Posted by: David Welch on December 1, 2009
The new General Motors Board has struck. CEO Fritz Henderson is out after six months on the job. Now the commentariat will start questioning whether it’s a fair decision. And really, it wasn’t. He had just three months to prove to the new board, which is led by former AT&T Chairman Ed Whitacre and a group of directors appointed mostly by the U.S. Treasury, that he’s the guy. In his three months since the board took over, he did stabilize market share and reduced losses significantly.
But this is one of those cases where deserve has got nothing to do with it. Henderson had to post lightning quick results to show a new board of outsiders—most of whom have a low opinion of GM—that a 25-year veteran of the company could change it quickly. He also suffers from the fact that he’s a legacy executive. The new board inherited Henderson. He’s not their guy. If they interview and select a new CEO, then the board will want to make sure that person succeeds. If he or she does, they’d look smart for making the hire, points out Michael Robinet, a vice president of auto research firm CSM Worldwide.
So why was he ousted? As my new colleagues and I wrote on Bloomberg, he failed his 100-day test. One GM executive told me that the company beat every metric in its viability plan, which was approved by Treasury. But Whitacre has said in the past that the viability plan doesn’t go fast enough. He wanted more. Whitacre also wanted to see proof that Henderson could change the culture. You’d have to give him a year to see those results.
Other GM executives have told me that GM directors Daniel Akerson and David Bonderman—both from private equity—and former Wall Street analyst Steve Girsky have been very tough on Henderson and aggressive with their questioning, especially the former two. They were a vocal minority who helped move the board toward an outsider. They needed to broom Henderson to bring one in.
Then there was Opel. One long-time GM executive told me that Henderson wanted to sell GM’s long-suffering Opel unit in Europe. He thought Opel’s cash drain and problems will be too much of a distraction for GM at a time when it is trying to repair the U.S. business and mind its growing overseas operations. But the board, led by Girsky, Bonderman and Ackerman, wanted to keep it. They figured that selling it off would leave GM weak in a big market like Europe. Plus, the board was dismayed that Henderson didn’t get more than the $750 million that parts maker Magna was going to pay for a majority stake in Opel. The disagreement cost Henderson plenty of political capital.
It didn’t help that Henderson didn’t have a big juicy sound bite of good news, like say, Ford’s surprise $1 billion profit, to make him and the new board look smart. All he could say was that GM was making progress. Now-deposed GM CEO Rick Wagoner always talked about progress, but rarely victories. Henderson’s early results looked like a nicer version of the same old.
The bottom line: GM’s board decided that they simply wanted someone else, an outsider like Ford’s Alan Mulally to energize insiders and show America that there really is a new GM. They also want someone who will change the culture and set up a tougher system of accountability, says one GM executive briefed on the board’s thinking.
The board has defintely accomplished one thing that Henderson never could have done. By firing him, they are obliterating the old GM culture that was built by a succession of executives who came from the automaker’s New York Treasury Office. Jack Smith, Wagoner, Henderson and many other top executives were all groomed there. It built the company’s finance-driven culture. Sweeping it out needed to happen. But that’s only half the battle. Now the board has to find someone with leadership, vision, tactical smarts and a knack for reaching consumers.
The board will have two big challenges. First, the staff is demoralized now that the second CEO in six months has been canned. Sources say even Bob Lutz, the 77-year-old executive who has lived through countless auto company crises, is dejected over Henderson’s firing. Second, the board will have to find someone who wants the job and is qualified to do it. So you have a company that was just getting some stability get hit with more uncertainty. Then you’ll need to find a high-caliber executive who is willing to take on a turnaround job at a company that doesn’t yet have stock and options and can’t pay multi-million dollar salaries thanks to the government’s 60% ownership stake. Well, Chairman and interim CEO Ed Whitacre has the big job. Let’s see results. Is 100 days reasonable?