How GM Can Recover

General Motors chief executive officer Mary Barra on Tuesday and Wednesday will appear before Congress to explain why GM took more than a decade to issue a recall on a faulty ignition switch, which led to at least 13 deaths. The hearings will be a proving ground for Barra, who became CEO in December 2013, as well as for GM’s new chairman, Theodore “Tim” Solso, and the entire GM board.

Congress will question why Barra’s most recent predecessors didn’t catch the defective switch. A likely explanation is that the board and senior management were so focused on digging GM out of bankruptcy that they weren’t paying attention to what else may have been going amiss.

Of course, that excuse is insufficient, since the company needs to do both things simultaneously: avoid bankruptcy, while building safe cars. Barra, Solso and the board must convince Congress, the markets and consumers that they have identified why the faulty ignition switch went undiscovered for so long, and that they can be trusted to prevent a similar crisis from happening again.

At GM, the board and executive team must look back at the last decade and determine what went wrong — both within GM, and also in the relationship between the board and senior management. As a board director I can say this is not always a comfortable process, but it is vital that every board director understand the historical dynamic between the management and the board. Most of the current GM board members joined the board after 2009, but they can learn valuable lessons about why the recall did not occur earlier, what previous boards should have been doing and why the board is only now finding out about the recall.

The board must also make sure there will not be another situation where executives make a decision under the guise of protecting the company, but in the end puts GM in an untenable position, like the one it’s now in. In the case of the faulty switch, GM chose to create two small and isolated committees to handle recall cases, fashioned in such a way that senior executives were purposely kept in the dark. Board members have an obligation to challenge senior management’s thinking on these types of decisions and structures, which seem to make sense within in a bureaucracy, but in reality put the company at risk.

GM’s board, like every board, has a multifaceted role as watchdog, ethical center and independent thinker. The independent directors will need to redouble their efforts to take what I call a “hands on, but not hands in” approach — having a deep understanding of the business and a strong relationship with the management team, but still maintaining enough distance to remain independent on all issues, be they “grounding” or “stargazing” ones.

The past decade has been tumultuous for GM, featuring five CEOs (four in the past six years), a bankruptcy and a government bailout. Under Rick Wagoner, who was named CEO in June 2000 and became CEO/chairman in 2003, GM lost more than $85 billion and was forced into bankruptcy. We now know that GM engineers first documented the faulty ignition switch 13 years ago, during Wagoner’s tenure. GM says it is still investigating why the situation was so badly mishandled; as far as we know, the engineers didn’t tell the senior management because of an organizational structure that Wagoner created.

The ignition switch recall has been a big test for Barra, and one that she has so far managed well. She reportedly learned the full extent of the problem on January 31, two weeks into her tenure as CEO. Since then, she has gone to great lengths to get in front of the issue, speaking about it publicly in mid-March, meeting with the press, recording a number of YouTube videos on the topic, and appointing GM veteran Jeff Boyer to a newly-created post of VP of Global Vehicle Safety with a mandate to “quickly identify and resolve product safety issues.” Boyer is said to have “direct and ongoing access to GM leadership and the board of directors on critical customer safety issues,” which suggests that the board is invested in the issue.

Going forward, one of Barra and the board’s most important tasks is to do a deep audit of the entire company, looking for anything else that might be lurking in the shadows, such as product defects, overly bureaucratic processes that keep issues from surfacing, financial mismanagement or labor issues.

GM needs to prove that if it becomes aware of another serious issue within the company, it will respond with speed and transparency. As the recall situation demonstrates, the cover-up and mismanagement of an issue can be far more costly — economically, reputation-wise, and in loss of life — than the act of dealing with an issue head on.

After a period of huge upheaval, GM is entering a new phase. The U.S. government sold its final stake in the company in December 2013, and GM must now focus on stability and growth: stability in making sure it has a long-term CEO, and growth in rebuilding its businesses during tough economic times.

Running a business the size and complexity of GM is no easy feat. Throw in its complex financial situation, global operations, and the myriad of issues that the board deals with at any one time — from labor relations, to financing, to safety, to regulations — and it is as complicated as any large financial institution.

In a video last week, Barra recognized the need for change at GM in the wake of the recall. “Clearly the fact that it took over 10 years indicates that we have work to do to improve our process and we are dedicated to doing that,” she said.

If Barra works closely with her executive team and board — and the board is committed to strong oversight and strategy — GM has a fair shot at succeeding.


1 April 2014

How GM Can Recover

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