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Published: December 2, 2013
 / Winter 2013 / Issue 73

 
Business Literature: Best Business Books 2013
 

Best Business Books 2013: Leadership

Running the Detroit Three


David Farber
Everybody Ought to Be Rich: The Life and Times of John J. Raskob, Capitalist
(Oxford University Press, 2013)

Vincent Curcio
Henry Ford
(Oxford University Press, 2013)

Bob Lutz
Icons and Idiots: Straight Talk on Leadership
(Portfolio/Penguin, 2013)


Detroit is back. Not the city, alas, but the Big Three automakers whose glorious pasts gave Motown its moniker. General Motors, while duly paying off much of its US$50 billion bailout debt, is again leading the world in car sales and, more surprising, winning kudos for quality. Ford remains healthy under sound leadership, and Chrysler’s near-term prospects seem startlingly good. There’s even a mini-boom in new books about auto industry leaders past and present, executives whose daring (and foibles) transcend Motor City. At least three of these books are about men whose character and practices were, and still are, representative of American C-suite leadership.

The Bean Counter

The most significant leadership book published this year, David Farber’s Everybody Ought to Be Rich: The Life and Times of John J. Raskob, Capitalist, is about an executive who was responsible for much of what is right, and wrong, with the U.S. auto industry today (and the leadership of giant businesses, in general). Six decades after his death, Raskob remains one of the most influential—and colorful—characters in the annals of corporate America. He served as chief financial officer of both General Motors Company and DuPont in an era before the title existed. In the early 1920s, Raskob laid the foundations that enabled both companies to rise from relative obscurity (in GM’s case, from near bankruptcy) to become, respectively, the world’s first- and third-largest corporations by the time he retired from their boards in the late 1940s.

John Jakob Raskob (1879–1950) knew next to nothing about making cars (or chemicals) and wasn’t particularly interested in industrial manufacturing, engineering, or organizational management. Instead, his many and lasting contributions to corporate leadership were entirely financial. Raskob was the first executive to practice what came to be called management by the numbers. At DuPont, in the 1910s, he created—with a big assist from protégé Donaldson Brown—most of the accounting and budgeting procedures and metrics that are still standard in American companies.

Raskob’s most significant creations (and for him, the most fun) were the arcane financial instruments that allowed DuPont to acquire its major competitors (and control of General Motors) using other people’s money. He was the Adam of corporate acquisitions and financial restructuring. His creative output included the invention of holding companies and paper instruments that reduced the risk, liability, and taxes of his boss, Pierre S. du Pont, chairman and, for a time, chief executive of both GM and DuPont. Raskob’s financial prestidigitation helped make du Pont a multibillionaire in today’s dollars—and, through stock speculation, insider trading (he shorted GM stock), and prodigious tax avoidance, a billionaire in his own right.

Farber, professor of history at Temple University and author of Sloan Rules: Alfred P. Sloan and the Triumph of General Motors (University of Chicago Press, 2002), documents how the largely self-educated Raskob quickly rose from the ranks of the petite bourgeoisie (his father was a cigar maker). He became the first Roman Catholic accepted as a peer in U.S. boardrooms, the progressive head of the nation’s anti-Prohibitionists, chairman of the Democratic National Committee at the time of Franklin Roosevelt’s first presidential nomination, and, in a spectacular volte-face, a leader of the right-wing American Liberty League, which opposed the New Deal and the United States’ entry into World War II. He was Pope Pius XII’s main fund-raiser in the United States, a lifelong pal of New York’s powerful Cardinal Spellman, a Knight of Malta, and, along with his 12 children, a regular communicant. At the same time, he was a playboy nonpareil (with a weakness for showgirls, booze, and gambling) and a willing abettor of his wife’s cohabitation with a man many years her junior. John Raskob seems also to have helped conceal Pierre du Pont’s evident homosexuality. Few bios of CFOs have such racy subplots.

Still, Farber keeps his main focus on Raskob’s business practices, documenting how he arranged bailouts for GM (the company has a history of that sort of thing), invented the consumer credit industry (GMAC was his brainchild), designed the first executive stock option plan, and was the first to advocate wide-scale employee stock ownership. In early 1929, Raskob also proposed what might have become a national social security system invested entirely in the stock market (but his timing was embarrassingly bad).

Never able to sit still for the quotidian details of management, Raskob preferred to pull strings behind the scenes. He plumped for the appointment of the more temperamentally suited Alfred Sloan to succeed Pierre du Pont at GM’s helm when, for the asking, he could have had the top job himself. In Sloan’s classic My Years with General Motors (Doubleday, 1964), he credits Raskob for introducing the system of financial controls that made it possible for GM to become the world’s largest corporation, invidiously contrasting Raskob to Henry Ford, who was dismissed by Sloan as a genius mechanic who couldn’t manage a giant company. Unlike Ford’s company, Sloan sniffed, “General Motors is in the business of making money, not cars.”

