Lingering lessons from a momentous 20th anniversary at GM

Automotive News | April 8, 2012 - 9:04 am EST

DETROIT -- Just over 20 years ago -- on April 6, 1992 -- General Motors' board of directors finally said, "Enough."

After watching GM's market share slide lower and lower, and the red ink pump out like blood from a severely wounded soldier, the outside directors took charge.

The board announced that John Smale, the former CEO of Procter & Gamble, would replace Bob Stempel as chairman of GM's powerful executive committee. Two key Stempel allies, GM President Lloyd Reuss and Executive Vice-President F. Alan Smith, were demoted and kicked off the board. CFO Robert O'Connell also was demoted and sent to GMAC.

Six months later, Stempel, Reuss, F. Alan Smith and Robert Schultz, vice chairman in charge of the GM Hughes subsidiary, resigned. Jack Smith, head of GM's international operations, became CEO, while Smale became GM's chairman.

You can debate whether the personnel changes were good. We certainly do here at Automotive News. Most of the folks in my office denounce the Smith-for-Stempel change as a classic case of letting the bean counters take over from the car guys, with disastrous results.

I'm one of the few here to think that Jack Smith was a huge improvement, bringing a sense of urgency to GM's floundering that Stempel didn't. Stempel's policies had led to a rescue plan that called for closing 20 plants -- with no guarantees that GM's quality, sales, or profits would improve. What's your definition of "disastrous?"

But let's put aside the details of the personnel changes. Today's anniversary is a reminder that boards can turn activist and stop being, as Ross Perot once labeled GM's, management's "pet rocks."

It should happen more often.

What would have happened if GM's board, back in the Rick Wagoner era, had installed a new management team when the automaker's losses hit $35 billion, instead of waiting until they topped $70 billion? Might GM have avoided bankruptcy?

We don't know. But if they had said losses of that magnitude were unacceptable, maybe President Barack Obama wouldn't have had to take Wagoner up on his offer to resign. (Reminder to readers still offended by that: The President didn't fire the CEO. Wagoner had made the offer first, and Obama said, "OK.")

The bottom line: Directors can demand results, or they can let someone else do it – say, a bankruptcy judge. The better route is for directors to do their job.

James B. Treece is industry editor at Automotive News.James B. Treece is industry editor at Automotive News.

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