Bloomberg News

Barra Defends GM as Senators Rip Into Legal Team for Recall Work

July 17, 2014

Mary Barra

Mary Barra, chief executive officer of General Motors Co. (GM), left, looks on as Rodney O'Neal, chief executive officer and president of Delphi Automotive PLC, right, speaks during a Senate Consumer Protection, Product Safety, and Insurance Subcommittee hearing in Washington, D.C. on July 17, 2014. Photographer: Andrew Harrer/Bloomberg

Senators pressed General Motors Co. (GM:US) Chief Executive Officer Mary Barra about retaining the company’s top lawyer and encouraged her to expand a victim compensation program to more cars recalled for ignition-switch defects.

Barra responded that General Counsel Michael Millikin is a key member of her team for fixing the Detroit-based company and that there were “different facts” in the various recalls and it wouldn’t be appropriate to treat other models with faulty switches the way the company is handling 2.59 million small cars that were recalled years after a part was secretly fixed.

In her fourth appearance before a congressional panel, Barra returned to the Senate, where she faced some of her harshest questioning in April. While again facing some pointed criticism, she was congratulated for her leadership in trying to treat victims fairly and ensure the company never again fails to recall dangerously defective vehicles.

“While General Motors’ legal department came under withering attack from the Senate committee investigating the ignition switch debacle, GM CEO Mary Barra emerged largely unscathed in the questioning, and I’m certain that is seen as a win by the top executive team at GM,” Jack Nerad, executive editorial director and senior analyst for Kelley Blue Book’s KBB.com said in an e-mail.

Bad Culture

Senator Claire McCaskill, the Missouri Democrat, opened today’s hearing into GM’s slow recall of fatally flawed ignition switches by saying the company should have dismissed its top lawyer. A culture of “lawyering up” as a defense against suits “killed innocent customers” of GM.

“I don’t get how you and Lucy Clark Dougherty still have your jobs,” McCaskill said to Millikin referring to GM’s general counsel for North America. “This is either gross negligence or gross incompetence on the part of a lawyer, the notion that he can say, ‘I didn’t know?’”

Barra, in one of her strongest defenses yet of her staff, disagreed. The second-generation GM lifer who was promoted to the top job six months ago reiterated her pledge to fix what went wrong and to dedicate the company to excellence and safety.

“To do that, I need the right team, and Mike Millikin is a man of incredibly high integrity,” Barra said. “He has tremendous global experience as it relates to the legal profession. He’s the person I need on this team. He had a system in place. Unfortunately, in this instance, it wasn’t brought to his attention, frankly, by people who brought many other issues forward. He is a man of high integrity and he is the right person.”

The senator told Barra that excusing Millikin’s inaction represented a “blind spot,” saying that Eric Shinseki wasn’t told of long delays at Veterans Affairs hospitals, yet he was removed as secretary of the V.A. “He’s gone.”

Victim Fund

Millikin appeared before the panel today with Barra, as did Anton Valukas, the lawyer who led GM’s internal investigation, and Rodney O’Neal, CEO of Delphi Automotive Plc. (DLPH:US) Kenneth Feinberg, who is administering the compensation program for victims of crashes involving the recalled Chevrolet Cobalts and other small cars, appeared separately.

Regarding the suggested expansion of Feinberg’s effort, Barra told senators including Richard Blumenthal, the Connecticut Democrat, that it wouldn’t be appropriate to include owners of cars other than the Cobalt, Ion and four other U.S. models.

“I would say there’s very different facts related to what happened with the Cobalt ignition-switch situation versus the other actions we’ve taken,” Barra said. “Very different.”

Record Recalls

GM has recalled almost 26 million vehicles in the U.S. so far this year, an annual record. The automaker has sped up the pace of recalls since February, when the company announced an ignition-switch defect that engineers had known about for years.

