When finding the right CEO is Job #1

Big iconic corporations often struggle in times of terrible business stress with the need to quickly find a great new CEO. Choosing the right approach and being prepared to implement it is one of the most important responsibilities that the board of a public company can have. How Ford landed Alan Mulally is a case in point.

The scenarios that catalyze the need to find a new CEO are always different, but the urgency is nearly always the same. The new leader usually has to pick up quickly from where the last one left off and take the business forward without loss of momentum. That was the case when AT&T’s new CEO, James E. Olson, suddenly died of cancer in 1988 amidst the company’s emergence as a scrappy competitor following its massive breakup. AT&T had to rebuild as a new entity and fight the likes of pugnacious MCI — and Robert E. Allen, then the president and chief operating officer, kept the mission going as Olson’s successor.

Sometimes the stakes are epic, and the new CEO may have to take the business through a crushing crisis and turnaround, lest it vaporize à la Enron. Tyco and WorldCom instantly come to mind as those that avoided the euthanizing gas after finding outstanding CEOs in Edward D. Breen and Michael D. Capellas, respectively. Breen especially has driven a transformation that MBA students will learn from for years to come.

Could Ford Motor Company find such a leader? That was the challenge posed to its board several years ago, and today most would say that it rose to the occasion in finding Alan Mulally. Ford was in decline and facing irrelevance just as the global economy was about to collapse and take major companies with it. How out of all the great CEOs out there was Mulally picked? How did Ford’s board know — indeed, a direct descendant of Henry Ford among them! — that this person would be the right choice?

It is the very question that boards and CEO search committees are faced with every day. The question becomes monumentally critical when a search must be conducted in haste and under tremendous stress.

Some of the best companies have conditioned themselves methodically to avoid the last-minute succession crisis and mint their CEOs. These businesses have set up outstanding executive development programs, aimed at spotting great talent when it enters the company, and which enable these future leaders to rise with regularity and with the kind of broadening competencies that define a superb CEO. Think of the leaders that came from Jack Welch’s game plan and education programs at GE, or Ivan G. Seidenberg’s personal attention to executive development and advancement at Verizon. Seidenberg’s Verizon has become a focused, determined risk taker in the past decade, throwing off its staid Bell ways to become the communication industry’s most ferocious competitor. Verizon today can boast about having the closest team to the 1927 New York Yankees in all of telecom.

Other companies aren’t so prepared or prescient as to have the CEO solution readily available in-house. Whether struggling with a devastating economy or rocked by scandal, these companies sometimes find themselves having to scramble to find a new leader from the outside. Such were the situations at Tyco and WorldCom.

When faced with having to go external, the CEO recruitment can take several forms. The most common way is to seek the help of a trusted third party, such as an executive search firm. A qualified recruiter-advisor can provide assurance that the final decision is the right one through independent investigation, assessment and external referencing.

In the case of Ford, the search process was somewhat unique and hybrid — pardon the pun in these green car days. Ford’s process largely involved key directors and an encouraging chairman — and, toward the end, an outside search advisor to conduct referencing on the finalist candidate.

Ford’s recruitment of Alan Mulally is a textbook case of world-class collaboration by seasoned directors, all former CEOs, spearheaded by a passionate governance expert and board leader, Irvine O. Hockaday Jr., as well as a powerful, determined chairman, William Clay Ford Jr.

It was Bill Ford’s die-in-the-ditch commitment to rescuing his company as well as his family legacy that especially and courageously saved the day for Ford and ensured it a prosperous future under a new CEO.

Dire Straits

The Ford search story takes place in 2006. The road was becoming increasingly treacherous for the American auto industry. Ford’s two biggest competitors, GM and Chrysler, were staring at potential bankruptcy, which would end up occurring two years later. Bill Ford had informally tried to reboot things on his own, even sounding out other auto leaders to take Ford’s reins, including reportedly Renault-Nissan’s fabled leader Carlos Ghosn.

There was no way Bill Ford, or his directors led by Hockaday, would allow Ford to run aground, let alone go bankrupt. Bill Ford decided to tough it out, with an eye toward getting the company’s finances sorted out and finding a new CEO. The board was in full agreement.

Ford’s search had to be conducted quickly. The most storied American automaker couldn’t afford any hiccups during this extraordinary time in American economic history. In identifying and hiring a new CEO, Hockaday and his directors would have to hit the bull’s eye on the first shot.

