Ford reverses Scheele ad deal
Wednesday, March 12, 2003
By Mark Truby and Bill Vlasic / The Detroit News
Internal probe forces automaker to rescind president's order for exclusive contract
By Mark Truby and Bill Vlasic / The Detroit News
DEARBORN -- Ford Motor Co. on Tuesday overturned an order by President Nick Scheele to consolidate the company's multibillion-dollar advertising business with London-based WPP Group.
The abrupt decision culminates a monthlong internal investigation into whether Scheele, Ford's No. 2 executive, improperly steered business to WPP Group, one of the world's largest advertising and marketing conglomerates. The Detroit News first reported the investigation Monday.
"The deal with WPP is off," said Jim Bright, Ford's spokesman. "We have rescinded the decision."
The move -- coming two days before Ford's board of directors is scheduled to hold a regular meeting in Dearborn -- is a significant blow to Scheele. He has received high marks for his leadership since becoming Ford's president and chief operating officer in October 2001, but some analysts question whether Scheele's future at the automaker is secure.
By rescinding his decision, Ford is essentially acknowledging that Scheele made a mistake in naming WPP as Ford's single source for advertising.
Ford said a team of marketing, purchasing and finance executives will determine how Ford, one of the world's largest advertisers, will conduct future business with WPP Group.
The inquiry sought to determine whether Scheele's directive to Ford marketing and sales executives on Feb. 4 violated company purchasing policies regarding awarding business to one exclusive company.
Ford also scrutinized Scheele's personal relationship with WPP chief Sir Martin Sorrell and the fact that Scheele's son, James, was the recipient of a prestigious three-year WPP fellowship.
The issues come as corporate America is under increased scrutiny for conflicts of interest, ethics violations and overly cozy relationships.
Ford Chairman and CEO Bill Ford Jr. recently came under fire for profiting from the purchase of shares in the initial public offering of Goldman Sachs Group Inc., which has provided Ford with lucrative investment banking services for years. Some Ford shareholders threatened to sue to recover Bill Ford's profits on behalf of the company.
Following a board review, Bill Ford, who said the purchase was a private transaction, recently sold the shares and donated the profits to charity.
Some believe the controversy surrounding the scuttled WPP deal also has laid bare a power struggle between Scheele, 59, and Ford executive vice president David Thursfield.
Thursfield, who has been mentioned as a possible successor to Scheele, is the company's chief cost-cutter and heads global purchasing and international operations.
It was a small group of purchasing and human resources executives that first objected to Scheele's directive, people familiar with the matter said.
Ford spokesman Bright denied there is a rift, saying that "there have been times when (Scheele and Thursfield) have been in disagreement," but they now appear to be "aligned and in sync on most issues."
For Ford, the controversy could not have come at a worse time, with the automaker posting losses of $6.4 billion in the past two years and struggling to restore profits, improve quality, stabilize management and restore employee morale.
"Distractions like this are not good for the company," said Stephen Girsky, an analyst with Morgan Stanley. "Things like this leave people less confident in Ford's revitalization plan."
Ford is WPP's largest client, accounting for $1.5 billion of its estimated $75 billion worth of billings. WPP agencies already handle some 80 percent of Ford's global advertising budget.
The company's J. Walter Thompson division oversees the Ford division's account in the United States. Its Young & Rubicam unit handles advertising for Lincoln and Mercury brands. WPP agencies also handle Ford's Jaguar and Land Rover units, but not its Volvo and Mazda brands.
Part of Ford's internal inquiry focused on Scheele's son, who received a coveted paid fellowship from WPP in 2000.
A graduate of Northwestern University with a degree in history, James Scheele was awarded a three-year WPP marketing fellowship and currently is assigned to the ad conglomerate's Young & Rubicam unit in New York.
James Scheele is one of about 50 people worldwide in the program that grooms post-graduates for careers at WPP, a Ford official said Tuesday.
More than 1,000 applicants compete annually for a spot in the program, which in some years accepts fewer than 10 people.
"The marketing area is the most competitive industry in Europe for fellowships," said Roly Allen of the Graduate Group, the biggest publisher of corporate recruitment magazines in the United Kingdon. "The WPP program is extremely competitive."
Ford investigators interviewed people at both Ford and WPP about the circumstances of James Scheele's acceptance into the program.
While Ford stopped short of saying James Scheele's fellowship presented a conflict for his father, senior Ford executives worried that it could be perceived as such, according to people close to the situation.
In a letter to employees Monday, Scheele didn't directly address the controversy.
"My key objectives remain the interests of the Ford Motor Co. and achievement of our Revitalization Plan targets," he said.
Investors and analysts worry the WPP matter has become another costly distraction for Ford's management team.
"This is garnering massive attention because of today's atmosphere," said Scott Hill, an auto analyst with Sanford C. Bernstein in New York. "It's a heightened issue for Ford because they have had a lot of management turmoil and the company is struggling."
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My next Ford.....