GM board looks to the outside for replacement CEO

AP News
|
Posted: Dec 02, 2009 7:29 PM

In the search for a new executive to run General Motors, outsiders are in.

The troubled company's new government-appointed board wants GM to change faster than it did under fallen CEO Fritz Henderson, and it will look for a replacement from outside the automaker's bureaucratic culture.

But experts say it will be difficult for the board, which has been critical of management and bordered at times on overbearing, to attract top talent.

There also are pay limits imposed by the government on firms such as GM that have received bailout money, and there's Chairman Ed Whitacre Jr., who made Henderson's life so difficult that he suddenly quit on Tuesday.

Whitacre, 68, who will serve as CEO as a search is conducted, may even want the job himself, said Jeffrey A. Sonnenfeld, a professor at the Yale School of Management.

"He also is practicing a highly intrusive model of a chairmanship where he's pre-empted a CEO from having the ability to lead," said Sonnenfeld. "That makes it very hard for somebody to step in there."

Messages left for Whitacre with two GM communications officials were not returned.

The board, according to experts, will look for someone with manufacturing and corporate turnaround experience who understands the complexity of a large but struggling business.

Yet finding someone like Ford Motor Co. did when it hired Alan Mulally away from Boeing Co. in 2006 may be difficult, since GM is 61 percent owned by the government and subject to political winds as well.

Because of the pay limits, GM has to find someone who is financially secure and not looking for a quick payoff, said Gerald Meyers, a former chairman of American Motors Corp. who now teaches at the University of Michigan. They also have to understand autos, something that the current board now lacks, Meyers said.

Of GM's 12 board members, only former Wall Street analyst and GM adviser Stephen Girsky has significant automotive experience.

Nissan-Renault CEO Carlos Ghosn, Hyundai Motor America CEO John Krafcik, and Ford executives Joe Hinrichs, Derrick Kuzak, Jim Farley and Mark Fields probably are on the list, experts say.

Other possibilities include auto dealership chain leaders Roger Penske of Penske Automotive Group Inc. and Mike Jackson of AutoNation Inc., Deere & Co. Chairman Robert W. Lane, and Caterpillar Inc. Chairman and CEO Jim Owens.

Most of the executives' companies have made quick changes to deal with tough economic conditions, and many have made money despite the recession. Most have experience with international operations, which are key growth areas for GM to offset slow gains in North America.

Under Mulally, who is known for holding executives accountable to goals, Ford mortgaged its assets, avoided bankruptcy protection and government aid, and last quarter posted a $1 billion profit despite a slumping auto market. The company also has boosted its quality rankings, something GM has yet to do.

GM's board and Whitacre have locked themselves into hiring an outsider, with repeated statements about Henderson's inability to quickly change the committee-laden culture, Yale's Sonnenfeld said.

But popular thought that an outsider can quickly clean up management is not supported by research, he said. Instead, insiders often are better at bringing change.

Because GM is under enormous pressure to make money and repay $52 billion in government loans, an outsider won't have time to learn the business like Mulally did at Ford, Meyers said.

If the board were to look internally, Vice Chairman and longtime auto industry veteran Bob Lutz is a candidate, although he wouldn't tolerate a combative board, Meyers said.

Lutz, 77, dodged questions about that possibility while subbing for Henderson as keynote speaker at the Los Angeles Auto Show on Wednesday, saying only that Henderson's departure was a surprise unwanted by GM executives.

As one of seven large companies that haven't repaid government bailout money, GM must follow government restrictions that cap cash salaries for most of the 25 highest-paid executives to $500,000 and limit perks to $25,000.

Even though government pay czar Kenneth Feinberg approved a salary for Henderson that was above $500,000, his pay was still reduced 25 percent to $950,000, and Henderson agreed to take part of his compensation in new stock once GM went public again.

There is no provision for new hires in the pay czar's restrictions, but Feinberg must approve a new CEO's compensation.

Feinberg has acknowledged that he is concerned about scaring away top talent. But he has also said outside executives can bring experience and credibility. Feinberg approved a generous pay package for American International Group's new CEO _ $7 million in cash and stock, and a performance-based stock bonus of up to $3.5 million.

In GM's case, analysts say they expect Feinberg to show flexibility, but the restrictions will make the search difficult.

"This will be a very daunting challenge to lead GM. There is a lot riding on GM's success," said David Wise, an executive compensation consultant with the Philadelphia-based Hay Group.

Whitacre, in a video address to GM workers on Wednesday, said the company could bring in top talent by offering a relatively low base salary with stock options tied to GM's success. He didn't know how long the search would take, but said it could be up to a year.

Whitacre may have to recruit even more executives. He and the board plan to oust Chief Financial Officer Ray Young. Other managers who have presided over areas that haven't changed quickly enough could be released, experts say.

Henderson, Sonnenfeld said, wasn't given a fair shake because it's impossible to change a company the size of GM in only eight months.

Whitacre, he said, is famous for being an innovative thinker and a polarizing personality. That means the new CEO either will be a yes man to Whitacre, or the board will have to back away.

"They're going to have to give them a lot more freedom and management discretion than Fritz Henderson was given," Sonnenfeld said.

___

Associated Press Writer Ken Thomas in Washington, Auto Writer Dee-Ann Durbin in Detroit, Real Estate Writer Alex Veiga in Los Angeles and Technology Writer Peter Svensson, Auto Writer Dan Strumpf and Business Writer Rachel Beck in New York contributed to this report.