The Car Guy

What led Sloan to depict Raskob as the Great Anti-Ford was the organizational pandemonium created in 1927 when Ford shut down production of the Model T and retooled his factories to assemble the Model A, an event chronicled in Vincent Curcio’s Henry Ford. That totally unplanned, disruptive, and mind-bogglingly expensive transition was prolonged thanks to Ford’s second-guessing and micromanaging of his engineering staff. The retooling took some two years to complete. In comparison, in 1929, GM achieved full production of a new Chevy model in six months.

The debacle was, however, in keeping with Ford’s personal motto: “We must go ahead without the facts. We will learn as we go along.” As good as his word, Ford (1863–1947) seemed to thrive on disorder, creating chaos whenever and wherever discipline reared its ugly head. Ford so abhorred record keeping that, on abolishing the company’s accounting department, he told employees to keep cash in a barrel and withdraw whatever amounts were necessary to pay bills. (He kept a million dollars in cash in his office safe.)

Yet Ford created the world’s most efficient industrial organization, one in which wasteful motion, effort, and activity were eliminated in order to produce a Model T that eventually sold for as little as $260, down from $800 in its first year of production. Between 1907 and 1922, Ford increased annual manufacturing capacity from 8,200 to 2 million cars: What originally had taken skilled craftsmen a week to build by hand was turned out in a matter of hours by assembly-line workers. Ford pioneered the efficient use of raw materials, waste elimination, and recycling. The Model A was produced at the world’s largest factory site in a fully integrated facility that was the industrial wonder of the world, envied even by Stalin and Hitler.

Curcio, also author of Chrysler: The Life and Times of an Automotive Genius (Oxford University Press, 2000), draws particular attention to Ford’s numerous contradictions and paradoxes. Ford was visionary, innovative, inspiring, expansive, bold, rational, generous, wise, honest, and a pacifist. He was at the same time shortsighted, backward, rigid, querulous, malignant, irrational, paranoid, contentious, dissembling, and belligerent. Ford and his immediate family owned 100 percent of their company, a degree of corporate control never enjoyed by the likes of Rockefeller and Carnegie, yet he cultivated an image of himself as Everyman. “When a reporter asked him how it felt to be the world’s first billionaire,” Curcio writes, “he squirmed in his seat and replied, ‘Oh, shit!’”

Ford was the greatest friend African-Americans had in big business (in 1926, 10,000 blacks were employed in his plants, often supervising whites), and at the same time a virulent anti-Semite. He hired and promoted women, immigrants, and disabled people decades before other large companies did so; most famously, he introduced the $5 per day wage when the average industrial worker earned half that amount. Meanwhile, his infamous Sociology Department snooped into his workers’ private lives, dismissing those who drank, gambled, or cheated on their spouses, and he was notorious for firing workers as they gained seniority, replacing them with younger, lower-paid employees.

Ford ran for the U.S. Senate as a progressive Democrat (and nearly won), then turned into an arch-reactionary. He presented himself to the world as a model of domesticity, yet he had a decades-long relationship with a mistress who bore his love child. He said he was interested in cars, not money, yet he conspired to avoid some $321 million in inheritance taxes. In short, he was far from Raskob’s opposite.

In this brief, lively introduction to Ford’s life, Curcio makes the case that Henry Ford changed the face of the U.S., giving the nation mobility, materialism, and modernism. Undeniably, Ford introduced a product in which people could be conceived, be born, live, and die, as many since have done. Although the auto industry may seem old hat to today’s young managers, the leadership lessons one can take from this book are timeless. Indeed, the more one learns about Ford, the more one sees parallels to the career of Steve Jobs, an equally complex leader who also changed the way Americans lived.

Curcio contrasts the brilliant, irascible, chaos-creating Henry to his thoughtful, kind, and emotionally steady son, Edsel. Whereas his father was the classic innovator and entrepreneur, Edsel Bryant Ford was a highly capable manager responsible for many of the best business decisions made by the Ford Company, where, in 1919, at the young age of 25, he succeeded Henry as president.

