Ed Whitacre's Odd Moves

Posted by: David Welch on February 23, 2010

Is GM Chairman and CEO Ed Whitacre crazy? Or crazy like a fox? His moves this week have raised some eyebrows. First, he names Fritz Henderson, the CEO he fired in December, as an advisor for the auto maker’s international operations. The same day, he names board member and advisor Steve Girsky to the position of vice chairman of the company.

Girsky’s promotion is the most problematic, but bringing Henderson back was the most surprising move. The former CEO was ushered out of GM by Whitacre (pictured above) and a board that wanted new blood and a change of direction. It is bizarre, to say the least, that Whitacre would can Henderson less than three months ago and bring him back to help run GM’s businesses in Asia and South America, which are vital to the company’s success.

In a way, it also makes sense. Henderson ran both businesses very successfully as he was soaring up through the ranks of GM management. The newly-promoted President of GM-International Operations, Tim Lee, is a manufacturing guy by trade. He could probably use Henderson’s knowledge of the markets in South America, China and South Korea. In fact, one source close to the situation said that Lee actually brought up the idea.

Girsky’s expanded role is also a curious decision. He was a Wall Street analyst for years, then an advisor to GM and, at various points, has been tapped by the UAW to give them his read on the industry. Girsky was appointed to the board at the behest of the UAW’s retiree healthcare trust, which owns 17.5% of the company. Girsky also worked in private equity for Centerbridge Partners recently.

While Girsky was a very good stock analyst and obviously was respected enough to be tapped for advice by GM and the union, there is a bigger question. What does he know about actually running a car company? He hasn’t managed an industrial business, let alone one the size and complexity of GM. Girsky did not return a phone call or an email seeking comment. The company says he is qualified to do the job Whitacre has given him.

To be fair to Girsky, his job as Vice Chairman-Corporate Strategy and Business Development will have him looking at partnerships and joint venture deals. Whitacre also wants him to oversee GM’s market analysis group. His background as an analyst and in private equity should make him a good candidate for both assignments. He did build a first-class board and management team that has turned parts maker Dana Corp. out of bankruptcy and onto firm footing. On paper, it’s not daft. But as we have seen with private equity, those firms are often good at putting deals together but they don’t know enough about how those businesses work to make them successful. Girsky will have to prove that he can do it. With GM, the stakes are very high.

There is one bigger problem with Girsky’s new role. He is a board member appointed by the union’s healthcare trust and by the government to oversee the investment from taxpayers and other shareholders. One of his most important jobs is to measure the performance of the CEO, in this case Whitacre. Well, Whitacre put him in place as an executive with a $1.1 million a year salary, paid mostly in future stock. That makes him a member of Whitacre’s management team who also has a role in appraising whether or not the CEO is doing the job. As such, Girsky is no longer an independent director. He won’t measure Whitacre’s performance, nor can he sit on GM’s governance, compensation or audit committees.

That establishes a fire wall between Girsky’s two roles. It also takes away from the board the one independent director who knows something about the car business. The board needs someone who is independent and has industry knowledge to mind Whitacre’s performance. Perhaps it’s time to make Girsky an executive, and only an executive, and get another independent director with auto experience on the board. In other words, Girsky should be a board member or an executive, but not both.