And so the unthinkable has finally happened. The company that was once the marvel of the world, its largest industrial corporation and the first stock listed on the NYSE, has become the biggest industrial bankruptcy in history. Its shares, long the most coveted among blue chip portfolios, have seen their value slide into the pennies and are about to be removed from the fabled Dow 30 index. It is a business equivalent both as dramatic and unthinkable as the sacking of ancient Rome (by the Vandal King Geiseric in 455 AD) or the sinking of the Titanic (1912). Perhaps things will someday turn around for the once mighty automaker. But, for now, General Motors is just another company making its way through the court of losing enterprises. Whatever happens, the symbol GM will never mean the same when measured by industrial size, labor force or customer trust.
Who killed General Motors? It is a shame that the legendary management expert Peter F. Drucker is not around to conduct the post-mortem. As a young scholar, he was permitted a rare glimpse inside the company then headed by Alfred P. Sloan Jr. Drucker’s Concept of the Corporation, long required reading for generations of managers, documented his journey through GM. I think he would say that the company was a victim of its own success. The greatest dangers lurk for an organization-especially a large one-not when it is struggling to climb to the top of its industry, but when it actually reaches the oxygen-thinned summit. It is then that the chimera of unconquerability begins to inflict the highest levels of the organization and the curse of complacency soon takes its toll. They begin to believe that it is their brilliance, and not the loyalty of customers, that is the key to their success. They tend to focus inward, on building larger corporate empires and on the endless accommodation of gigantic egos, and not outward on the changing competitive landscape. This misguided thinking in the business boardroom has its equivalent among labor unions, as well.
But success is a jealous mistress who does not like to be taken for granted. It will find many ways of reminding its companion of its caprice if it thinks its importance has been undervalued. For its part, history is always an eager teacher, offering some rather compelling, and often well-written, case studies about the consequences when decision makers fail to appreciate the seeds of change or the rumblings of discontent that are growing around them. This has been a folly that has shaped the demise of nations, political parties and companies. General Motors was not exactly a wise student of history.
The tsunami that many have called the worst economic storm since the Great Depression has seen century-old titans like Bear Stearns and Lehman Brothers swept under like toy boats. Many others would have fallen away had it not been for an overly generous Fed and the U.S. government, which will soon be confronted by the whirlwind of inflation that is forming as a result of its gigantic spending.
What we are beginning to see is a seismic shift in the economic and financial landscape as defining as the earthquakes that toppled the pillars of Athens and Ephesus. Someday, we will look back at companies like General Motors, and its model, which, in many ways, is still operating on Wall Street and elsewhere today, and see their demise as understandable–the natural consequence when men become disconnected from reality and from the constituencies upon whom they depend but too often give barely an appreciative glance. It is part of an era of excess and overindulgence, of management arrogance and governance complacency, whose ending has long been foretold but so often denied as it approached. Indifference to a changing global climate and ever soaring costs of crude oil also played prominently in the fall of this institution. It is true as well that labor in the traditional American auto workforce has become overly pampered and showered with expensive benefits that dampened the ability to compete with foreign controlled companies. CEO bonuses of $25 million and more do little, however, to instill a sense of team spirit or encourage wage restraint. But they do often persuade those at the top to have an unrealistic sense of their capabilities that can often warp sound judgment.
As far as the board of directors is concerned, perhaps no body has less claim on success or a greater one on failure than the directors of General Motors, whose major accomplishment, aside from firing an occasional CEO years too late, was the deft skill they developed in sleeping with their eyes wide open. Many boardrooms across America have meticulously sought to emulate that talent with measurable adroitness.
There will be more GMs that fall by the wayside before the final words on this period are written and demarcation of a brighter and more vibrant paradigm takes shape. Success in the future will be based on principles of ethics, transparency and accountability, the same hallmarks to which society returns time and again after a crisis, whether in the family, a political party or an economy. The paradigm of the old ways, where success meant never looking a customer in the eye, where seven- and eight-figure bonuses were disconnected from performance along with common sense, and where boards of directors presided in splendidly paneled detachment from the mounting dangers that surrounded them, will be regarded as being as dated as the fins on a fifties Cadillac.
Who killed General Motors? Perhaps it is not so much who, but what. It was a time. An age. Most of all, it was the misguided idea that success for the successful was always inevitable, that leaders always knew best and that constituents, whether customers or investors, were not entitled to know the details that affected them. This was the era when big was always considered better and every problem was thought able to be solved just by throwing more money at it. Prominent, too, in this failed model, was the notion that the momentary impostor called conventional wisdom holds all the answers, that critics, or even disaffected customers, are simply ill-informed and not portents of strategic change that should be heeded, and that the best way to make a superhuman hero out of an ordinary CEO is to pay him more than any human could ever justify.
What defines this new paradigm of business? More than anything it is the transparent connection with all the players and events it impacts and relies upon. Shareholders and consumers will no longer be taken for granted and will exact a heavy toll when they are. The same is true for the planet, and the economy, both of which have already begun to rebel against having their stewardship placed in the hands of gas-guzzling titans and credit default swap mega-millionaires. What the world is looking for is a system of capitalism that not only creates value in the long run but is also governed by values in its daily interactions.
Maybe, if things go really well, a shiny, more efficient GM will emerge. It happened in the 1930s when Mr. Sloan arrived on the scene and took the company on a course that revolutionized management and production techniques so much that GM not only went on to decades of untold profitability for itself, but it also set the benchmark for much of American industry. But the fact is that the Sloans of the management world are rare, and the road ahead for GM is perhaps steeper than can be successfully navigated. Given our skepticism about the original TARP, which has been shown to well placed, we would be less than candid if we did not express serious reservations about the viability of the plan for GM’s survival, and about the price tag that comes with it in the form of substantial public funds from the United States and Canadian governments. These are “investments” taxpayers are unlikely to ever see repaid.
But if there is any chance for GM, a radically different mindset must emerge. A new paradigm for how it relates to society, and how it governs itself against those responsibilities, is paramount. It is paradigm that includes the building in the organization, at all levels, of more widows to see how society is changing and what its customers require, and fewer mirrors to flatter top management’s ego and big labors desires. GM’s hope is not unlike a large part of the business world’s in that regard, for much in the governance and leadership of Wall Street and the corporate sector needs to change in the wake of the crisis that their excesses and failures have produced. The answer lies in finding a more winning model that balances the interests of workers with customers, boards with shareholders and a global ecology with generations of humanity who still look to capitalism as the best hope for individual advancement, but also for moral approval and sound judgment in how it is created.