile enough in addressing structural changes occurring in the auto industry.  Personally, I have no opinion as to whether Mark Fields was the source of the problem or a scapegoat.  I find it surprising; however, that little mention has been made about the company’s dual class structure which essentially gives the Ford family significant control over the management of the company that bears its name.

By way of review, the Ford family collectively own less than 2% of the common stock outstanding but their “Class B” shares control 40% of the vote.  This leverage, combined with family members having two seats on the board, essentially gives the family ultimate control in the decision-making of the company.  While the hire of Alan Mulally in 2006 has been praised by many, his success had a lot to do in keeping the company out of bankruptcy during the Great Recession of 2008.  He was also fortunate to ride the tide of a very strong recovery in auto sales beginning in 2009.  Other appointments including Jacques Nasser, Bill Ford Jr. and now Mark Fields, suggests that the company has been misled for many years.  Unfortunately, the problem may be rooted in the fact that the company is so tied to its family roots, it cannot “think outside the box” and therefore, unable to re-imagine and re-engineer the company to compete in an increasingly global, competitive and changing industry.

For the record, Sigma is opposed to the dual class structure of common stock for all companies.  This is evident in our Proxy Voting Guidelines where we will vote against the creation of dual class stock whenever this option comes up for vote.

All comments and suggestions are welcome.

Christopher J. Kress, CFA®