It seems that Edsel had the leadership chops to match those of his archrival Sloan across town at GM, at least when his mercurial father didn’t step in and second-guess him. Sadly, Edsel died in 1943 at the age of 49, and his octogenarian father returned to the company’s executive suite. It marked the beginning of a decades-long decline in the company’s fortunes during which several finance- and accounting-oriented executives, such as Robert McNamara and Red Poling, would wrestle with product- and manufacturing-oriented executives, such as Donald Petersen and Lee Iacocca, for control of the corporation. This proved beneficial mainly to GM and Japanese competitors, and only recently did that destructive internal competition cease under the stewardship of Henry’s great-grandson, Chairman William Clay Ford Jr., and the impressive leadership of industry outsider CEO Alan Mulally.

The Loose Cannon

Indeed, a major theme running through the hundred-year saga known as “Detroit” has been the nasty leadership battle between car guys, like Ford, and bean counters, like Raskob, to borrow labels from retired auto executive Bob Lutz. His fourth book, Icons and Idiots: Straight Talk on Leadership, is an olio of 11 mini-bios of leaders, most of whom were executives the author worked for during his six decades in the auto industry.

The Swiss-born, multilingual Lutz is an ex-Marine who labored near the top at Ford, Chrysler, BMW, and GM (twice), and was responsible for developing such iconic cars as the Jeep Grand Cherokee and Dodge Viper. While skewering the likes of legendary Lee Iacocca and hapless Rick Wagoner (CEO when GM required the recent bailout), Lutz does his best to remain evenhanded and find the best in the worst of the lot. But he is definitely on the side of car guys.

Lutz is particularly venomous with regard to such “bean counters” as the late Red Poling, Ford’s chairman and CEO in the early 1990s, who, while living “in a world of spreadsheets, [was] hopelessly removed from the unquantifiable reactions of the real world [and] cost the company millions of dollars in profit.” He also mocks Poling’s pathetically insecure predecessor, the late Philip Caldwell, who Lutz says kept photos of himself shaking hands with celebrities in an album titled “Important People Who Have Met Me.” In many ways, this book is a sequel to the comic and insightful On a Clear Day You Can See General Motors: John Z. DeLorean’s Look inside the Automotive Giant (Wright Enterprises, 1979), which was penned by J. Patrick Wright and is equally full of anecdotes about the risible behavior of Big Three leaders, behavior that has led to repeated auto industry fiascos.

What saves Icons and Idiots from being a mere collection of anecdotes is that, like DeLorean, Lutz is extremely knowledgeable about the industry and a keen observer of leadership. Mixed in among embarrassing tales of alcohol-fueled mishaps, juvenile pettiness, and gross incompetence are thoughtful insights about why some leaders succeed and others fail. Most of the failures Lutz cites are due to egomania, financial short-termism, a lack of customer focus, poor product quality, and, above all, overreliance on the numbers when common sense and flexibility would have saved the day.

Lutz never made it to the top anywhere he worked, although he had been the odds-on favorite to succeed Iacocca at Chrysler until the incumbent made it clear he favored “ABL” (Anybody But Lutz). Lutz owns up to why, despite his enviable record as a car guy, he was never chosen to lead a major auto company: “I was too ambitious, volatile, unpredictable, undiplomatic, emotional and way too prone to saying the wrong thing at the wrong time.” These are characteristics Lutz documents time and again in this amusing little volume, which ends, not inappropriately, with the Obama administration’s bailout of GM, where the nearly 80-year-old Lutz served as Rick Wagoner’s numero dos.

Ever the non-diplomat, Lutz can’t bring himself to mention the name of the bean counter brought in to head GM when, for all intents, it was nationalized in 2009. Although he is forced to admit GM was made profitable under the unnamed Ed Whitacre, Lutz’s parting shot is the claim that what actually saved the company was the new models that had been under his development when the storm hit Detroit.

In that regard, it is interesting to take a comparative look at Whitacre’s autobiography, American Turnaround: Reinventing AT&T and GM and the Way We Do Business in the USA (Business Plus, 2013), in which he offers his account of how GM was saved from bankruptcy. He claims one of his first moves was to ease octogenarian Lutz out the door: “You didn’t have to be a car expert to figure it out: The economy didn’t get GM. Mismanagement did.”

If Whitacre’s book weren’t so self-congratulatory and short on specifics, I might be inclined to write Lutz off as a has-been. But both Lutz and Whitacre are partially right. Detroit needs both car guys and bean counters. In fact, the general leadership lesson to be taken from these books is that all the skills needed to run a large corporation are seldom found in one individual. And that is why, from the Rust Belt to Silicon Valley, successful C-suites are home to robust mixes of executive talent. 

Author Profile:

  • James O’Toole is a senior fellow in business ethics at the University of Santa Clara’s Markkula Center for Applied Ethics. A longtime contributing editor to strategy+business, he blogs about strategy and leadership at strategy-business.com/James-OToole.
 
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