Dan Akerson Takes the Wheel at GM

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After his turns at MCI and Nextel, says James A. Attwood Jr., who later worked with Akerson at Carlyle, "Dan was regarded as the best executive in telecom."

Then his good fortune turned. In 1999, McCaw tapped him to become CEO of Nextlink, which provided voice and information technology systems to businesses and soon changed its name to XO Communications. At XO, Akerson tried to make another growth play. The company was expanding its network rapidly, and Akerson decided to fund it with debt. The company's bankers suggested a safer method: equity instead of debt. Akerson refused. XO's stock price had just dipped below $40 after reaching a high of $66; Akerson said he would be selling the stock too cheaply, Grubman recalls. The share price never recovered, and the debt load became too heavy. A GM spokesman says Akerson took XO over when it was losing money and returned it to positive cash flow. But after the credit markets froze up in 2002, the company filed for bankruptcy protection. Investor Carl Icahn acquired the firm after buying its debt in bankruptcy. Akerson "can be combative and very harsh," says Stephen Winningham, a former banker for XO who is now managing director of the major corporate group at Lloyds Banking Group in London. "Those same characteristics make him decisive and will benefit GM."

XO wasn't Akerson's last misstep. In 2003, he became a managing director at Carlyle Group, where he ran a fund that two years later acquired Hawaii Telecom from Verizon (VZ) for $1.6 billion—a deal brought to him by fellow managing director Attwood and former Federal Communications Commission director William E. Kennard. Hawaii Telecom was a landline phone service provider with no mobile service in a state that was rapidly going cellular, says Attwood. The company also had serious technology problems. As people switched to mobile phones, Hawaii Telecom lost more than 100,000 of its 700,000 customers, Attwood says. Eventually, it ended up in bankruptcy. "We thought we could run it better," Attwood says. "We thought we knew the business. It was a fundamentally flawed thesis."

A Devil's Advocate

Those who work with Akerson say that when debating business plans and strategy, he doesn't demonstrate an interest in being liked, which makes him an effective devil's advocate. Late last year, the GM board was reviewing a GM ad campaign that promoted its fuel economy in comparison to Honda (HMC) and Toyota (TM) models. Akerson asked the marketing executives why the ads placed so much emphasis on fuel economy. "Nobody cares about fuel economy," one executive recalls him saying. "When it's empty, you fill it up." GM executives patiently explained that the company's image had taken a beating for selling inefficient trucks and SUVs. Two others in the meeting say Akerson's tough line of questioning was his way of pushing GM's managers on whether fuel economy was really the best point of differentiation for the company's cars. He thought overall quality was a stronger selling point, and GM later began using that pitch with its "May the Best Car Win" campaign.

During another board meeting, Akerson questioned Henderson sharply after the company lost $1 billion on currency exchange in Korea. He demanded to know what steps Henderson had taken to manage risk. Henderson said GM had no risk management policy for currency trades and didn't need one, according to a person with knowledge of the meeting. Akerson argued that GM should not be hedging currency; it should be using hedges only for raw materials such as steel and aluminum, he said, according to two people with knowledge of the meeting. GM's board is now coming up with a risk management process, which Akerson will have to carry out as CEO.

Above all, Akerson will have to complete Whitacre's reengineering of the corporate culture: trimming bureaucracy, canceling meetings, and avoiding the strategic analysis paralysis that comes when managers share responsibilities—"so no one was really responsible," as Whitacre says.

In an Aug. 12 conference call with reporters, Akerson said he would stick with Whitacre's plan. "Ed's vision of simplifying the business, of giving people the accountability and authority to do their jobs, has served the company well," he said. The difference between the two, says retired GM Vice-Chairman Robert A. Lutz, is that Whitacre has better ears. "Sometimes these guys start out tough and then settle down," Lutz says. "He needs to develop his listening skills." A dozen colleagues—the directors of General Motors—will be listening hard to make sure he does.

Welch is Bloomberg Businessweek's Detroit bureau chief.

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