Fortunately for Ford, it had exceptional firepower on its board. There was Hockaday, one of the most seasoned senior executives and governance veterans in corporate America. The former CEO who had built Hallmark into a major consumer brand and multimedia powerhouse, Hockaday also is lead director at Estée Lauder and until recently was the lead director at Sprint Nextel. He is characteristically modest about his own contribution to bringing Mulally to Ford, and points out that his search committee partners included John L. Thornton, former president and co-COO of the Goldman Sachs Group, and Jorma Ollila, the chairman and former CEO of Finnish cellphone giant Nokia.

The Ford board met in extraordinary session to discuss the CEO project. They hashed out the issues at Ford as well as the macroeconomic forces that were buffeting the industry. There was Ford’s high cost structure, its balance sheet challenges, and its distractions from numerous acquisitions, including Jaguar and Volvo (pushed by erstwhile Ford CEO Jacques Nasser). There were Ford’s ongoing union and pension cost challenges. There was the threat from formidable players such as Volkswagen Group, the Japan Inc. contingent, and from lower-cost rivals such as Korea’s Hyundai, which was surging spectacularly.

Indeed, running Ford would require a samurai of tremendous ability and stamina and who also had a global view of the world and its challenges. The directors drew up a spec: The ideal candidate would be a CEO-ready leader who was world-class in terms of his/her life and career experience. Furthermore, the candidate would have to be well-grounded in complex manufacturing design and operations and highly conversant in technology and its importance in sophisticated equipment and products, such as today’s vehicles and those contemplated for the future, including electric vehicles and hybrids.

Finally, the leader would have to be a confident, passionate and indefatigable manager. Someone who is tough, focused, and able to handle ambiguity and any major challenge the world could throw at Ford, including one as formidable as what was soon to become the worst economic meltdown since the Great Depression. Ford’s turnaround would require a versatile athlete who could sprint and run the long-distance race as well.

That was the spec, in any event. Then it was up to the Ford directors to go out and find a match or as near a match as possible.

The directors drew a deep breath and looked around at one another. This was going to be a tall order. No one manager could have all of this, but it would be great to find one who had most of it. Should they hire a search firm?

In fact, the board had discussed hiring a search firm to be its full partner in the project and to conduct a search, but this idea was put aside at least temporarily when Bill Ford commented that he had some of the world’s great CEOs sitting around his boardroom table. In addition to Hockaday, Thornton and Ollila, there was Thornton’s former colleague, Robert Rubin, who had been treasury secretary in the Clinton Administration and is a former chairman of Goldman and a Citigroup director. (Ollila and Rubin have since left the Ford board.)

“Bill Ford said, ‘You guys must have the best rolodexes on the planet; you should be able to get anyone to come to the phone. Why not talk among yourselves first and come up with some ideas,’ ” recalled Hockaday. “So that’s exactly what we did.”

The board quickly agreed on a search strategy and formed a special committee to find the new CEO. The search would be confidential and contained within the walls of Ford for as long as possible, and it would have to be done very quickly.

‘How About Alan?’

As Bill Ford had suggested, the directors discussed a few people who were familiar to them. Then one of the directors — probably Thornton, according to Hockaday — said, “How about Alan Mulally of Boeing?”

Alan Roger Mulally at first wouldn’t have occurred to everyone as a realistic candidate to run Ford. Schooled in aeronautical engineering and possessing a master’s degree in management as a Sloan fellow from MIT’s Sloan School, Mulally made airplanes. He had never worked in the auto industry. Nor had he ever been a CEO of a public company. He was CEO of Boeing’s highest-profile business, Boeing Commercial Airplanes, and by most accounts should have been given a shot at the top job of the overall company.

Yet incredibly, after a stellar career of devotion to Boeing in which he produced fabulous, almost legendary, operating results, Mulally had been passed over not once but twice for the top job — first in 2003 when Phil Condit was forced out and again in 2005 when Harry Stonecipher also was forced out. Somehow, Mulally, who had never dropped the ball and in fact had kept Boeing in the lead against increasing odds, didn’t cut the mustard for CEO, according to Boeing’s board. (Very similarly, Motorola hadn’t rewarded Ed Breen’s efforts with the CEO title, which made him eminently available to take on Tyco, a role that will forever brand him as one of the great CEOs for his fabled transformation of the scandalized giant.

