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Why Ford Had to Fire its North America Chief, and What it Means

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Ford Motor Company (NYSE: F) said late on Wednesday that Raj Nair, an executive vice president and chief of Ford's important North America business unit, has left the company after an internal investigation found that he had engaged in "inappropriate behavior."

Nair will be replaced by Kumar Galhotra, currently Ford's chief marketing officer and head of the Lincoln luxury brand.

This is a big deal. Nair is a talented engineer and executive who had been widely considered a potential future CEO of Ford. His ouster is a significant blow for the Blue Oval, but it's also a strong sign that Ford's CEO won't tolerate workplace harassment. That could pay benefits in time.

Raj Nair standing in front of a Ford GT sports car with his arms crossed.
Raj Nair standing in front of a Ford GT sports car with his arms crossed.

Gone: Raj Nair, a rising star who led Ford's important North American operation, was abruptly ousted on Wednesday for "inappropriate behavior," Ford said. Image source: Ford Motor Company.

It's clear enough what happened

In a statement, Ford said that Nair's departure followed "a recent internal investigation into reports of inappropriate behavior." Ford didn't give specifics, but it's clear that whatever happened, it wasn't trivial.

We made this decision after a thorough review and careful consideration. Ford is deeply committed to providing and nurturing a safe and respectful culture and we expect our leaders to fully uphold these values. -- CEO Jim Hackett

Ford also released this statement by Nair.

I sincerely regret that there have been instances where I have not exhibited leadership behaviors consistent with the principles that the Company and I have always espoused. I continue to have the utmost faith in the people of Ford Motor Company and wish them continued success in the future.

Automotive News reported that Ford opened its investigation after a tip was left on its 24-hour employee hotline. Nair had been placed on leave while the investigation, which involved a "small number" of incidents, was conducted.

As of this writing Thursday morning, no further details have come to light.

Kumar Galhotra standing next to a 2018 Lincoln Navigator SUV on Lincoln's stand at the 2017 New York International Auto Show.
Kumar Galhotra standing next to a 2018 Lincoln Navigator SUV on Lincoln's stand at the 2017 New York International Auto Show.

Nair's replacement is Kumar Galhotra, who led the revival of Ford's Lincoln luxury brand. Image source: Ford Motor Company.

Nair's abrupt departure prompts a management shuffle

Not surprisingly, following Nair's departure, Ford announced a series of management moves on Thursday morning.

  • As noted above, Galhotra will succeed Nair as president of Ford North America. Galhotra has led Lincoln since 2014 and became Ford's chief marketing officer last year.

  • Joy Falotico will replace Galhotra as chief marketing officer and president of the Lincoln brand. Falotico currently leads Ford Credit, the company's captive-financing arm.

  • David McClelland will take over as CEO of Ford Credit. He currently leads Ford Credit's marketing and has played a key role in its expansion in China.

  • Stuart Rowley will become Ford North America's chief operating officer, driving the revamp of its operations under Hackett's "fitness improvement" initiative. Rowley is currently Ford's vice president of strategy.

  • John Lawler will replace Rowley as vice president of strategy. He's currently Ford's controller.

  • Cathy O'Callaghan will replace Rowley as controller and also become CFO of Ford's Global Markets unit. She is currently CFO of Ford South America.

All of these changes are effective as of March 1.

What does all this mean for Ford investors?

It'll take time to see how all of these changes play out. But here are some early takeaways and questions.

First, Nair's departure is a big loss. Before becoming president of Ford North America, he was Ford's chief technology officer and leader of its global product-development efforts. In those roles, he was essentially Ford's chief engineer, leading the development of most of its current products as well as its future-tech initiatives. A lot of institutional knowledge and expertise went out the door with his departure.

That loss has a flip side. Hackett's decision to oust Nair, rather than opting for some lesser consequences, should have a positive effect on Ford's internal culture, and possibly on its recruiting efforts. It shows that Hackett is serious about "providing and nurturing a safe and respectful culture." It also lets folks inside Ford know that Ford will aggressively investigate credible allegations, and that it will take decisive action.

The third takeaway is that Ford still has a deep bench of executive talent. Galhotra has been a rising star for a few years now, largely responsible for the revamp (and growing worldwide sales) of Ford's long-neglected Lincoln brand. He moves now to one of Ford's biggest stages: Historically, several past leaders of Ford North America have moved on to higher roles, including CEO.

Falotico has shined as Ford Credit's leader, but she moves now to a very different role running Lincoln and Ford's global marketing efforts. Both roles are key (in different ways) to Hackett's ongoing effort to boost Ford's sagging margins.

It'll take a while to see how these changes play out. But for the moment, Nair's departure is a loss for Ford -- though it may turn out to be a win for Ford's culture.

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John Rosevear owns shares of Ford. The Motley Fool owns shares of and recommends Ford. The Motley Fool has a disclosure policy.