Scalp? Scapegoat? GM's Wagoner Remains One Vulnerable CEO
December 04, 2008

By Dale Buss

As he testifies before Congress today and tomorrow, Richard Wagoner will be doing more than attempting to seal the deal for some $12 billion in government loans and a $6-billion line of credit that he has requested to rescue his employer, General Motors.

GM's chairman and CEO also may be auditioning to keep his job.

Wagoner certainly looks to be in better shape to hold on to GM's top post this week than he did a couple of weeks ago, after his singularly uninspiring first round of bailout testimony on Capitol Hill. He has done all the right things since then, inside the company and for external audiences.

The 55-year-old Wagoner has made some gut-wrenching decisions about what to promise the federal government about the radically overhauled GM of the near- and long-term future, including the potential axing of some venerable brands and a 27 percent reduction in dealer count by 2012.

He also has done a much better job of playing to the crucial outside constituencies of lawmakers, the news media and the American taxpayers who are expected to fund GM's long-overdue transformation.

Wagoner disclosed a plan to slash his 2009 compensation to just $1, for example, and he made the sudden decision this week to auction off the company's entire fleet of private jets. He personally rode a Chevrolet Malibu Hybrid to Washington instead of hopping one of those jets. And like any member of John Q. Public, Wagoner even stopped at a truck plaza in Somerset, Pennysylvania, along the way to get the tank refilled and buy a cup of Joe.

Leadership in the Balance

But is it enough? Whether as a scalp, or a scapegoat, Wagoner may have to leave anyway.

On the eve of his testimony today, Wagoner got some reassuring support from George Fisher, GM's lead outside director. "This is not something you turn over to amateurs," Fisher told Bloomberg News after the GM board approved the game plan that Wagoner presented to Congress this week. The 68-year-old former chairman of Eastman Kodak Co. has been a frequent foil to Wagoner, but his clear endorsement of the company's embattled CEO came after directors' nearly continual exposure to Wagoner's handling of the crisis over the past couple of weeks.

Yet not even GM's board is the party pulling GM's strings these days; Congress is. And to an unprecedented extent, so is all manner of external opinion. In those forums, Wagoner still isn't scoring nearly as well as he needs to be.

That's why, fair or not, Wagoner could already be as good as gone, said experts on corporate top management and other key observers, both inside and outside the auto industry. And some of these individuals insist it's only right that Wagoner's exit be a prerequisite for the infusion of substantial federal aid into a GM that has grown suddenly wobbly under his watch.

"He didn't take the pain to put his business right," Sen. Tom Coburn told AutoObserver. The Oklahoma Republican is one of many senators who have been highly critical of Big Three management in general, and he is specifically skeptical of Wagoner. "If I was on the [GM] board," Coburn added, "I certainly wouldn't give him a vote of confidence."

Outside Perspective

The simple fact is that three big financial institutions that got federal bailouts -- insurer American International Group and home-lenders Fannie Mae and Freddie Mac -- had to replace their CEOs as part of terms worked out with Treasury Secretary Henry Paulson. GM's situation seems about as dire, so why would Wagoner's fate be any different?

And interestingly, with a few exceptions, the further from the auto industry observers sit, the more convinced they are that Wagoner must leave.

David Nosal is one. He doesn't place executives in the auto industry, but the CEO of Nosal Partners, in San Francisco, is one of the world's top recruiters of CEOs. And he believes that "it's time for new leadership to take over GM." The former top global billing partner at Korn / Ferry International, a giant of the business, said that "it's time to show the American people and the world that if the government is going to step up to this, we also need to step up to new leadership, so that people recognize change is happening."

Dennis Zeleny, a top-level consultant to Fortune 500 management, said that "it's definitely a legitimate question if [Wagoner] should stay or not. It's even legitimate for the board to consider going outside the auto industry for a replacement," said the former head of human resources for Dupont and Honeywell, "because that's what many companies in lots of complex industries around the world do."

