What Goes Around Comes Around


Print | No Comments | Share/Save

Expert Perspective by Grahall’s OmniMedia Editorial Board

Well, Ed Whitaker didn’t last too long as GM’s CEO, but now we are told that was all part of the plan.  Whitaker will be replaced on September 1 by GM Board member Daniel Ackerson.
Perhaps we were expecting more, or more time, when it was reported in January 2010 that Whitaker, then interim CEO, was to be the “permanent” CEO of GM.

That term “permanent”  made us think that he might have had more staying power than his predecessor, Fritz Henderson, who was “on the job” from March 31 to December 1, 2009.  But then Fritz was “permanent” too until the GM Board, led by new Chairman Edward Whitaker, became concerned “… about whether G.M. can overhaul its corporate culture and make a fresh start under a holdover executive like Mr. Henderson, who has worked for the company for 25 years.”  (New York Times December 2009). 

Of course all of this changing of the guard at GM started with the departure of Rick Wagoner at the behest of President Barack Obama when it became clear that GM would need to file for Chapter 11 Bankruptcy protection as a result of the 2008/2009 economic downturn. This required taxpayer largess of $50 billion in aid to help the company remain solvent and changed GM from General Motors more to Government Motors.

So what’s in store for Ackerman, and will he be the permanent “permanent CEO” or continue the trend of his two predecessors and be looking for a job come the spring of 2011? 

As Sharon Terlep writes in her August 12, 2010 article for the Wall Street Journal (Surprise Switch Comes as Car Maker Readies Stock Sale): “The leadership change was announced after GM reported net income of $1.3 billion for the second quarter, on the strength of rising vehicle sales, especially of trucks, and firmer pricing in North America. It follows a profit of $865 million in the first quarter, and is GM’s best showing since 2004′s second quarter.” 

That’s the good news for Ackerman, as it seems that things are moving in the right direction for GM.  But the challenge (for which his being part of the buyout firm Carlyle Group may position him well) is, as Terlap writes “…part of a plan put in place by GM’s board over the last few weeks to enable the company to present a clear picture of its management team to investors as it looks to return to the public markets and allow the U.S. to cash out its 61% ownership stake.”    And there is more to that than just getting GM back into the Dow Jones Industrial Average. Just ask any Democrat running for office this November.

With a successful IPO, GM and its CEO could find itself in a unique position: as a lean, mean manufacturing machine with no burdensome debt (like Ford) and no crippling safety and quality issues (like Toyota) and, eventually, no government ownership (like…err… the “old Government Motors”).  

But outside of top management and the Board, there are still automotive people running the GM businesses. The human capital and talent management challenge ahead for GM is to extend its “overhaul of corporate culture” beyond the Board Room and the executive suite into GM’s businesses and services.

Automotive outsiders Mulally and even the short-lived Whitaker seem to be successful in taking companies on the brink of failure (and even over it) to the point of turning them around. But Whitaker’s nine months and even Mulally’s four years is a pretty short time frame over which to declare victory.

Speaking of Ford, here are a couple interesting things:

1)  Ford avoided government bailout as a result of taking on nearly $25 billion in debt. Interest payments on that debt are a pretty big price tag.  (As was noted August 19, 2010 in the Star Tribune article Tom Krishner and Ken Thomas “After turbulent year following bankruptcy, GM lays groundwork to sell stock to public again”: GM doesn’t face that issue having been cleansed of burdensome debt in a quick run through bankruptcy court.) 

2) Although they tout the fact that they aren’t on the government dole, Ford was most definitely at the table with GM and Chrysler when the government was considering bailouts in 2008.  It was only when restrictions to executives’ compensation were demanded that Ford backed away from any government assistance.  

Will that make Ford stronger than a “post-IPO GM”?  We will have to wait and see, but interest payments on $25 billion in debt would be what  a billion dollars or more a year?  That’s a lot of cars and trucks!

Interesting also to our Grahall Editorial Board is that Ford, Toyota and Chrysler all have separate individuals in the CEO and Chairman positions. At GM one person holds these jobs.  From our point of view, there are three key roles that should be thoughtfully combined or separated based on a company’s “maturity curve” or life cycle.  Those are CEO, COO and Chairman.  In our experience, start ups, turnarounds and companies in crisis seem to be best positioned for success when these roles are held by the same person.  For mature companies, these roles are best separated.  It is not easy to adjust these most important duties on a”the fly”.  But, as our own Bill Byrnes says, “All leadership works, both good and bad.”  The smartest companies will manage not just their resources, customers, people and finances but their leadership roles and assignments as well.

Grahall’s Michael Graham adds: “Maybe it’s time to consider the governance of our auto industry organizations. You have to give accolades to the Ford’s (and their captive Board) for the foresight to bring in an industry outsider at an early enough stage to avoid the worst effects of the worldwide recession/depression. As far as turning down the government largess granted to the other car makers it really was a matter of self interest. Bankruptcy would have decreased, or even wiped out the ownership of the Ford family so it really wasn’t an option.

In this case, Ford’s Board and CEO acted quickly to preserve and protect the shareholders investment. No doubt the decision wasn’t easy at the time it was made.

In contrast the pre-bailout GM board who appeared to take no action until the Obama administration forced its hand. The sheer insulation of the Board from reality is still one of the most stunning situations in business history. The new Board has acted, reacted, and ‘proacted’, continuing to stir the pot of change. (Near death experiences have that impact on Boards.) I hope, for the sake of GM shareholders, that the Board puts itself behind a strong Chairman/CEO.

Let’s also hope Ford’s Board continues to act when the times are good again.”

Contact Grahall’s OmniMedia Editorial Board at edie.kingston@grahall.com

Post a Comment