A profile of Ernest R. Breech: pioneer financial executive and chairman of the board of Ford Motor Company.
Ernest R. Breech (1897-1978), a pioneer financial executive and CPA, was as well known in his day as many Hollywood celebrities today. Although accountants have risen to leadership positions in many companies, few have been successful in as many major corporations as Breech. He enjoyed a career in the limelight--a career that led to him becoming known as the preeminent financial problem solver and troubleshooter for companies that needed to be revitalized. He was an intellectual catalyst who applied the lessons of accounting to modern industry.
Breech was born the son of a blacksmith on February 24, 1897, in rural Lebanon, Missouri. As a young man, he was a star athlete in baseball, basketball, and football. Although the American League's St. Louis Browns offered him a professional baseball contract, Breech declined (J. Mel Hickerson, Ernie Breech: The Story of His Remarkable Career at General Motors, Ford, and TWA, Meredith Press, 1968). He graduated high school in 1914 and attended Drury College, but he did not complete a degree.
In 1917, Breech moved to Chicago and started working as a bookkeeper for Fairbanks, Morse and Company. He also began taking correspondence courses in accounting from the Walton School of Commerce; this background enabled him to pass the CPA examination in 1921, achieving the highest score in Illinois and winning a gold medal. He would call this his greatest professional achievement: "That was my first success. I think that was probably the happiest day of my life, business-wise. I took the exam against boys who had gone to the universities" [Obituary, 1978], He next joined Yellow Cab in 1923, which launched his career at GM.
The GM Years
One of Breech's first duties at Yellow Cab was to install a new costing system, modeled after the system used by GM. When Yellow Cab and the GM Truck Division began merger discussions in 1925, Breech was sent to Pontiac, Michigan, to audit GM's books. Breech shone in this role and was appointed to the board of the new GM subsidiary after the merger. He remained the controller at Yellow Cab, but he was identified as a rising star at the much larger parent company.
Breech's development would be accelerated in these years by working for Donaldson Brown, the financial vice president at GM who was already a legend in financial management circles. Brown had invented the DuPont financial analysis (return-on-investment) formula and had developed flexible budgeting, a dealer reporting system, and other innovations. Breech was promoted to GM's assistant treasurer in 1929. At age 32, he was responsible for all of the accounting and finances, and he reported to the vice president of finance at the largest automobile and manufacturing company in the world.
Breech learned much from Brown, but the education moved in both directions. As Breech tells it, he and Brown disagreed in 1931 over whether GM should pull half of its cash out of the United Kingdom and hedge the remainder, because Breech feared the country would devalue the British pound. Brown discouraged Breech from making such a move, but Breech did it anyway. A week later, Britain devalued the pound. (Hickerson 1968, pp. 67-69)
North American Aviation and Bendix
In late 1932, at the urging of World War I flying ace Eddie Rickenbacker, Breech proposed that GM's General Aviation division merge with North American Aviation. GM had gotten into the aviation business in the 1920s under the mistaken opinion that people would begin buying personal airplanes and housing them in their backyards and garages, and that the automobile business would dwindle. The company's strategy was to manufacture those personal airplanes when the automobile market declined. After the merger's consummation, Breech became chairman and president of North American Aviation. By the early 1940s, North American had over 100.000 manufacturing employees. When Breech left North American's presidency in 1934 to return to the parent GM, he remained the chairman of the board. When he returned to GM, he became an executive in charge of the household appliance divisions (including Frigidaire) and the aviation affiliates.
GM had purchased a large interest in Bendix Aviation Corporation (later Bendix Corporation) in 1928. By 1937, the Bendix division was losing money at a startling rate. As a result, GM Chairman and CEO Alfred P. Sloan asked Breech to join the Bendix board. Bendix had 15 plants, but Breech quickly identified that most of the losses came from one plant in South Bend, Indiana. Breech reduced the staff by 3,000 workers. In justifying his need to eliminate jobs, he voiced his business credo: "If you do not have good financial analysis and cost control, your company is not going to do well, even though you may have good engineering and good manufacturing" (Hickerson 1968, pp. 113-114). The cutting of payroll and the installation of internal controls resulted in Bendix earning more than $5 million in 1939.
