The decision of the General Motors Board of Directors to name Mary Barra as chairman as well as chief executive officer is a mistake, according to the leader of the hedge fund who pressured GM into approving a multi-billion dollar stock repurchase program last year.
“I think Mary has done a terrific job. But if you wanted to promote her, give her a raise,” said Harry Wilson, chairman and CEO of the MAEVA Group LLC, who noted that the broader trend is to separate the CEO job from the chairmanship because the two roles are, or should be, quite different.
Barra was named chairman of the GM board last week. Except for short periods of time, the roles of chairman and chief executive have been combined ever since the retirement in 1956 of the company’s legendary chairman Alfred P. Sloan. Sloan himself served as both chairman and CEO for more than two decades.
The CEO has to concentrate on running the company, while the chairman should have less involvement in the day-to-day functions, instead concentrating on strategic issues and formulating long-term objectives rather than the quarterly profit-and-loss statements.
(GM poised to enjoy long-term success, Ammann says. For more, Click Here.)
The facts are good companies are focused on consistently building great products or delivering services for which people are willing to pay. That is only sure recipe for success and companies that get trapped into meeting quarterly financial objectives are setting themselves up to fail.
General Motors before its 2009 bankruptcy was a company that was setting itself up for failure. “It’s executives were interested in squeezing every penny they could to meet the cost structure,” he said The result was a disaster, said Wilson, who was a member of the Obama administration’s automotive task force, which was responsible for restructuring the company before and after its trip through bankruptcy court.
GM was filled with very smart people with great resumes who worked very hard but sill failed, he said.
(Click Here for details about GM’s potential earnings growth.)
During his presentation at the Automotive New World Congress, Wilson noted that need for strong independent board is supported by the history of the auto industry in recent decades. The car business has gone through and number of scandals, extensive government investigations, bankruptcies and litigation. Car companies also have been fined millions of dollars for their various transgressions.
A significant portion of the scandals that have engulfed automakers such as Toyota, Volkswagen, General Motors and Chrysler can be traced back to weak or disengaged board of directors that failed to exercise the necessary oversight. “The lack of oversight cascaded down through the company,” setting the stage for the problems that have engulfed a variety of different companies in North America, Europe and Asia.
Wilson added he applied the pressure to GM only after the growth in the company’s value had flattened out after the bankruptcy. It appeared GM had reached a plateau, he said.
(To see more about Mary Barra adding the chairman’s title, Click Here.)
However, Wilson said he wasn’t particularly impressed with Sergio Marchionne’s proposal for a merger between GM and Fiat Chrysler Automobiles N.V. The problem was that while Marchionne argued that consolidation would lead to more efficiency, he never seemed to follow up by offering plans for the consolidation itself.
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