Fortunately for Ford, Hockaday and his fellow directors were better informed about the true hero of Boeing’s results than apparently Boeing’s own board. The Ford directors saw the record — Aviation Week, the industry’s bible, had named Mulally Individual of the Year. The Ford directors quickly seized on their knight, one who possessed most if not all of the qualities Ford was seeking in its next CEO. Indeed this was the guy who awoke every morning with a dual mission — build the best commercial aircraft in the world and kill Airbus! Maybe he could refocus his energies on doing the same to Ford’s rivals.

An Idealistic Doer

Mulally was succeeding despite incredible odds and tough market and economic forces. He had been largely credited with putting processes into Boeing that kept it on top of the quality game in commercial aviation. As an engineering and operations leader, he had helped to shepherd such famous planes as the humped-top superstar of jumbo jets, the Boeing 747, workhorses like the 727 and 737, and the newer jets from the 757 through the 777. Mulally was passionate, he drove hard on the job, and he was more demanding of himself than he was of his managers. He led by example. People who had worked with Mulally knew who was in charge. They found in him an earnest, idealistic doer, who delivered what he promised and who was reverential about quality, teamwork and practicality.

The more they thought about it, the more excited they became about Mulally. Hadn’t Mulally beaten back the major threat from Airbus — a company supported by the combined national wills and financial sponsorship of two of Europe’s most powerful economies, Germany and France? Talk about global know-how and leadership! Hadn’t Mulally focused intensely on innovation and technology and improved production quality and service? Hadn’t his personal, tireless involvement and sense of mission returned Boeing to top form globally?

Mulally even looked the part to run the most symbolic American car company. He dressed for battle earnestly, wearing the simple uniform of a driven, purposeful general manager — natural shoulder dark suit, crisp button-down shirt, conservative tie, reddish gray crewcut. He hit the office every day at 5 in the morning and put in at least a dozen hours before making it home to the family for dinner. He seemed totally at peace with his style of leadership, eminently comfortable in his own skin. The kind of hero John Wayne used to project.

In many ways Mulally was a throwback to the innocent, more confident days of an America of endless possibilities, where anyone with ambition could rise and be successful. Born in Oakland, Calif., he looked more American and fresh-faced than even that 1950s TV icon, little Opie Taylor of Mayberry. Mulally looked like and had become what many of us probably imagined the clever son of fictional Mayberry’s sheriff would turn out to be.

“Hmmmm,” thought Hockaday and his fellow directors on the committee. “Alan Mulally.”

The Ford directors had been under intense pressure — they weren’t just finding a leader for a big multinational corporation. They were searching for the CEO of the company founded by Henry Ford and headed by his great-grandson, who counted none other than the late tire magnate Harvey Firestone as his other great-grandfather. As a Hollywood producer might put it, the Ford legacy was huge. Ford was a business that helped lead America into the Industrial Age and made the United States a world power. Ford had invented assembly-line manufacturing, an absolutely essential factor in making America prosperous as a mass producer and able to supply the materiel that helped win two world wars.

Hockaday and his fellow directors were nothing less than the guarantors of the famous name on the blue oval — a brand that had fired the imaginations of millions, moving beyond its cookie-cutter Model T heritage to produce sleek transportation for the ages: long, beautiful Lincolns, iconic masterpieces such as the Mustang for which the term “pony car” was coined, the Thunderbird, and the impossibly fast Ford GT40 race car, which all but buried Ferrari and Porsche four years in a row in the 24-hour marathons at LeMans in the 1960’s.

Ingredients for the Future

Hockaday and the committee were convinced that their company needed Mulally-style passion, work ethic, sense of destiny, and tough team coaching to save the business and return it to glory.

Bill Ford felt so, too. Ford told Hockaday that the company and the family legacy meant so much to him that if the candidate made the additional title of chairman an absolute requirement for taking the job, “he would step out of the role immediately to make it happen,” Hockaday said. “Just imagine Bill Ford offering that. How many CEOs today would have such guts. It took courage for Bill. But he felt all along that the company was more important than him or his pride. I felt at that moment such personal pride to be working with Bill Ford as the chairman and to be on that board.”

It was decided that Mulally was the primary target and that Hockaday and fellow director John Thornton would approach the Boeing executive. But first they had to come up with a plan for reaching out and gauging Mulally’s potential interest. “I knew Gordon Bethune [the former chairman and CEO of Continental Airlines], from the Sprint board,” Hockaday noted. “I figured Gordon must know Alan pretty well since as chairman of Continental he was a customer of Alan’s, and sure enough, Gordon did know him. So that’s how we got to Alan.”