Such sentiments from quarters outside of Detroit are one reason longtime Wagoner critic Maryann Keller believes the climax of the current drama will include his departure. "Does he have to leave right this second?" said the veteran industry analyst and consultant. "I'm not sure. But is he the guy who's going to be able to lead GM into viability? I don't see it."

Another student of the industry, Joseph Phillippi, more reluctantly reached the same conclusion. "It's pretty clear," said the president of AutoTrends Consulting, "that Congress wants a pound of flesh -- maybe several pounds of flesh. They want a sacrificial head, and I've got a strong suspicion that they want Rick's head."

No Turning Back?

For critics, Wagoner's bumbling performance in Congressional testimony on November 19 comprised only the last straw. Neither could Wagoner's steps this week obfuscate the reasons that many bettors are writing Wagoner's industry obituary.

The fundamental, and rather substantial, problem is Wagoner's record over eight years as CEO after a previous eight years near the top of GM management. He largely presided over an accelerating erosion of GM's U.S. market share, forged only a mixed record with labor, and demonstrated a confounding inability or unwillingness to shake things up enough to halt GM's three-decade slide from the pinnacle of the automotive world, where Toyota now sits.

In fact, despite a relatively sound reputation within the industry, Wagoner now finds himself the personification of all that outsiders believe is wrong with Big Three management: It's largely parochial, plodding and seemingly unmotivated.

Less clear is whether GM Vice Chairman Robert Lutz would follow Wagoner into any involuntary retirement. The difference is that the fiery, charismatic Lutz is credited with much of the little success that GM has enjoyed during Wagoner's tenure. Lutz, an ex-fighter pilot and lifetime "car guy," has been directing a product-development operation that is turning out some pretty good vehicles of late. At 76 years old, the idea of his soon departure might be academic anyway.

And in this scenario, the stiffest prescription is preserved for Wagoner alone, not his counterparts. Ford CEO Alan Mulally and Chrysler CEO Robert Nardelli simply don't seem to be as endangered as Wagoner for a number of reasons.

Falling Short

Unfortunately, none of the three CEOs cuts anything like the larger-than-life figure of Lee Iacocca, the persuasive father of the Ford Mustang who was Chrysler's CEO when he successfully implored Congress for a $1.2-billion bailout loan in 1979.

This time around, clearly it was up to Wagoner to lead a rescue drive that covers all three rivals -- he is the de facto head of the domestic auto industry, and Wagoner is the only one of the three CEOs with much experience in the car business.

But even if GM ends up squeaking through the biggest crisis in its history, Wagoner's stint as CEO will be graded a flop. The biggest impression of Wagoner is that he simply hadn't adequately prepared GM to cope with an existential threat like the current car market. And his tone-deaf arrival via private jet in Washington, D.C., for the initial round of hearings in November will only symbolize his failed tenure, in this interpretation.

"There's the reality of his leadership as well as the symbolism," said Marshall Goldsmith, a leading consultant to big-company CEOs on management and succession. "The symbolism of keeping the same guy who's been at the helm for this long is pretty negative. And there are other people who could fill that job."

More fundamentally, outside handicappers believe that Wagoner hasn't tackled GM's problems forcefully or resourcefully enough to justify hanging on to his perch. How obvious is it now, for example, that Wagoner made a huge mistake by supporting GM's acquisition of the larger-than-life Hummer brand in 1999, when he was COO? The fact that GM hasn't been able to sell the icon of gas-guzzling, oversized-toy vehicles after six months on the block ranks as a perpetual testament to Wagoner's initial mistake.

Tellingly, however, the biggest knock against Wagoner and his peers seems to be that they haven't slashed labor costs deeply or quickly enough. And yet, within the auto industry, Wagoner's supporters cast the 2007 accord that he fashioned with the United Auto Workers as one of his biggest accomplishments. In a Detroit culture that is so accustomed to the union tail wagging the management dog, the pact is widely revered as the kind of "game-changing" gambit that was required to give the domestic industry a chance to survive, because by 2010 it largely moves the onus of union health and retirement legacy costs onto the union's back.

