Exit of GM's Fritz Henderson: Four messages
The unexpected departure of GM CEO Fritz Henderson signals the board's impatience with the pace of change – especially compared with Ford.
The surprise departure of Fritz Henderson as the top executive at General Motors (GM) leaves no doubt: Times are changing fast in Detroit. The move comes as GM has exited from a government-assisted bankruptcy, but still owes taxpayers billions of dollars.
Speed was the watchword for GM Chairman Ed Whitacre, as he announced Mr. Henderson's resignation after just eight months as chief executive officer. He praised the outgoing chief executive officer but said, "We now need to accelerate our progress."
Mr. Whitacre stepped into the role of interim CEO while the board searches for a new chief executive.
The move sends some important signals:
1. Rival Ford is winning with its outsider-as-CEO strategy.
Whitacre, who came to GM from a career building a telecommunications empire, didn't point to Ford directly, but Detroit's story of the year is that GM's long-time rival has been moving more nimbly through recession. Ford's sales are down 18 percent this year, compared with 2008, but GM's sales volume is down 32 percent. Ford has even done better, by that measure, than Toyota, Honda, or Nissan.
Many analysts are expecting Whitacre to look for someone from outside GM, and possibly from outside the industry. (Mr. Henderson was a quarter-century employee of the auto giant.) It's not just because of Ford's success, but because of Whitacre's statement that GM hasn't been moving fast enough. An outsider might have an easier time coaxing cultural change at the company.
But not just any outsider will do, analysts say. "You’ve got to move quickly. You also need to move correctly," says Rebecca Lindland, an industry analyst at IHS Global Insight. The auto business is notoriously complex, making that a delicate balance.
2. Corporate boards are getting more powerful and assertive.
Whitacre's ascent to interim CEO isn't something that happens every day in corporate America, but there’s been a “steady increase in how directors are participating in the affairs of their respective companies," says Randy Ramirez of BDO Seidman in New York, which advises corporations on compensation. The shift began, he says, with the Sarbanes-Oxley law earlier in this decade, under which directors and top executives can be personally liable for corporate missteps.
In the process, director pay has also been rising, according to a survey released this week by BDO Seidman.
"That is the result of more demand on board members to become very entrenched and very familiar with the details of the company," Mr. Ramirez says. In some instances lately, GM's board had been at odds with Henderson.
3. GM is navigating politics as well as business.
The Obama administration said Tuesday in a statement that "the Administration was not involved in the decision." That statement is consistent with what the White House has said from the get-go of its expanded GM rescue this spring – that it wants to leave operations to the company.
But the firm is largely owned by the US and Canadian governments, which put up the money that allowed the firm to restructure in bankruptcy, and hired Whitacre in June. And Obama's automotive task force has shared Whitacre's bias toward speedy changes. Whitacre said Tuesday that GM's goal is "a return to profitability and repaying the American and Canadian taxpayers as soon as possible."
4. GM’s road ahead is tough.
Even if GM succeeds in streamlining operations speedily (it is in the process of downshifting from eight brand names in its garage to four), and rebuilding trust with car buyers, the company won't be out of the woods. Time is of the essence, not just because Whitacre says so, but because the Asian invasion that began with Japan and South Korea is far from over. Competition from China and India will be ramping up in coming years.
Some analysts are optimistic that GM will turn the corner and remain a global industry leader. It has lots of talent and technological know-how. But even if GM gets back into fighting shape, it's "going to still face tremendous competitive pressure," says Don Grimes, a University of Michigan economist who follows the automobile industry.
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