December 10, 2008 - General Motors, Detroit MI

Wagoner under fire: Will GM's chief stay or go?

As the U.S. government nears a deal to save General Motors Corp, a debate rages over whether Chief Executive Rick Wagoner's job should be spared in the bailout or its most visible symbol of shared sacrifice.

With pressure mounting on Mr. Wagoner to step aside, GM on Tuesday asked its white-collar employees to add their names to a petition of support to be forwarded to the U.S. Senate.

U.S. Sen. Christopher Dodd, a Connecticut Democrat, touched off the latest controversy over Mr. Wagoner's role at the top U.S. auto maker when he said on Sunday Mr. Wagoner should step aside as Congress weighs a $15-billion (U.S.) industry rescue.

President-elect Barack Obama, without naming names, said the current auto industry management should be ousted if it doesn't understand the need to make changes.

But with the steady backing of GM's board, Mr. Wagoner has faced down previous threats to his leadership, including one in early 2006 as GM's sales began to sputter and losses mounted.

Now, with GM at the brink of collapse, Mr. Wagoner's allies have rallied to his defence and argue switching management now would risk deepening the crisis for a fragile industry.

GM board member Kent Kresa said GM's board met by telephone Monday, but he would not say whether Mr. Wagoner's future was discussed.

Other chief executives have been ousted as part of the government's financial industry bailout. American International Group Inc. replaced its chairman and CEO in September after the Federal Reserve took a controlling stake in the troubled New York-based insurer, and the CEOs of mortgage loan giants Fannie Mae and Freddie Mac were forced out.

Mr. Kresa, chairman emeritus of Northrop Grumman Corp., said he does not think Congress will require Mr. Wagoner's departure, and it would be a terrible move because Wagoner has made great progress restructuring the auto maker. But if the board has to choose between vital government money and Mr. Wagoner, it will have to consider his ouster, he said.

“If it is contingent on any particular element, whether there's an oversight board, whether the full board needs to go, whether Rick needs to go, whether we have to move from Detroit to Washington, D.C., we need this resource in order to keep this great company going, and we're going to have to look at whatever the demands are from the individual who's bringing the money,” Mr. Kresa said. “But I don't think it's reasonable.”

Lee Iacocca, made famous as the CEO who steered Chrysler through a turnaround on the strength of $1.5-billion in federal loans in the early 1980s, endorsed Mr. Wagoner and his peers at Chrysler LLC and Ford Motor Co in a statement on Tuesday.

“They're by far the best shot we have for success. I say give them their marching orders and then let them march. They're the right people to get the job done,” Mr. Iacocca said.

Tim Leuliette, chief executive of auto supply firm Dura Automotive Systems, said calls for management changes could make a bad situation worse.

“The refuelling plane is poised to link up mid-air and give them jet fuel, but the guys on the ground are calling for a change in pilots before the planes link up,” he said.

Critics fire back

Critics, including governance experts, are unmoved by defences of Mr. Wagoner, Detroit's longest-serving CEO, who ascended to the top spot at GM in 2000.

Ford Motor Co. CEO Alan Mulally joined that company in 2006 from Boeing Co. Bob Nardelli, controversial for a $210-million severance package from the top job at Home Depot, was named Chrysler CEO in 2007.

“I just find it very perplexing,” said Jonathan Macey, a Yale law professor who has studied the failures of corporate boards. “Clearly, changes have to be made in these auto companies to make them competitive. It's also clear that Mr. Wagoner's not the right person for the job.”

Others see GM's slide toward failure under Mr. Wagoner's tenure as sufficient grounds to oust him and to shake up a complacent board that has failed in its role as watchdog. Eight of the 13 directors on GM's board have served with Mr. Wagoner since 2003.

“I think the removal of the CEO has to be part of the picture,” said David Allon, portfolio manager at Firstrust Financial Resources in Philadelphia, who owns GM preferred stock. “I think the board has to recognize that Wagoner is in a self-preservation mentality.”

Mr. Wagoner, 55, is a veteran of GM's financial operations. Since his ascension to CEO, GM's stock has lost more than 90 per cent of its value and common stock holders could be wiped out as GM restructures its balance sheet.

While he has agreed to work for $1 in 2009, as recently as March GM's board gave Wagoner a 33-per-cent pay rise after two years of self-imposed pay cuts.

Over the past week, both GM and Mr. Wagoner have offered apologies for the automaker's costly failures in recent years, including a too-heavy reliance on trucks and SUVs.

In an unusually frank apology, GM this week ran a print ad acknowledging that it had “disappointed” and even “betrayed” U.S. consumers with earlier sub-par cars and trucks.

GM first argued that it had been driven to the brink of failure by the credit crisis. The company dropped that line in the face of withering criticism over Mr. Wagoner's decision to travel to November bailout hearings in a private jet.

Harley Shaiken, a labour law professor at the University of California in Berkeley, said it was fair that Mr. Wagoner's tenure was a question up for debate now.

“It doesn't mean that is the only alternative. It does mean that it needs to be an option,” he said. “It doesn't mean that getting rid of Wagoner is a necessity to go forward, but it does mean that you are looking at some fundamental changes.”

But Jeffrey Sonnefeld, a corporate governance expert at the Yale School of Management, said it was already time for GM's board to consider a charismatic successor for Wagoner to lead a turnaround, such as Carlos Ghosn, CEO of Nissan-Renault.

“I've been a supporter of Rick Wagoner's good faith efforts at General Motors, but I think we're at the end of the tether,” he said, saying the right outsider with a mix of marketing and manufacturing experience would be less wedded to defending past decisions at GM.

“The transformation would be magical. It would make business history,” Mr. Sonnefeld said.

In an interview last week, Mr. Wagoner was asked if he would step down if demanded by lawmakers.

“It's not clear to me that experience in this industry should be viewed as a negative, but I'm going to do what's right for the company and I'm going to do it in consultation with the board,” he said.

The insider most often mentioned as a replacement is Frederick “Fritz” Henderson, who was named president and chief operating officer in March after serving as chief financial officer since 2006.

Analysts say a serious outside possibility is Nissan Motor Co. and Renault SA Chief Executive Carlos Ghosn, who has industry knowledge and has successfully restructured Nissan. Nissan called such talk speculation.

Original Story - Globe and Mail