GM's CEO Has Done a Horrendous Job -- So Why Does the Board Still Support Him?

In the past three and a half years, General Motors (GM) has lost more than $67 billion. In the past eight years, the company's market cap has dropped by $37 billion. Add the two numbers together, and GM's shareholders have lost more than $100 billion so far this decade.

GM's CEO Rick Wagoner has presided over all of this value destruction. This is also the only period he has presided over. Before taking the reins as CEO in 2000, Wagoner ran GM's North American division, which did fine when gas was $1.50 a gallon but is now losing more more than $3 billion a quarter thanks to an over-dependency on trucks and SUVs.

Other highlights of Wagoner's 8-year reign, courtesy of George Anders at the WSJ:

* GM stock down 83%
* 50% dividend cut
* Global unit market share down to 12.5% from 25% (vs. Wagoner's pledge to take it to 28%)
* Looming liquidity crisis

And yet, despite all this, GM's board remains in love with the man. Joe Nocera in the NYT:

"Rick has the unified support of the entire board to a person," the company's lead outside director, George M.C. Fisher, told Bill Vlasic of The Times in an interview Wednesday morning. "We are absolutely convinced we have the right team under Rick Wagoner's leadership to get us through these difficult times and to a brighter future."

George Fisher? Who is George Fisher again? Oh, yes, the GM director who has publicly admitted that he doesn't give a damn about the stock price.

George Fisher is also the former CEO of Eastman Kodak -- responsible for the company for four dismal years in which it began to get demolished by the transition to digital photography. Perhaps this explains why Fisher and the rest of GM board remain so steadfast in their support of Wagoner: It's not his fault that the company never diversified its US product line away from gas guzzlers, lost market share, lost most of its market value, and lost more money in three years than just about any company in history. It was an act of God!

The NYT's Nocera thinks Fisher's empathy for Wagoner is the main reason the board is supporting him. And he makes a persuasive case:

So what gives? From what I hear, Wagoner is a very nice man, so that helps. And it is, without question, a difficult environment. But I'm thinking something else is at work too: CEO empathy. Fisher, you see, was once the head of Kodak, a company that, under his tenure, failed to adapt quickly enough to the digital world -- and lost its leadership in cameras and film as a result. When he departed in 1999, after four years on the job, his tenure was widely viewed as a failure, something Kodak's subsequent dismal performance has only confirmed. When Wagoner gives his latest excuse for the company's latest loss to the board, Fisher feels his pain. Which is also why Wagoner will be allowed to continue his record-setting performance, at least for the foreseeable future.

If GM's stock price falls much farther, the company might make an attractive buyout candidate. It would be interesting to see whether, say, Steve Schwarzman's Blackstone would be as enamored of Wagoner's performance as George Fisher is.

See Also:
British Businesswoman Shoved Onto Train Tracks After Asking Men To Stop Smoking
GM Director Admits He Doesn't Care About Stock Price

Comments

[Elis]

Hey GM Board....Give me a chance to run the company. I want $100,000 a year, and a ride to and from work, lunch every day (please make sure its a salad, yogurt, fruit, things like that, as I need to loose weight), and DO NOT give me any other kind of bonuses until I make the company show a profit AND every employee on the line is getting the same bonus. If I turn the company around, and earn a bonus, divide that bonus by the number of employees. That simple.
What I'll do. Get into cahoots with the electric companies, maybe buy a few companies that make and put up windmills. Lobby the govt with the electric companies, to get ALL cars and trucks, to run on the new, 400 mile battery that GM probably has the plans for now. Market the cars and trucks it goes into, and price them at no more than $30,000 for a well equipped ride. Make them out of as many US made parts as possible. Realize the UAW is not around to grind automakers into the dust.

[dctackett]

it's age-old... they're just aristocrats... people just generally know less about them, they only know about "GM" or whatever business title... same shiz, different day... and it's easier to get away with it, because the majority of average people out there have their attention on their own jobs, their own families and whatever the talking heads on TV are saying...

[falco]

Great and true comments here. They are on each others boards, they all graduated from the same colleges, one big good old boys club (and if you check their backgrounds, most of the come from extremely wealthy and connected families). And it does make you wonder what the plan is, behind the scenes, for America when you see these huge CEO and corporate governance compensations, the huge losses for stock holders, and no money for wages and benefits. It's called the raping of America. It's called benevolent fuedalism and it aint so benevolent anymore. If they suck out all the money, invite war to our soil, wipe out millions of people, they can insure their place in the elite group when it all shakes out. Who needs so many people here on earth mucking up the environment and polluting, and hogging all the food? Let is all crash while they stash the cash!! Russia, Iran, Venezuela, the Bushes, et al are all playing their parts very well - pretending that they are at odds. Is it them that get bombed? When is the last time you felt they cared about us?

