FAILURE OF CORPORATE GOVERNANCE

“Who guards the guards?” ~ Plato

Group Members

PRN NAME

11020241017 Gautam Siddharth Sharma

11020241049 Vivek Choksi

11020241051 Mohil Poojara

How all roads lead to….

How and Why did it happen? In a not too distant past, the thought of a

bankruptcy in GM would have been laughed upon

Suddenly, what happened to the world’s most iconic carmaker?

Was it the recession? Was it the Competition? Or Was it poor Corporate Governance?

What do you think of GM’s corporate culture?

“It’s fine. In reality, it’s the only culture I know” (Mr. Henderson, the last GM’s CEO coming

from the GM, in 2009)

What is the problem?: CEO and other key executives from a “GM

family”, i.e. his father worked for GM and his brother still does. Grew up with other GM executives.

The History

GM’s Problems can be traced back to its origins

Billy Durant, it’s founder recklessly bought 39 companies and nearly made it bankrupt in the year 1923

Sanity was restored under the leadership of Pierre Du Pont and Alfred Sloan

However, the 1940s saw GM introduce policies such as free healthcare and generous pension which eventually proved to be its undoing more than 50 years later

The Roger Smith Era

However, the worst period for GM was between the Years 1981-1990 under the leadership of Roger Smith.

His tenure was marred by disastrous attempts to reorganize GM’s bureaucracy

His failed attempt to divide the company’s business units into a big-car and small-car division backfired miserably

He wasn't aided by the fact that Japanese Companies produced better quality cars at much cheaper prices

Board of Directors or Cronies? “A certain social atmosphere presides in

boardrooms where it becomes impolitic to challenge the chief executive.” - Warren Buffett

Spineless Board-Smith’s legacy His biggest contribution to GM was introducing

a spineless board to run the company The Board mostly consisted of his cronies and

friends who only ratified the decisions he made The culture of open, frank debate did not exist

in the company and the board was merely seen as a rubber stamp

According to GM’s former Vice-Chairman Elmer Johnson GM was imperilled by a 1950s mindset of "a very stable, predictable world" and "a culture not prepared to deal with new realities

Richard Wagoner- Culprit or the Fall guy?

Richard Wagoner, the CEO at the time of Bankruptcy is now called “ The man who lost GM”

But was he the real culprit or just a fall guy who presided over something that was inevitable?

Despite all the problems that plagued GM, Wagoner did not learn the lessons when he took over

He just repeated the mistakes that Smith had earlier made

Under John Smith’s stewardship, a revolutionary decision to separate the roles of Chairman and CEO was made.

Wagoner, in his infinite wisdom, decided to roll back the decision and also packed the board with handpicked members

As a result, Wagoner, just like Smith before him, drove the company into calamitous potholes

Other reasons behind GM’s slow motion Crash

The company pursued a disastrous strategy of doing trucks and SUVs because it provided the highest profit margin, the board didn't push back. 

GM maintained too many divisions and too many lookalike product.  A $9,000 Pontiac was hard to distinguish from a $25,000 Cadillac.

When economic crisis got worse, GM cut production by only 25% while Ford cut more than 45%.

We owe, wherever we can…

Unsustainable strategy to keep  brands such as Saturn and Saab that hardly ever made money and to pay gold-plated pension and health-care benefits to employees.

These all practices resulted in mounting debt-obligation. Against assets of $82.2 billion, GM has liabilities of $172 billion.

Fat Compensation Policy

Richard Wagoner and the spineless board oversaw a 64% hike in his compensation between 2006 and 2007.

Highest costs – the cost of wages and social policy.

Strong influence of UAW (The United Auto Workers Union)

Hourly wage in GM - 30$/hour higher than in other companies without trade unions.

GM = company with 300 000 workers but pays as if it had 800 000 workers.

Lessons from GM

Problems denied and solutions delayed will result in a painful and costly day of reckoning

Resistance to change

In corporate governance, the right people count more than the right structure

Appearances can be deceiving

Chapter 11 - Reorganization

Bye bye Rick Wagoner

Closed plants

Won changes in labour contracts

Shed weaker brands and dealerships

Thank You