In 2016, the Museum of American Finance began a research project to investigate what happened to the firms of this historic syndicate. Starting with the 205 firms listed on the Ford Motor Company IPO tombstone, the project reconstructs a genealogy of each bank focusing on its origin and demise. Given that the majority of the syndicate participants were private partnerships, consistent comparative financial data is difficult to obtain, but other characteristics of the community can be analyzed from existing sources.
For instance, the project studies the social origins of the founders, when the family of the founders ceased to be members of the firm, when the firm became a corporation and / or went public, as well as when and why it disappeared. Aggregated, the individual narratives form an empirical dataset from which one can analyze certain overarching patterns regarding the consolidation and change in the American banking community in the 20th century.
In forthcoming issues of Financial History, we will present the genealogies of specific firms and the larger findings, but first, we revisit the history of the IPO itself. How did it come about and why did it happen when it did? Who were the main actors involved in the deal, and how did they come together? Why, for example, was San Francisco bank Blyth & Co. the manager of the syndicate, even though Goldman Sachs was the dealmaker? These are the questions to which we now turn.
The Ford Motor Company Initial Public Offering( 1956)
In 1932, during the Great Depression, Congress passed the Revenue Act, which dramatically increased tax rates. Estate tax rates rose to 45 % and exempt amounts were also reduced. In 1934, through an amendment proposed by Senator Robert La Follette( WI), Congress increased the estate tax again. For net estates more than $ 10 million, the tax levy became 60 %. Lest wealthy individuals try to evade the tax, Congress also assessed high taxes on gifts. By 1935, the exemption for estate tax was cut again, and the top rate increased to 70 %.
Knowing that their deaths would lead to substantial taxes, Henry Ford( 1863 – 1947) and his only son, Edsel( 1893 – 1943), created the Ford Foundation in 1936, endowing it with almost 90 % of the Ford Motor Company’ s stock, or 3,089,908 shares of non-voting“ A” stock. Voting rights resided“ solely in 172,645 outstanding shares of“ B” stock, all of which [ were ] owned by members of the Ford family and their interests.”
Though the Ford Foundation was technically a philanthropic endeavor, the Fords also used it to safeguard family control of the Ford Motor Company. According to Dwight Macdonald, author of Ford Foundation: The Men and the Millions,“ If Edsel and Henry Ford had left their Ford stock to Edsel’ s children instead of to the Ford Foundation, their heirs would have had to sell most of the shares they had inherited in order to pay the inheritance tax.” Until the Revenue Act of 1950, the profits that went to the foundation were also tax-free.
When Edsel Ford died of stomach cancer in 1943 at the age of 49, his oldest son, Henry Ford II( 1917 – 1987), inherited his position on the board of trustees of the Foundation. After a brief struggle over the leadership of the Ford Motor Company, Henry II also assumed presidency of the company in 1945. Two years later, Henry Ford passed away, and his remaining shares of Ford Motor Company stock were allocated to his family( voting) and to the Ford Foundation( non-voting). By that time, the Foundation’ s endowment was substantial, but its income was limited to the dividends from the Ford Motor Company’ s stock.
The Foundation was also never entirely sure if the dividends would deviate from expectations, which affected their ability to make grant promises and plan program activities. Wanting to access the principal of its capital, the Foundation decided to sell one-third of its company stock in 1954.
At that time, Ford Foundation’ s president was H. Rowan Gaither, Jr.( 1909 – 1961). Born in Mississippi, Gaither grew up in Portland and San Francisco, where his father had been a bank examiner and a founder of a small regional bank called the Pacific National Bank. He attended the University of California as an undergraduate and law student. After practicing law in San Francisco, he worked for the Massachusetts Institute of Technology’ s Radiation Laboratory( 1942 – 1945).
In 1948, Gaither became chairman of the Rand Corporation, a private organization created during World War II to further the research and development of military planning. While at Rand, he was introduced to Henry Ford II by Karl Compton, president of MIT, who was a trustee of the Ford Foundation. In 1948, Ford II asked him to lead an investigation on what the Foundation should do with its inheritance. In 1953, Ford II tapped Gaither to become president of the Ford Foundation, and by 1954, the Foundation began to investigate the possibilities of a stock sale.
A major issue with the sale had to do with voting rights. Gaither and the foundation felt that the stock could not be sold without voting rights, and so did the New York Stock Exchange. Without exclusivity, however, the family risked losing control over the company, so a compromise had to be made. In 1954, the finance committee of the foundation’ s board of trustees met almost 20 times to study how to sell the stock and determine how much the family would be compensated for giving up its exclusive rights.
At the time, the members of the finance committee included Gaither; James F. Brownlee, a partner in J. H. Whitney & Co.( a private bank founded by Whitney heir, Jock H. Whitney); John J. McCloy, former Assistant Secretary of War and chairman of Chase Manhattan Bank; and Charles Edward Wilson, former chairman of General Electric( GE) and chairman of W. R. Grace & Co.— a multi-national shipping and industrial manufacturer— who acted as chairman of the committee.
The son of a Protestant-Irish bookbinder, Charles Edward Wilson( 1886 – 1972) was born in New York City and raised by his widowed mother. At the age of 12, he began working as an office boy at the Sprague Electrical Works, which became a subsidiary of GE in 1903. He became president of GE in 1939. Wilson’ s
www. MoAF. org | Fall 2017 | FINANCIAL HISTORY 13