A leading consultant in corporate governance remarked that Wagoner "has had eight lives so far." But this expert -- who helped place a couple of directors on GM's board -- said that the CEO "probably doesn't have a ninth life. He didn't make changes as quickly as he should have before now. And in this crisis, he just hasn't demonstrated the sense of urgency that is required to steer GM through it."

One after another, such observers marveled at Wagoner's inability to score a more thorough transformation of GM or to foresee today's crisis. "He's been around the industry for a long time, and I'm a bit dumbfounded that he didn't see this coming many years ago and turn the ship upside down to make sure GM would be more competitive in the global marketplace," Nosal said. "I've seen the initiatives, but it's not enough."

But They Don't Understand

Some in the industry also hold Wagoner culpable. "He doesn't have a lot of credibility," said Keller, president of Maryann Keller & Associates, in Stamford, Connecticut. "He hasn't led the company very effectively and he has squandered its assets."

But others in the auto business forcefully defend Wagoner and his record, with much of their argument stemming from what they believe is outsiders' lack of understanding of the tremendously demanding nature of the job of being CEO of the world's leading industrial concern.

"The lack of knowledge that Congress has demonstrated about the auto industry is abysmal," said one longtime, high-level insider who doesn't work for any of the Big Three. "They're dealing from the conventional wisdom of 20 years ago."

Another similarly placed insider noted that, "From the 50,000- and 100,000-foot levels, everyone in Congress is calling for heads like they're Marie Antoinette. But you can't run these companies like that. There are tremendous complexities."

This executive agreed that Wagoner must step up the pace of change; even if the GM CEO didn't believe that before, he assented to radical surgery on his company in the restructuring plan he submitted to Congress this week.

"But you can't just lop off their heads," this insider said. "You have to have a managerial-continuity plan that makes sense for the medium and long term. I wouldn't make [Wagoner's resignation] a condition of getting the loan from Congress."

And to be sure, no one makes cases for the departure of Mulally or Nardelli with nearly the force that they argue for Wagoner's ouster. So they seem generally less imperiled.

Different Rules

In the case of Mulally, he has helped advance Ford to a position where the company maintained that it doesn't really need the $9 billion it has requested from Congress -- it just wants the money to be available as a credit line.
 
"He raised tons of cash back when you could raise cash, and that's one reason that Ford may make it through," said Goldsmith, who helped coach Mulally when he headed Boeing. "Plus he's a spectacularly good leader of people."

As the former CEO of Boeing before he came to Ford in 2006, Mulally also represents exactly what more of those outside the industry would like to see: fresh blood who successfully shakes things up.

"Mulally, I can't be critical of," said Sen. Coburn. "He's not been there all that long, and of all three of them, Ford seems to be in the best shape."

The case of Nardelli is more complicated. He was widely hailed as one of the most promising  disciples of Jack Welch when he served directly under the CEO of General Electric. But Nardelli was notably unspectacular in heading Home Depot a few years ago; then he left nefariously -- under fire from shareholders and with a $250-million severance package -- early last year.

And Chrysler has only faltered further under Nardelli's leadership since Cerberus Capital selected him as its CEO in mid-2007. With all the attention to GM's woes, it's easy to forget that Chrysler is actually in far worse shape.

Yet because he's only been in the auto industry for less than 18 months, Nardelli is given a bit of a pass both by Congress and by those who evaluate the Big Three CEOs. He's also credited for keeping former Chrysler President Tom LaSorda close at hand and for bringing in former Toyota Motor Sales U.S.A. executive Jim Press as his other top lieutenant.

And, of course, there's the messy fact that Chrysler now is privately held and, thus, not vulnerable to shareholder sentiment that might affect the fates of Nardelli's two rivals.

Fast Tracker

All of which inevitably brings the focus back to Wagoner and GM.

