In 1996, Frank Macher retired from Ford Motor Co., where he was a vice president in charge of its auto parts business. Soon he was back at work, running one of the nation's biggest suppliers, ITT Automotive. In an attempt to boost sales of antilock brakes, he led a campaign urging automakers to make ABS standard equipment. Then last March, parent company ITT Industries Inc., like other conglomerates before it, decided to shed auto parts and their thin profit margins and focus on other businesses. The biggest pieces were sold to Valeo SA and Continental AG.
The events further convinced Macher that the merger and acquisition craze sweeping the industry is brushing aside much of its heart, too. He shared his thoughts last fall with Managing Editor David Versical. Here are edited excerpts:
The sell-off of ITT Automotive seems to have touched a nerve.
Big portfolio companies are shedding themselves of the automotive business in order to maximize their stock price and their price-earnings ratios. As they sell off their businesses, the intensity of people within the business is being shaken, and their commitment is being shaken. That's a real dramatic change.
I spent 30 years at Ford, and during those 30 years you could see passion within the OEMs. You loved the product, you were committed to the product, and you'd work untold hours for Ford Motor Co. and the products that it represents. As we go forward, I'm not so sure that we're not going to see a complete change in the way people look at their careers in the auto business
Do you see this on the supplier side and the carmaking side?
I think the supplier side more than the carmaking. But it's an extended enterprise. The OEMs become vulnerable as this lack of commitment within the supply base grows. I really believe that will be a big issue.
You are going to have fewer and fewer suppliers that are bigger and bigger as a result of the sell-offs. You'll see a shifting of the pendulum.
Today, the OEMS truly have a very strong position, and they pretty much can dictate conditions at their discretion. As we see the auto supply base become smaller - as suppliers become bigger, stronger and more confident - their knowledge base will be such and their lack of competition will be such that they will have a significant influence on OEMs in the future.
Shareholder value is the mantra at Ford. Why are you more concerned about the loss of passion on the supplier side?
At one point, Ford sold part of its seat business. The emotion and the shock of working one day with Ford Motor Co. and the next day for Lear Corp. had a significant impact on the people. It was a rare event. The emotions were dramatic.
I noticed a difference in my job at ITT. As we sold off to Continental and to Valeo, the emotional aspect was significantly less. There was a resigned approach. I had prepared myself for having 100 people in the door saying, 'How can I stay with ITT?' But people came and said: 'It's inevitable in our business now. There's no loyalty. We have a new company buying us, and if we don't like that, I guess we'll go to someone else.'
You start to see professional people almost in a migratory kind of environment. I'm not used to seeing that. I think there's a huge issue emerging.
This commitment to a company, and identifying oneself with a company, and being proud to be part of a company, and standing for something ... when you stand for something, that's where you get that commitment. That's where you get the fire in the belly. That's where you want to do the right thing for the company, because you know the company is going to do the right thing for you. I think that contract - that unwritten contract that I have this job for life, and I will work for you for life, and I will do whatever it takes - is starting to disappear.
Can you blame this on the focus on shareholder value?
So many people are talking shareholder value today, so many of them are planning around shareholder value, and so many people are not looking at what it takes to generate shareholder value in the true sense. Shareholder value becomes the objective in and of itself. Not the end result.
I've seen stated missions that say our mission is to increase shareholder value. Well, your mission should be something far broader than that. It should be something that says my mission is to satisfy my customers with everything I do. Because I'm going to be the best at it, and I'm going to do the right thing for my people, and I'm going to do the right thing for my customers, and I'm going to be good enough that I can grow this business.
If I do that, I'm going to be good enough at cost, quality - all the things. If I do those things, shareholder value is there. You get the shareholder value as a result. It is not the goal in and of itself.
Once you start down that path, it becomes very financial in its assessment. You just look at the numbers and you say, 'Well can I get more to sell it? Can I create more shareholder value by selling it? Can I just shut it down? Can I merge?' You don't look at, 'Can I create a better product. Can I do better for my customer?'
You simply change that whole focus. You start to lose the passion in that focus. Then as you lose the passion, the people suffer. And as the people suffer, they lose their passion. It's like a stone rolling down a hill. It goes faster and faster as it goes down.
Isn't that a predictable result? People have heard so many promises from management.
The shakeout in the component industry just brought it front and center for me. The number of mergers and sales of companies has been so dramatic. Every time there is a merger or an acquisition, there is a downsizing that seems to take place because people buy companies for synergies - the synergy that represents a cost reduction or an efficiency improvement. It's taking a toll on the supplier community and on people's commitment.
How do you keep people motivated in this environment?
You have an intensity about treating people. People always have to keep their dignity. And you have to always provide for that dignity. In uncertain times you try to take away some of the uncertainty.
During our sale, we looked at retention bonuses for people or severance commitments for people just to make sure that they weren't so worried about day-to-day stuff that they would lose the passion for the job. You try to make sure that in dealing with people you deal with them as you wish you could be dealt with if you were in a similar circumstance.
The downsizing will continue for some period of time. I think everyone is struggling with how best to keep people motivated at the same time that people feel vulnerable. That's a huge challenge.
Don't CEOs have more pressing issues than sparking passion?
That's why they get the big bucks. It is difficult. The stress levels of today are terrible. The demand of shareholders and investors for ever-improving growth and profits every quarter makes it extremely difficult for a CEO to worry about difficult quarters or change in the environment and having to recover from that so quickly.
Sometimes you might make a dumb decision, a short-term decision, that adversely affects the long term because of this pressure on quarterly profits. To keep a passion for the business and focus on what it is long term is absolutely essential. When people don't see that in their leader, that's when they lose it.
The tough leaders, the good leaders, are those that can weather the storms, continue to look forward with growth in mind and a strategic intent with the same passion and accept that there may be a dip in the road as you go along. They are able to withstand that pressure with the shareholders and come out stronger leaders. That's really the biggest challenge I see for a CEO today.
What about solutions?
I think (DaimlerChrysler Presi-dent) Tom Stallkamp has the right approach. He says, 'Yeah, we have that pressure. But we are going to look forward, and we are going to take a look for the long term and see what happens.' If more companies would do that, maybe some of these wild expectations of ever-growing numbers would diminish a little bit. We would have a more stable stock market. And we would see a significant change.
I'm not sure that everything that's being done for shareholder value is truly, long term, in the interest of shareholders. I don't see it that way anymore. I think some of the things that happen in the short term change the way businesses run in the longer term, and adversely affect the long-term future of a lot of companies.