Breech was essentially running Bendix in 1941, despite the fact that Vincent Bendix remained the company's president. In addition, Breech also ran Frigidaire, Delco Appliances, and North American Aviation, and he served on GM's administrative committee. In February 1942, Breech was elected president of Bendix. The selection of an accountant as president soon proved fortuitous. In April 1942, Breech was called before a Congressional committee to defend accusations that Bendix had been a war profiteer. He explained the company's cost accounting records to Congress and showed that the average profit on nearly 200 contracts had been about 5% and that Bendix had lost money on many contracts. The accusations were dropped. A magazine quotation accompanying an article in Aero Digest noted the following:
Trained in accountancy, he brought order into the dizzily expanding Bendix organization, establishing down-to-earth systems of control over inventories, payrolls and other strategic items. Under his management, the company's widespread facilities have been producing a smooth flow of vital war materials. (Ernest R. Breech, "Looking Ahead in the Biggest Industry in America," Jun. 1, 1944, pp. 76-770)
Breech obviously did something right at Bendix. When he joined the board in 1937, the company had sales under $30 million and no profits. Over the next eight years, during an expansion driven by the global demands for aviation during World War 0, the company's profits cumulatively totaled greater than $320 million on more than $3.2 billion in sales.
The Move to Ford
In mid-1946, Breech resigned from Bendix to join Ford Motor Company as executive vice president, working under Henry Ford II. The automaker, facing bankruptcy as World War II ended, was burdened by a costing system that called for accumulating costs and dividing by units produced--a process left over from the days when one type of car (the Model T) was produced. Ford now also engineered trucks, steel, glass, and more; however, there was no breakdown of costs that would indicate which aspect of the business was doing badly. The lack of a costing system represented only one of the problems; another was that the company had never had an audit.
Breech had known Henry Ford II because the automaker had been a customer of Bendix. When Ford offered Breech the job, he declined at first, but offered to give advice to the young namesake. While providing this advice, he eventually became intrigued, because it was obvious the company needed serious help. For Breech, the challenge "was almost intoxicating" (David Halberstam, The Reckoning, William Morrow and Company Inc., 1986).
He began by decentralizing operations. Unlike GM, Ford had always had a centralized management structure. Breech also implemented a new cost system, with standards based on long-term average production--a system similar to that in place at GM. Prices were set based on long-run volume levels. Overall, he believed that the key to success was sound financial planning and reporting.
Indeed, Breech saw the big picture of where the auto industry fit into the American economy and American life: a successful automobile industry meant a successful American economy. When Breech joined Ford, it was losing about $10 million per month. During his 15 years with the company, he would rise to be chairman of the board and the company would return to profitability. Breech's accounting background helped save Ford Motor Company; he retired from Ford in 1960.
Troubleshooting at TWA
Bored with retirement and still fascinated by the airline industry, Breech took over as chairman of TWA's board in 1961. In the prior year, TWA had lost $14.7 million. But under Breech's guidance, by 1965, the company was making more than $50 million. A senior vice president of finance at TWA summarized Breech's abilities as follows:
He has an uncanny sense of numbers. He can glance at a whole sheet of figures and spot a blooper instantly. And when he does, he'll say something [like] 'I don't understand the logic of this.' He's a needier." ("The Pilot Behind TWA's Success," BusinessWeek, Apr. 23, 1966, pp. 103-108)
Breech was an acknowledged leader in two great industries of his day: automobiles and aviation. He was viewed as one of history's great corporate troubleshooters. He fixed companies by installing new systems of internal controls. Henry Ford II put it best in a 1968 tribute to Breech:
Few men anywhere have understood so well the nature and practice of the management function. And even fewer men, in our own or any other industry, have done so much to make American management techniques the envy of the world. (Henry Ford n, "Foreword" in Hickerson 1968, p. ix)
Moreover, Breech was known outside of industry circles. For example, he was the subject of the November 14, 1956, episode of the popular television program, This is Your Life, hosted by Ralph Edwards. He was even the subject of a 1952 comic book (Edward Geller, The Story of Ambitious Men, 1952).
Breech received honorary doctorates from Drury College, the University of Detroit, the University of Missouri, the University of Michigan, and Bowling Green State University. He passed away on July 15, 1978, at the age of 81, in Royal Oak, Michigan, leaving a legacy of industrial efficiency, effectiveness, and economy. He is a legendary example of what a CPA can offer in the role of a financial executive to an industrial employer. As noted in his obituary, Breech had "one of the greatest accounting careers in history."
Dale L. Flesher, PhD, CPA, is a professor of accountancy, associate dean, and holder of the Roland & Sheryl Bums Chair in the Patterson School of Accountancy, University of Mississippi, University, Miss. Gary John Previts, PhD, CPA, is a distinguished university professor and holder of the E. Mandell de Windt Professorship in the Weatherhead School of Management, Case Western Reserve University, Cleveland, Ohio. Stephen R. Moehrle, PhD, CPA, is a professor of accounting in the college of business administration, University of Missouri at St. Louis.
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|Title Annotation:||Perspectives: history|
|Author:||Flesher, Dale L.; Previts, Gary John; Moehrle, Stephen R.|
|Publication:||The CPA Journal|
|Date:||Jun 1, 2014|
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