Ed Whitacre’s autobiography, American Turnaround: Reinventing AT&T and GM and the Way We Do Business in the USA, chronicles the struggle between a CEO with Texas ’tude and a presidential mandate that ran up against the cloistered legacy culture of the old General Motors.
The GM Whitacre inherited was in the later stages of decline. He describes what greeted his arrival: “On June 1, 2009 GM filed for Chapter 11 bankruptcy court protection. In its formal filing to the Court, GM listed liabilities of $172 billion and assets of just $82 billion. GM shares, which lost 95 percent of their value between 2000 and 2009, were instantly rendered worthless.”
After retiring as CEO of AT&T, Whitacre was sitting in his nondescript offices in San Antonio, Texas, when he got a call from Obama “car czar” Steve Rattner. Rattner got right to the point: “We’d like you to become chairman of General Motors.” Whitacre was an inspired choice. He had a long history of working with powerful unions, was a major-league global CEO, and understood the regulatory mind-set. And he had a ready answer for Rattner: “No, thanks.”
On a subsequent overseas trip, Whitacre pondered the larger predicament of the American economy and relented on one condition: he would be a passionate advocate for a special kind of change, his kind. “Companies aren’t democracies; you can’t run management by consensus,” he declared, with a message for GM management: “If you are not on board with the plan, for any reason, then you will be leaving.”
Whitacre could not have been clearer about his intention to disrupt the status quo than if he had test-driven a new Dodge Ramcharger right through the GM executive suite. And there is little doubt about where Whitacre places the blame for the company’s troubles: “The economy didn’t do that. The union didn’t do that. And the Japanese yen certainly didn’t do that. GM’s management is 100 percent responsible,” Whitacre writes.
His resolve doubled when pundits began referring to GM as “Government Motors.” Because Whitacre saw his role as a force of change, he doesn’t dwell on some of the solid GM virtues that deserve mention— it was one of the first major companies to adopt corporate governance guidelines, to create an independent chairman, and to employ outstanding executive compensation practices long before it was popular to do so.
While Whitacre was a formidable change agent, he was not the kind recruited from the PowerPoint brigade at Harvard Business School. He was driven by a set of old-fashioned and very Texan values: thrift, candor, hard work, an aw-shucks modesty, and above all, dedication to business history’s biggest turnaround. He expected no less of himself than those he worked with, whether as board colleagues or employees. He set an example by carrying his own luggage, driving his own car, and, as when he first took on the CEO role at AT&T, closing the executive dining room. When he paid a visit, he announced himself simply: “I’m Ed Whitacre, and I work at GM,” never “I am chairman and CEO.” He didn’t do e-mail either. He wanted to look people in the eye.
The board had serious reservations about GM’s management, with director (now CEO) Dan Ackerson saying, “GM was one of the worst companies he’d come across in his entire life.” After the board had its first meeting (which they described as lackluster) with new CEO Fritz Henderson, Whitacre delivered the verdict: the board would give Henderson 90 days to prove his mettle.
Whitacre was a stickler for organizational simplicity, and he was dumbfounded that Henderson would allow himself as many as 20 direct reports—something Whitacre called “red flag number one.” He could not believe a chief executive could focus properly with that much distraction. When Henderson offered later to assume the CFO role as well, Whitacre just shook his head. Time management was another obsession. As a veteran board member of companies as complex as Exxon, Anheuser-Busch, and AT&T, Whitacre was accustomed to running board meetings efficiently, and they never lasted more than three hours. At GM, they went on all day. That, he said, was “red flag number two.”
Whitacre gave Henderson a simple set of instructions for his 90-day probation: “Get GM back on track, and employees out of their funk and reengaged…communicate a clear and compelling vision that people could rally around.” Whitacre was willing to help in any way, but it was “up to Fritz as CEO to make sure his team delivered.” After several months, the GM board determined that Henderson hadn’t heard the new music, and he was out.
There wasn’t time for a well-thought-out succession plan—and the TARP funding capped executive salaries at $500,000 per year. Looking around at the board itself, there was scant enthusiasm to fill Henderson’s shoes. Faced with few obvious choices, Whitacre offered to take on the job for an interim period. Whitacre’s story of GM’s turnaround takes place over the next six months of his tenure as CEO. He threw himself into the work with a level of enthusiasm and energy that must have seemed astounding in a 68-year-old, especially to his detractors. And as soon as the turnaround was clearly on its way, he resigned, as he said he would.
Like most good reads, Whitacre’s story has a happy ending: when GM held its IPO on November 17, it raised more than $23 billion for the company. While the U.S. Treasury still has an ownership stake, it’s no longer called Government Motors, and Whitacre is back again in Texas.
