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Afterthoughts On General Motors

Although it happened a couple of months ago, people are still talking about General Motors and John Smale and Robert …

Although it happened a couple of months ago, people are still talking about General Motors and John Smale and Robert Stempel.

For those who’ve been secluded on a desert island, the auto giant named Smale, a GM director and retired chief executive of Procter & Gamble, as chairman of the executive committee, replacing Stempel. In addition, the company named John (Jack) F. Smith Jr. as president and chief operating officer, replacing Lloyd E. Reuss. Smith had been a vice chairman in charge of international operations.

The shakeup came six weeks after a reorganization of GM’s North American operations, which posted a $7 billion loss in 1991. In a statement, GM said the management changes had been made to restore the division to profitability and integrate domestic and overseas operations.

What’s going to happen next? I don’t know any more than anybody else, but as a longtime corporate governance observer, I feel compelled to throw a few comments into the ring.

Most of the people I talk to-a mixed bag of corporate directors and executives, personal friends, and MBA students at Columbia Business School-think it is about time that outside directors of sharply criticized, underachieving companies, take some kind of forceful action. Nearly all felt that GM, with its huge losses, decreasing market share, and inept handling of such things as its executive compensation disclosures, was a ripe candidate for a board uprising such as Smale led. I, too, applauded, but I am still waiting for the other shoe(s) to drop, and several questions still bother me.

To begin with, I wonder why Smale was not made chairman of the board? By making Smale chairman of the executive committee, they effectively emasculated Stempel. When they removed his top two lieutenants from office, discontinued their board seats and named their replacements, they kicked Stempel while he was down. Why on earth leave him as a defanged chairman of the board?

A month ago, in this magazine, I said it is sometimes logical and appropriate to select someone other than the CEO to be chairman, especially during a management transition. This would have been an ideal time. The board statement, “We still have great confidence in Stempel,” had a hollow ring after the resounding thump of the Smale announcement.

What happens next interests me most, since this is a wonderful opportunity for GM to set a good example in improved corporate governance. Here is a list of questions the GM board should perhaps discuss over the next few months.

  • What should be the duties and responsibilities of the outside directors at GM and what kind of board makeup and structure should GM have to help them do their jobs? If they want to make a change, now is the time to do it.
  • Does GM have the best lineup of committees to perform effectively? Why have an executive committee at all except to function between board meetings as specifically authorized by the board? Shouldn’t the committee be composed solely of outside directors? Should there be a committee of the board to regularly review board structure and procedures? Which committee, if any, should have the primary responsibility for reviewing management succession?
  • How many inside directors should GM have? Is it not enough to have as the only ones the chief executive officer and the chief operating officer?
  • Should retired chairmen and other executives be allowed to stay on the board, or should GM fill those seats with experienced outside directors? Roger Smith is no longer on the board, but what is the continuing policy?
  • Does GM have the right mix of talent and experience in its outside directors? Do any of the present directors have a conflict of interest? Is Dennis Weather-stone, as CEO of J.P. Morgan, in conflict with other financial suppliers?
  • How much should GM directors be paid and should not more of their pay be in the form of restricted stock?
  • Does GM need to establish any special lines of communication between the board and major shareholders?

The reason I want GM to answer these questions is: They are the same questions that virtually all corporations should be asking themselves, and they are pretty closely related to some of the same questions that are being asked more stridently and belligerently by certain institutional shareholders, shareholder associations and government officials.

I would like to see GM take enough time to give thoughtful answers and then take surefooted corporate governance steps. I’m glad the company did not try to redo its governance approach on the day everything hit the fan. Even though I have a modest disagreement with details, I am glad it did what it did.

General Motors used to be one of the most respected corporations in the world. I would like to see its board re-establish corporate governance policies that stand as a model for all companies. It will give lots of outside directors, myself included, an injection of courage to speak out and to insist management do its job.

Formerly the CEO of F.&M. Schaefer (1972-1977), Robert W. Lear teaches at Columbia Business School, where he is Executive-inResidence. He is an independent general partner of Equitable Capital Partners and holds directorships with Cambrex Corporation Inc.; Crane Company; Scudder International and Scudder Institutional Funds; Korea Fund; Medusa Corporation; WICAT Systems Inc.; and Welsh, Carson Anderson, Stow Venture Capital Co. His latest book is “How to Turn Your MBA Into a CEO.”

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