GM: Whitacre's Way or the Highway

Chairman Ed Whitacre doesn't mind bruising egos to make the carmaker profitable again

By David Welch

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Whitacre Lara Tomlin

Edward E. Whitacre Jr. is a rarity in American business: a nonexecutive chairman who behaves like an executive. Since the U.S. government named the former AT&T (T) boss chairman of General Motors (GM), Whitacre at times has acted as though he were CEO, the job actually held by Frederick A. "Fritz" Henderson.

Nonexecutive chairmen rarely venture far from the cozy confines of the boardroom, let alone challenge management before outsiders and low-level staff. Yet Whitacre has done exactly that, warning darkly that if current executives don't get GM back on track, they can always be replaced. He also meets with employees and dealers to talk about strategic goals and GM's calcified culture. Whitacre, who is 67, even stars in GM's new TV commercials. "It's a little bizarre," says Charles M. Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. "You run the risk the chairman will undermine the CEO's authority."

Part of the flurry of activity reflects the fact that Whitacre, an industry outsider, is learning on the job. Henderson, as one might expect, maintains his boss doesn't get involved in day-to-day business. As for Whitacre's not-so-subtle implication that Henderson's job is on the line, the CEO says: "That's Ed's style. What you see is what you get. Ed is very blunt." Marketing chief Robert A. Lutz adds: "He's an activist chairman. He cajoles, motivates, and uses the occasional veiled threat to induce fear." Whitacre declined to comment for this story, but has said Henderson has the board's support.

The GM chairman is under enormous pressure from his government minders, who profess themselves determined to extricate the Obama Administration from the company next year. Treasury officials told Whitacre to lean hard on Henderson to change GM's culture and show results quickly. Whitacre, by all appearances, has taken his mission to heart.

TRANSFORMING A CULTURE

On Aug. 3, shortly after GM emerged from bankruptcy, the board held its first meeting at the automaker's sprawling Tech Center in Warren, Mich. Afterward, Whitacre told Henderson that the board wanted a path to growth and a means to measure progress. The previous board had essentially rubber-stamped management's strategy. Henderson, say two people familiar with the meeting, told Whitacre that he wouldn't be losing any sleep over the new board's orders. Whitacre, these people say, told Henderson that he would be wise to take the directors seriously.

Not long after, Whitacre held a series of so-called diagonal slice meetings, a long-standing GM practice in which top executives seek feedback from white-collar people at all levels of the company. During one of the meetings, according to one person briefed on the sessions, Whitacre said he wanted to see progress in 12 weeks or managers could be replaced. His comments rippled through the company, putting people on edge.

Part of Whitacre's strategy is to transform a cautious culture into one that takes risks. Henderson and Lutz wanted to spend hundreds of millions of dollars on GM's post-bankrupcty ad campaign. They fretted that tight budgets would short-change the push. But when they met Whitacre for lunch at his San Antonio club in July, the chairman didn't balk. "Let's not be prisoners of short-term profits," Lutz recalls him saying.

Whitacre also has set market-share targets, typically the CEO's call. Insiders say he wants GM's U.S. share, currently at 19.4% and down more than two points from last year, to get north of 20% next year. And he wants to achieve those gains without profit-killing rebates. How much of a stretch is that? A big one. GM has shrunk its family of brands, vehicle lineup, and manufacturing capacity. In fact, the board has questioned management about the product line, wondering if there are enough new cars to hold GM's current share, let alone hit Whitacre's goals.

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