Ford Family – Passing Wealth Down The Generations
July 11, 2012 3 Comments
To pay for the New Deal, meant to pull America out of the Great Depression, FDR raised taxes in America.A per the new tax laws in 1935, taxes were raised to 50 percent on estates over $4 million and to 70 percent on those over $50 million.Henry Ford didn’t like the implications of these taxes for his business.You can read about his reasoning in these excerpts from newspapers of that time:
Ford reacted by leaving most of his vast wealth to the Ford Foundation and by arranging for his family to control the Ford Motor Company permanently.The Ford family set up the foundation with an initial US$25,000 gift from Edsel Ford.They then created two classes of company stock. A large block of non voting Class A stock – 3.3 million shares – was given to the foundation, and all the Class B stock - about 5 percent of the total shares – went to the family.The Class B stock came with voting privileges, allowing the family to maintain control of the company. About 58 percent of the Class B stock was owned by Henry and his wife, Clara, with the rest divided among Edsel’s wife, Eleanor, and their four children: Henry II, Benson, Josephine and William.Edsel Ford died in 1943, and Henry Ford died in 1947.”Had the foundation not taken most of the estate, it was estimated that Henry’s and Edsel’s heirs would have paid federal inheritance taxes of $321 million,” according to Ford: Decline and Rebirth by Allan Nevins and Frank Ernest Hill.
Next Henry Ford II took over the foundation and the company from his grandfather.As the foundation had received the bulk of Henry Ford’s estate, as well as an endowment from Edsel, it had a 95 percent (non-voting) stake in Ford Motor Company valued at almost $493 million. This guaranteed $25 million of dividends per year, making the Ford Foundation by far the richest charity in the US.At the time of its creation, the Ford Foundation’s mission was to give money “for scientific, educational and charitable purposes, all for the public welfare.” Under Henry II’s leadership, the foundation ran a study to determine how it should operate in the future. Instead of focusing on any particular field, which at the time was the traditional approach of most foundations, the study group recommended that the foundation become a national and international philanthropic institution that sought to address the world’s most pressing needs, wherever they might be.A recommendation,the foundation took seriously. In time, the foundation become known for its support of such causes as public broadcasting, the arts and humanities and the development of business, education and community in poor countries around the world. Until the establishment of the Bill and Melinda Gates Foundation in 2000, the Ford Foundation consistently ranked first among U.S. foundations for the most assets and the highest annual giving.For fiscal year 2011, it reported assets of US$10.0 billion and approved US$413 million in grants.The grants were made for projects that focus on reducing poverty and injustice; promoting democratic values; and advancing human knowledge, creativity and achievement.
When Henry Ford II took over,Ford Motor was struggling.It was losing some $9 million each year.So he decided to focus on restoring Ford Motor as one of the world’s great industrial powers.He took the company public to raise funds.However at the time all was not well on the Ford Foundation front.The foundation was plagued by politics.Henry Ford II grew so tired of it and quit as chairman in 1956 though he continued to act as a trustee until 1976. Quitting was “the worst mistake of my life,” according to Henry: A life of Henry Ford II.The Ford Foundation started acting independently of the Ford family since 1953 and by 1974 the foundation got rid of its last Ford Motor share . Author Walter Hayes wrote of Henry Ford II, “It taught him that he must never, under any circumstances, allow the family to lose control of the Ford Motor Co. as it had lost control of the foundation.
So even today the Ford family holds all the company’s Class B stock, along with a small number of the company’s 1.1 billion common shares.This is a way for the family to ensure they keep control of the company no matter how much stock they have to issue to avoid bankruptcy. Under rules designed to preserve family control and drafted when the company went public in 1956 ,at the time Henry Ford II, the family holds 40 percent of the voting power at the company as long as it continues to own at least 60.7 million shares of the Class B stock — even though the Class B shares make up only 6 percent of the company’s overall equity.If the family sells too many shares of its Class B stock, whether to pay estate taxes, cover personal expenses or simply participate in a stock buyback, then the family’s influence shrinks. If the family’s holdings fall to between 33.7 million and 60.7 million shares of Class B stock, the family wields only 30 percent of the voting power. And if the family’s holdings fall below 33.7 million shares then all special voting privileges are lost.When Class B shares are sold outside the family, they revert to common stock.Moreover if liquidated, each share of common stock will be entitled to the first $0.50 available for distributions to holders of common stock and Class B Stock, each share of Class B Stock will be entitled to the next $1.00 so available, each share of common stock will be entitled to the next $0.50 so available and each share of common and Class B Stock will be entitled to an equal amount thereafter.So the family seeks to guard itself in case of liquidation.Ford family members also put their share of stock distributions into a voting trust to strengthen the family’s position and Forbes reports that the Ford family seems to have an understanding in place that older members will transfer their shares to younger members by way of gift or sale and class B shares are always offered for sale to family members before the general public.
Despite their experience with the Ford Foundation the Ford family has not given up on philanthropy.Today the Ford family’s philanthropic ways continue through Ford Motor Co. The Ford Fund, a company-controlled and company-funded nonprofit organization, was established in 1949 and operated independent of the Ford Foundation.The Ford Fund supports education; the environment; public policy, health and social programs; civic affairs and community development; and arts and humanities.At the local level, the Ford Fund supports areas in which Ford Motor Co. does business. Volunteers run 41 community relations committees.