[mlaiuppa]

They should get rid of both Wagoner and Lutz. They're both millstones living in the good ol' SUV days of cheap gas. The vaporcar Volt isn't going to save them.

Why did they crush the EV1s? When they Prius took off, why didn't they put the EV1 back into production and start work on the EV2? They'd have an EV3 by now and be selling rings around Toyota. Instead we have the promise of the (re)Volt(ing) that gets more and more expensive as it's release date gets pushed farther and farther back.

NO BAILOUT ON TAXPAYER MONEY! These guys have made one bad decision after another and bankrupted their company with obscene salary bonuses and perks while laying off workers and losing billions. No corporate welfare. Sink or swim. *That's* free market capitalism.

[RGKahn]

Henry Blodget: GM's CEO Has Done a Horrendous Job -- So Why Does the Board Still Support Him?
In the past three and a half years, GM has lost more than $67 billion. CEO Rick Wagoner has presided over all of this value destruction."

The reason is fairly simple. In the past the Board of Directors and the Chairman of the board had two functions. These were oversight of the corporation and long term planning, These were people who cared about the fiscal future of the company and it's physical future. In the present board of directors they care more for their perks, supporting the man that got them the place on the board and how many other companies they have have seats on their board as well. They have become professional members of board of directors. It has become a mutual masturbation society. It is all about them and noting about the company or it employees. Their motto is "what's in it for ME!"

[Rook119]

GM spends millions creating Saturn to compete with Toyota's and Honda's small cars. Saturn quickly gains credibility as being a quality car and sells well. However gas prices stayed low so naturally GM went back into their pre-1975 mindset (small cars=less money) and s#$% on the all the good will that Saturn built up by saddling them with Cavelier, Sunfire and Alero clones. All the while Hyundai kept working and working and took its place.

The Saturn Astra is probably the best car GM has designed in over a decade. Unfortately its been out in Europe for 4 years now and is outdated.

Ironically a suprise hit for GM has been the Chevy Aveo, which is made in South Korea.

Who knows maybe Wagoner's long term stragety is to bankrupt the company so they can lay off more workers and welch on their pension requirements. He doesn't care anyway. A signifigant amount of that 30 billion that GM is quickly going through is already set aside for the board's and Wagoner's severance pay.

[topspin]

Cronyism.

[rpahk]

One wonders why GM is sitting on 30 billion in cash but did not bother to modernize their production lines to enable a quick shift from one model to another to meet changing demands. Honda can change models in 10 days....GM takes a year. But, then, the clowns on the board supporting this failure of a CEO don't care about anything other than their comfortable perks. The corporate failures of leadership in America parallel the same failures in government. Until shareholders are empowered to vote out directors and CEOs, nothing will change.

[flabingo]

Let's see. They "killed the electric car" and decided to make Hummers. The Alfred Sloan Institute at MIT will have to change it's name. Ain't a good idea to be associated with one of the greatest management failures in history. Maybe Carl Icon will buy control. Google's market value is over $500 billion, GM's is about 6 or 7 billion. It will be an interesting case study at the business schools. They will follow the airlines, declare bankruptcy, tear up the union agreements, screw the pensioners, and get their golden parachutes. What a country!!!!

[mosh]

Mr. Blodget - since you posed the question - why does the board still support him? I would be interested in knowing what you think the answer is, besides the 'empathy' explanation given in the times article. Because the 'empathy' answer sounds just a bit too lame, doesn't it? I am sure empathy plays a role but there must be something else going on here because Fisher is only one voice on that board.

So, please, perhaps you can answer the larger question - why do boards support CEOs who preside over failed strategies ultimately costing the companies (and sometimes the taxpayers) millions of dollars? What is your theory?

[bikerdude]

I think he answered that question...theoretically...The real question is why the stockholders stand for this mugging. Why isn't the press sitting on GMs doorstep asking the hard questions and demanding accountability. This new fad of over compensating failed executives and continuing failed practices is absurd.