It didn’t turn out to be a protracted negotiation, but the recruitment had its moments. Hockaday and Thornton found an intrigued candidate in Mulally. The Boeing leader had been watching Ford and found the company’s challenge compelling and the CEO role enticing, recalled Hockaday. At one point in the discussion, Hockaday and Thornton told Mulally that if the additional title of chairman was important, they would gladly consider it to make a deal happen. They told Mulally that Bill Ford himself had told them that he would step aside and give up the title to make it happen.

Mulally was impressed by Bill Ford’s selfless offer, but ever practical, he wouldn’t hear of it. “Alan dismissed it out of hand,” Hockaday recalled. “He said he respected Bill’s offer and the reasons behind it, but would consider accepting the Ford CEO position only if we would guarantee upfront that Bill Ford would remain as chairman. Alan said, ‘Look, that is very thoughtful of Bill, but I need him. There will be a lot to get done at Ford, and I want his experience and knowledge of the business right by my side.’ ”

Mulally had been with Boeing 37 years, and he and his wife, Nicki, had made a nice life in Seattle. But the importance of the challenge made the move to Ford irresistible to Mulally in the end, as did his personal belief in a green future and the major role that Ford had played in the development of transportation employing alternative energy.

Loose Ends

Still, there were some loose ends to tie up. These included Mulally’s start date and exit plan from Boeing, as well as his new compensation at Ford, tied of course mostly to improved company performance. For validation of its selection, Hockaday’s committee used a CEO recruiter to conduct final referencing, which confirmed that their decision to make Mulally Ford’s new boss was indeed the right one. (The recruiter, Dennis Carey, is co-author of this article.)

Today, Mulally’s Ford 2.0 is a remarkable reboot. Enabled by a devoted board and encouraged by a determined chairman, Mulally is executing a winning and focused strategic plan. From the start, Mulally grabbed the wheel, providing classic lessons in how to take charge and implement change. He moved his and Nicki’s home with unbridled enthusiasm to within a few minutes of Ford’s headquarters in Dearborn, Mich. He has managed Ford with the cold-eyed discipline and precision of a skilled surgeon. His guidance of Ford is marked by weekly reviews of the business with his managers. True to form, Mulally, now 65, still works a 12-hour day, arriving at the office without fail at 5:15 a.m. And he has done this mostly seven days a week since joining Ford.

This CEO’s sleeves are rolled up. By most accounts, the team is inspired by his zest for the role, and they have been re-energized by Mulally as winners. Mulally refocused Ford on the blue oval brand and quality. He took on a $24 billion loan that benefited Ford by enabling the company to finance a beautifully refreshed product line, by engaging better with its dealers (whom Mulally insists on treating as full partners), and by keeping Ford’s green strategy on track with a highly competitive line of hybrid vehicles.

Ford lately has surpassed GM as the No. 1 U.S. automaker. GM and Chrysler ended up declaring bankruptcy when the global economy nose-dived two years after Mulally took the helm at Ford. His U.S. rivals took government funds to lubricate their turnaround efforts. Not Ford. Mulally brushed off a government infusion, choosing instead to manage Ford out of its mess the old-fashioned way: through a combination of hard work, good strategy and intense financial discipline.

Given Ford’s turnaround, it is amusing to recall the skepticism that greeted Mulally’s hiring. Could a guy who had never run a car company or even worked in the auto industry ever be able to handle the complexity of Ford and its business?

“An automobile has about 10,000 moving parts [while] an airplane has two million,” replied the new Ford boss and former Boeing engineer. “And it has to stay up in the air.”

It was an engineer’s rational response and Alan Mulally’s typically polite way of saying, “Of course.” His directors at Ford couldn’t have said it better. “Just look at the results,” said Hockaday.

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John J. Keller is a senior partner and recruiter of CEOs and board directors for Korn/Ferry International and a former senior editor and writer of The Wall Street Journal.

Dennis Carey is vice chairman of Korn/Ferry International and specializes in the recruitment of CEOs and corporate directors. While at another firm, Carey was involved in the search described in this article. He is lead author of “CEO Succession: A Window on How Boards Can Get It Right When Choosing a New Chief Executive” (Oxford University Press).