Nine Shades of Corporate Gray
Shareholder activist Robert A. G. “Bob” Monks will soon publish a new book— working title: Corporate Competitiveness. His ninth book on the subject, this one will “focus on corporate power—not only in business and finance, but power in our government and even over the public dialogue about what is best for our country.” Those familiar with Monks’ persistence in this domain may be tempted to nickname the book Die Hard 9, but for connoisseurs of his writings, the better comparison would be to Claude Monet’s Rouen cathedral series, which depicts the massive structure multiple times to capture its complexities. Each of Monks’ books is an entirely new and useful (if troubling) look at the behemoth we know as the modern multinational corporation.
Monks started his corporate series more than two decades ago when he joined fellow activist Nell Minow to write Power and Accountability (1991), lamenting that corporations had too much of the former and not enough of the latter. The two then co-wrote the 1995 classic Corporate Governance and co-authored a series of editions (most recently the fifth), as well as Watching the Watchers, bearing down on boards. Monks would go on to write the Emperor’s Nightingale (1998), depicting the corporation as a complex adaptive system, and The New Global Investors (2001), focusing on global investor impact. His novel Reel and Rout (2004) took readers into the sometimes-ruthless world of global corporate takeovers. Corpocracy, a blatant critique of large-company CEOs, followed in 2007. Monks’ most recent offering (2011), co-authored with a self-described “pro-corporate conservative” (the undersigned reviewer) was Corporate Valuation for Portfolio Investment— a doorstopper for sure, yet also a page turner for those wanting to know the metrics for measuring not only assets, earnings, cash flow, and stock price, but also governance—a term that Monks and Minow helped to put on the map.—Alexandra R. Lajoux
Private Empire: ExxonMobil and American Power, by Steve Coll, begins in 1989 with the Exxon Valdez oil spill—an event that forever changed the definition of energy risk. We see the spill through the eyes of Exxon CEO Lee Raymond, who immediately recognized that threats were no longer limited to Arab sheiks and Russian oligarchs, but lurked close at home—in human error and in the unforgiving activist and political worlds that collided when the Exxon ship spilled 11 million gallons of crude oil into Alaska’s Prince William Sound.
Since then, the company has tightened controls over every aspect of its environmental exposure, but Coll tells the larger story of how Exxon’s culture has shaped and been shaped by America’s energy and environmental policies.
The account of Raymond’s stewardship of Exxon through this and other crises makes this book a veritable trove of insight into managing complex global organizations. It takes the reader into Raymond’s negotiations with Russian President Vladimir Putin, African despots, and, of course, American regulators and through congressional hearings, which he rightly despised.
The reader comes away with a profound respect for the way Exxon conducts business and its never-wandering eye on shareholder value. To some extent, ExxonMobil has played a major role in maintaining energy price efficiency and stability, which has been a gift, albeit a somewhat thankless one, for the world. If Lee Raymond and current CEO Rex Tillerson were not such astute players on the global scene—if, for instance, they did not pay as much attention to safety, environmentalism, and political machinations— then we would be a lesser country for it.
A Story of Conviction
Roger Donway’s Rich-Hunt: The Backdated Options Frenzy and the Ordeal of Greg Reyes relates the story of one of the few CEOs to be convicted and sentenced for stock options backdating-related charges, an action that not long ago was not even considered improper, much less criminal.
Reyes joined Brocade as CEO at age 36, but his sales and marketing background hardly prepared him to think through the incentives jungle that existed in dot-com bubble America.
Reyes’ Kafkaesque trial ultimately leads to his capitulation as an alternative to a complete loss of sanity. In the end, Reyes served 18 months in prison and paid a reported $15 million fine.
Directors familiar with our culture of judicial overreach and an activist, blatantly political Department of Justice, will warm to Donway’s message. Rich-Hunt is yet another compelling reminder that the long arm of the federal government can be difficult, if not impossible, to defend against.
A Great American Novel
The Navigator, a Wall Street and Washington thriller by corporate director Michael Pocalyko, begins as the anonymous title character flicks a lung-burning Lucky Strike into mud (hrssp) seconds before joining the rough justice and chaos of a concentration camp liberation that would leave him victorious but shattered.
That blend of fire and ashes sets the tone for what will follow. There’s an almost nuclear energy emanating from Warren Hunter as he engineers a high-risk, high-return, trillion-dollar technology play from the command center of the boardroom, where his place is always at the head of the table. Not so for the depressive Rick Yeager, whom we first meet seated in a “wobbly molded chair missing the end tip of one leg” as he surveys the “detritus” of his entrepreneurial dreams on an industrial carpet “thick with office litter, bent paper clips, and dust dogs.”
Who is “the navigator?” Will Warren and Rick exchange destinies as one fails and the other succeeds? And when women enter the scene, will they make it their own—redirecting or redeeming— or will they break that ancient structure in new ways?
Read and revel, but be warned. Plot twists, character breakthroughs, and philosophical musings lie ahead—as addictive as cigarettes, and with lingering effects.—ARL