It wasn't supposed to end this way for the affable and soft-spoken leader. The lifetime GM executive became the company's youngest CEO in 2000 at the age of 47. And until very recently, Wagoner held out hope that he might be the leader who could finally captain a turnaround of the corporate equivalent of an aircraft carrier -- a behemoth that still generates $181 billion in revenues, employs 266,000 people worldwide, and manufactures vehicles in 35 nations.

His 6-foot-4 stature distinguished Wagoner in college, where he played basketball for Duke University. He entertained hopes of turning professional, but Wagoner's business skills led him to earn a Harvard MBA in 1977. And the GM treasurer's department -- where its CEOs historically have been spawned -- sucked Wagoner up right away.

Wagoner's advance was quick and relentless. Over the next 15 years, he helped head up GM's businesses in Europe, Brazil and Canada. By 1992, he was ready to become corporate CFO, and just two years later Wagoner had risen to president of GM's North American operations. He made the division profitable, trimmed manufacturing costs and boosted quality, and was rewarded with the COO post in 1998.

In that job, Wagoner further streamlined the company through moves such as consolidating sales and marketing. Within two years, Wagoner was CEO, taking over for fellow finance man John (Jack) Smith. He became chairman of the board in 2003.

Some of Wagoner's accomplishments as CEO have been significant. Perhaps none was bigger than his pulling the trigger on GM's "Keep America Rolling" campaign of massive incentive spending in the wake of the 9/11 terrorist attacks, which jump-started the U.S. economy as 2001 came to a close and helped the nation avert recession in 2002.

Under Wagoner's watch, GM also has expanded aggressively into key growth markets including China, Russia and India. The company has boosted vehicle quality to the point where it's almost a moot issue with today's auto buyers, and GM's product designs and features are scoring much bigger with American consumers than in decades.

GM even has made progress under Wagoner in boosting its lackluster environmental credentials. He brought with him from Brazil an appreciation of ethanol power and has made GM's fleet the most ethanol-capable of any automaker. And it was Wagoner who approved the fast-tracking of the Chevrolet Volt plug-in hybrid that has created unprecedented buzz in the green community and remains on track for launch in 2010.

Opportunity Unfulfilled

But Wagoner's failures have been many as well, many of them comprising fruitless maneuvers in his chief area of expertise.

One of those was his dalliance with Fiat, a disastrous string of decisions that ended up costing GM $4.4 billion in exchange for essentially nothing. GM's stock buybacks in the late Nineties were "dumb, because soon [Wagoner] was saying he didn't have enough money to invest in North American products," alleged Keller. GM's spinoff of Delphi proved disastrous, and financial obligations from the company's former captive parts giant comprise what Keller called "an albatross that is still around [Wagoner's] neck."

Especially relevant to today's dire straits for GM is that, also under Wagoner, GMAC pushed into subprime mortgages. That decision ended up handcuffing the company to last summer's crisis in the credit markets and, in turn, hurt GM's ability to loan money to vehicle buyers.

Even when Wagoner has had correct impulses, his moves haven't always worked out for the best. One such gambit was GM's discontinuation of the Oldsmobile brand in 2004. Putting Olds on the chopping block was a bold way to begin rationalizing GM's anachronistic brand structure. But then Wagoner stopped there, and smoothing out Olds' demise cost the company an estimated $2.5 billion in settlements with dealers and other expenses.
 
And while GM executives will defend ad infinitum their strategy over the last 15 years of favoring high-profit, large and gas-hungry vehicles over thin-margin, small and fuel-efficient ones, clearly another path was available to Wagoner.

If he had swung more toward a Honda type of product strategy, forgoing big profits on gas guzzlers in favor of a more balanced vehicle portfolio, GM would have been much better prepared for the gales of 2008. Wagoner also could have helped if he had taken better advantage of all that GM has learned from Toyota during more than 20 years of building small cars together in a plant near San Francisco.

