Family Affairs at Two North American Supplier Giants Could Spell Trouble

The family ownership rampant among mid-sized German suppliers is sometimes seen as a liability compared to North America's bottom line-obsessed car parts makers. But last week, two of North America's biggest suppliers -- Lear and Magna -- looked more like fickle family enterprises than the publicly traded automotive giants they are.

From supplierbusiness.com

LONDON — The family ownership rampant among mid-sized German suppliers is sometimes seen as a liability compared to North America’s bottom line-obsessed car parts makers. But last week, two of North America’s biggest suppliers — Lear and Magna — looked more like fickle family enterprises than the publicly traded automotive giants they are.

Belinda Stronach resigned as CEO of Magna International, the company her father founded, to seek the leadership of the Conservative party in Canada. Many assume that 71-year-old Frank Stronach pushed his daughter into the public arena, in the process robbing the company of its CEO.

Meanwhile, apparently widespread nepotism was uncovered at Lear Corp., touching off a U.S. Securities and Exchange Commission (SEC) inquiry.

Yet automotive suppliers are usually among the least scandal-plagued of businesses. And the family-first attitudes at Magna and Lear may mean little to their OEM customers. In fact, the change at the top of Magna may be a healthy one.

Frank Stronach, Magna’s chairman and controlling shareholder, will take over as the company’s president for the time being. The permanent successor is likely to be Siegfried Wolf, an executive vice chairman and head of Magna’s European operations. Most analysts expect Magna to get along nicely without Belinda. Her role as chief executive was a limited one. Indeed, government relations were a key part of her responsibilities. Operations were not.

Magna was built on the philosophy of autonomous operations. And government relations have always been a high priority. Three former premiers of the province of Ontario, a former Canadian industry minister and a former chancellor of Austria – Frank Stronach’s homeland – are directors of the parent company and its subsidiaries.

The resignation of Belinda Stronach addresses shareholder concerns about her growing involvement in politics and her ability to successfully combine that with managing the world’s seventh largest supplier.

Her resignation and succession may not make any practical difference to the operation of the company. But it will reassure investors that their interests as owners are being put first.

Along with running a focused operation, good corporate governance is a matter of being seen to do the right thing. But for the moment things don’t look so good at Lear.

The SEC launched an informal inquiry into Lear’s practices after the company disclosed that it employed or did business with several relatives of senior executives.

The investigation, which Lear acknowledged, centers on its 2002 amendment of a 2001 securities filing. The amended Form 10-K shows that 14 people who worked for or with Lear are related to senior executives.

Still, the automotive industry has largely been free from major corporate scandal — probably a beneficial side effect of the balance of power.

Buyers wield huge power in an industry so fiercely competitive. They can force suppliers to open their books and justify item-by-item their expenses and the way they run their businesses. There are fewer opportunities for making or hiding unwarranted gains.

The power of the vehicle makers even goes so far as to influence the ownership of suppliers. New owners frequently inform major customers of their intentions, and the OEMs make their wishes known in the selection process.

The industry is a hard one, sometimes even unfair. But it is cleaner than many.

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