Even as Barra plays defense, the record recalls show no sign of depressing the automaker’s vehicle sales or stock price. GM shares had risen 5.4 percent from Feb. 12, the day before it announced the recall that eventually covered 2.59 million small cars, through yesterday’s close. GM shares fell 1 percent to $37.10 at the close in New York.

In her prepared remarks, Barra reiterated that the company’s employees won’t forget the lessons of the recall, and that they’re working hard to address the underlying issues.

McCaskill, in her opening statement, praised Barra for stepping up with courageous leadership. While some see GM’s large number of recalls as a problem, the senator called it a “good sign” that the company is doing right by its customers.

Tough Questions

Barra’s last trip to Congress came about a month ago before a House panel in which she faced some skepticism from representatives who questioned whether she has the ability to change the automaker’s corporate culture.

That hearing took place after GM released the findings of a three-month internal investigation led by Valukas, a former U.S. attorney, that showed that engineers and lawyers knew about potentially faulty ignition switches in the Chevrolet Cobalt and other compact cars linked to at least 13 deaths for more than a decade while corrective action was stymied by a pattern of incompetence and neglect.

The ignition switch can inadvertently shut off when jarred, cutting power to the engine and deactivating air bags. The delay to recall the vehicles has led to investigations by the Transportation Department, both chambers of Congress and federal prosecutors.

Lawyers Failed

Millikin said some of his staff failed the company in handling the ignition-switch defect. He apologized for how the recall was handled and said he will work to ensure such a failure never happens again.

“We had lawyers at GM who didn’t do their jobs; didn’t do what was expected of them,” Millikin said in his statement. “Those lawyers are no longer with the company.”

GM appointed a “well-respected” outside law firm to review the company’s litigation practices, Millikin said in prepared remarks before today’s hearing. The company has hired Quinn Emanuel Urquhart & Sullivan LLP, Jim Cain, a GM spokesman, said today.

Quinn Emanuel is a 650-lawyer business litigation firm with offices in 17 cities, including Los Angeles, New York, London and Hong Kong. Cain said he didn’t know which office or which lawyers would be working on the review. Elizabeth Urquhart, a firm spokeswoman, didn’t immediately return a call for comment. Quinn Emanuel lawyers have tried 2,311 cases and won more than $39 billion in judgments and settlements, the firm said on its website.

The Valukas investigation found that Millikin hadn’t been informed of the lengthy review of the Cobalt switch until the recall decision was made in 2014 and that he was also unaware of litigation involving fatal accidents.

Delphi’s Role

During the June 18 House hearing, Valukas told lawmakers that Delphi didn’t give his investigators access to the supplier’s witnesses and received limited response to requested records.

The parts behemoth, which was spun off from GM in 1997, is now domiciled in Kent, U.K., but retains extensive operations in Troy, Michigan, a Detroit suburb. Delphi, which manufactured the faulty ignition switch to GM’s specifications, has been mostly silent as the recall became a full-fledged scandal for GM, which was fined a record $35 million by the Transportation Department.

GM has replaced about 500,000 of the faulty ignition switches, Cain said today in an e-mail. Delphi has shipped more than one million replacement switches and plans to have delivered more than 2 million by the end of August, O’Neal told the panel.

GM’s lawyers failed the company and the public, Blumenthal said. He predicted a criminal investigation being carried out by the Justice Department would find culpability.

“Lawyers are typically supposed to be the ones who make sure corporations comply with the law in spirit and letter,” Blumenthal said. “Here the lawyers for GM actually enabled cover-up, concealment, deceit and even fraud.”

Feinberg said he didn’t know enough about the fact of the case to have an opinion on GM’s lawyers. He said the parameters of the compensation plan were set by GM.

To contact the reporters on this story: Tim Higgins in Washington at thiggins21@bloomberg.net; Jeff Plungis in Washington at jplungis@bloomberg.net

To contact the editors responsible for this story: Jamie Butters at jbutters@bloomberg.net; Romaine Bostick at rbostick@bloomberg.net Niamh Ring


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