By contrast, "Mulally looked at the Toyota example when he was at Boeing and had huge success with it, which then became his claim to fame to go on to Ford," said Steve Spear, a senior lecturer at MIT and author of Chasing the Rabbit: How Market Leaders Outdistance the Competition and How Great Companies Can Catch Up and Win. "And one of [Mulally's] first visits after coming to Ford was to Japan."

Lutz's Contribution

In any event, no doubt Wagoner at least rattled the mold of previous GM CEOs. He has been a level-headed decision-maker and has opened up the company's famously insular top management; for example, during GM's  centennial celebration this year, Wagoner created public stars out of a few dozen lower-level GM executives and managers around the globe.

Wagoner's biggest argument for innovator status may well be his hiring of Lutz in 2001 as vice chairman of product development. Wagoner plucked Lutz from battery-maker Exide, a job he took when the chairmanship of Chrysler became out of reach, and gave him essentially carte blanche to overhaul GM's product-design, engineering and development infrastructure.

"It was a brilliant stroke," said Phillippi, whose consulting firm is in Short Hills, N.J., "Rick knew that he didn't know that part of the car business and that Lutz had that iconoclastic personality."

Lutz quickly succeeded in reviving the spirits and stature of GM designers and engineers who had been disrespected and beaten down by predecessors at the head of North American operations who were far more focused on marketing than product. While Lutz has made his share of bad calls over the last seven years, the primary result of his leadership has been an increasingly evident string of new-product successes including the Cadillac CTS sedan, the new Chevrolet Malibu and a group of crossovers including the Buick Enclave.

Lutz's oversized persona also blew through GM like a fresh breeze, lending an apparent candor and likeability that its top management never had before. He's the executive who writes the corporate blog, for example. And at a private lunch earlier this year, Lutz let it fly that he believed global-warming hysteria is a "total crock of s---." Yet ironically, Lutz also has emerged as the single internal champion of the Volt.

Most observers believe that Lutz will still be around GM to see the first Volt roll off a production line in about two years. "He's been extremely positive and he still isn't sitting on his laurels," noted one top-level industry executive. "He has been a big net plus to GM, and they'll be real interested in keeping him aboard."

But many believe a different fate awaits Wagoner, one in keeping with the fact that GM's share price hit a high of $75.75 in the first year of his tenure and now stands in penny-stock territory. "Maybe if another CEO is named, [Wagoner] could help the transition," Goldsmith offered. "It would be a very positive role for him to play. He still knows a lot."

Photos by Manufacturers

1 - GM CEO Rick Wagoner arrived in Washington for the recent round of Congressional hearings in a hybrid version of the Chevrolet Malibu (pictured.)

2 - Retired Chrysler CEO Lee Iacocca, a convincing salesman for federal loans to Chrysler decades ago, was recently honored at Chrysler headquarters.

3 - Ford CEO Alan Mulally came to the auto industry from Boeing two years ago.

4 - GM Vice Chairman Bob Lutz beams as he climbs out of a vehicle equipped with the underpinnings of the upcoming  Chevrolet Volt, an electric vehicle for which Lutz is its most vocal champion.

Posted by Michelle Krebs at 6:02 AM under Analysis , Featured , GM , Personalities | Comments (2) | digg this | Seed Newsvine

Technorati Tags: alanmulally, autotrendsconsulting, bigthree, boblutz, buickenclave, cadillaccts, cerberuscapitalmanagement, chevroletmalibu, chevroletmalibuhybrid, chevroletvolt, chrysler, davidnosal, delphi, denniszeleny, detroitthree, ethanol, federalbailout, federalbridgeloans, fiat, ford, fordmustang, generalmotors, georgefisher, henrypaulson, hummer, jimpress, josephphillippi, kornferryinternational, leeiacocca, marshallgoldsmith, maryannkeller, maryannkellerassociates, mit, nosalpartners, rickwagoner, robertnardelli, stevespear, tomcoburn, tomlasorda, uaw, unitedautoworkersunion