[PublicAdvocate]

Mr. Blodget,
This is Capitalism. CEO's exist only to rake for personal profit and lavishing benefits on their boards. Free loading off the backs of the workers, shareholders and government welfare is kosher.
Business has no social obligation to serve the public through high quality products and services nor to the shareholders who have invested and are the true owners of any corporation nor to workers in the USA who have built the company , nor to environmentally responsible practices nor to the U.S. government to pay their fair share in taxes.
Rick Wagoneer is no exception to the rule. He follows Lee Raymond, Bill Gates, Ken Lay, Michael Milken, Dennis Kozlowski, and Dr. William McGuire. All capitulated to the diminished ethical directive of the Milton Friedman and taken it to its next logical level.
Friedman wrote: "The Social Responsibility of Business is to increase its profits".
Since CEOs alone are hailed for making profit, they alone should be the beneficiary all profits. All who worked hard, invested, added their creative influence, and helped create an environment conducive to profiteering should go unrecognized and uncompensated.
Fortunately, Ralph Nader has been the courageous fighter for investor and consumer rights. He'll be discussing his plan to empty the prisons of nonviolent drug offenders and fill them up with corporate criminals today on C-Span. Ralph believes that corporations must never become our masters but always remain our servants if our nation and people are to prosper.

[mosh]

It would be one thing for guys like George Fisher to support Rick Wagoner in name only, that would be bad enough, but these guys sit on each other's boards and vote each other outrageous benefit packages while the company is failing. That's what makes this culture so insidious. There is no accountability.

Meanwhile American CEOs earn 250 times as much as the average worker in the company by what stretch of the imagination are they worth even a fraction of that? It is scandalous. If this weren't all an inside con job, where one hand scratches the other, American CEO jobs could be outsourced, because in any other develped country CEOs earn a lot lot less than their American counterparts.

It is so tiring to hear about what amounts to theft of corporate assets and exploitation of workers and finally the downfall of the American economy.

Fiduciary duty just ain't enough these boards need to be regulated.

[RButler]

Not only do foreign CEOs make less but they produce better results: a double whammy. Consider Hyundai which went from a joke on Seinfeld in the 90s to catching up with Toyota in quality lately. What has GM been doing all these years?


When I think of GM, I think of all the car models that have come and gone due to poor quality. Remember the Corvair, Vega, Allante, that mid-engine Pontiac that I can't even remember the name of and so on. They would bring out a new model with a crappy engine and it would take a couple of years before they got it right but by then the car had a bad reputation. Chevy has a new Malibu but I can't tell you what other models they make any more, they've screwed around so much. They could have built SUVs and trucks AND also built quality economy cars too but they didn't.

[bikerdude]

Who should be demanding this accountability? Stockholders? Employees? Customers????
No one seems to be demanding answers to the hard questions.
I am sick to my stomach when I read about these high flying execs who can't even describe the products they are selling, but have a problem finding enough pockets for the money they are taking for their failed efforts. Can we truthfully say that the most successful companies have the best and therefore the highest paid execs? In my book if you are losing profit, you are also losing salary and bonus. I suspect that the most succesful companies do NOT have the highest paid execs...
Their performance shoud be the criteria for compensation. There should also be ceilings where these "stars'" compensaton doesn't run away from the average workers percentage wise..

[JScott]

It's product folks. Why does it take so f**kin long to develop decent product. They could bring overseas product here quickly if they wanted but noooo, cost too much, can't make enough money on it and they think consumers won't buy---that's total BS. They could bring the Australia developed Middle East marketed CHEVROLET CAPRICE (a Holden Commodore-google id folks) here in months but nooooo, it takes years and years for them to decide to FINALLY bring it here as a Pontiac G8, and the Astra is ONLY beginning to sell here now as a Saturn, and I have seen EXACTLY ONE on the road. And the same could be said for Ford (If Ford brought their Australian Falcon here they would be making a mint) It won't be till probably 2010 that some of this will finally trickle in to this country, but ya wonder will GM and Ford be viable then, and even Chrysler (they've normalized their product worldwide, but I don't see ANYTHING from them that would get em out of their position)

[bikerdude]

When was the last time you heard a CEO talk about design excellence, or time from design acceptance to production line? They know what the public is buying yet they fail to deliver. If Honda and Toyota and even VW can design desirable product and get them to market in a timely manner, why can't the American car builders? The last time I consulted in this area was a long time ago and then the answer was management indifference and incompetence. I suspect that is still the case.

[memphispaul]

Heck, GM has half the market cap of Avon...

Welcome to the new America.

[watchTVgetSTUPID]

The board supports the CEO because GM is not eliminating their medical benefits, the CEO is eliminating medical coverage for the people who need it the most ... the oldest retirees.

The CEO Wagoner is amazingly well rewarded for his poor performance. The board likes it when the CEO gets more money in one month than the Toyota CEO gets in a year. That trickles down and the board is rewarded for their allegence to the CEO ... They also get much more money than their Toyota counterparts.

Remember, when it is time to garrot the stockholders, the executives will get their golden parachutes along with the CEO.