Theory 1: President Obama replaced Wagoner with Fritz Henderson as CEO of General Motors because he is convinced that Henderson will be a better corporate leader.
Theory 2: President Obama replaced Wagoner with Fritz Henderson as CEO because the A.I.G. public relations debacle taught him not to appear "soft" with corporate leaders receiving government money.
Which theory do you vote for? Which principles do you think should be governing the disposition of leadership in major U.S. corporations?
Both, though self-deception is hard to avoid even if one wants to avoid it.
Can we vote for both? I think he is sending multiple messages. He is assuaging the populists by firing Wagoner. He is telling GM they need a real plan or they will be broken up. He can now lean on the unions a bit since he has fired a CEO.
In principle, corporations should fire management that does not perform. In reality, it just doesnt happen as often as it should. If there really was correlation between performance and pay (plus retention), there should have been mass firings in the financial sector over the last year.
Steve
Clearly 2, but it was also made easier by the fact that this is Rick Wagoner we’re talking about. He was Chairman, President, and CEO of a company that had been failing since 2005. That’s not a hard choice to make under the circumstances. As Steve said, in theory people who don’t do well should get fired. Nobody could fire Wagoner since he was his own boss in 3 different ways.
I suggest Russ Roberts’ podcast discussing GM:
http://www.econtalk.org/archives/2008/09/rauch_on_the_vo.html
In it Rauch explains why Wagoner has kept his job up to this point. The answer: because everyone has thus far agreed that he is genuinely the best leader for GM and that the company would be even worse off without him. He HAS made a lot of cuts that ten years ago would have been unimaginable (union buyouts, plant closures, etc).
The jist, in the end, is that GM has a massively dysfunctional culture and companies like that get wiped out by the market.
It is the board that should be fired. After all, the main function of directors of the board is to supervise governance. All strategic plans aged and new pass only with the board approval. We can continue to focus on the CEO and other executives (who IMHO are incredibly irresponsible and at times incompetent), but the board is structurally placed to do exactly what Obama is now doing. Instead, they just fail collectively, year after year, and without consequence.
I know even less about running a car company than I do about CDOs and CDSs. But requesting huge infusions of public money so that you can continue doing basically the same thing you were is crazy insane. *Something* has to change, and (a) replacing the guy who was at the top while the company tanked while (b) taking an active role in oversight of any plans to emerge as a profitable company, doesn’t seem to me just like totally unreasonable. I know, I know, everyone is skeptical because this is the government forcing the changes, and government is stupid. But GM has de facto conceded that they have failed – any claims that they know what they’re doing are silly. As a last resort, and as an alernative to the government just being either a piggy bank or totally passive as the economy dies, this isn’t crazy.
He was given time to come up with a strategic plan. He failed to do that to the satisfaction of the government (playing the role of the board). So he’s gone. Perhaps the board should be ousted as well but one thing at a time.
I vote for theory two. I do not trust Mr. Obama’s motives any further than I can throw them. And If there is one thing we learn from that movie Ferris Bueller’s Day Off – it’s that we shouldn’t be throwing anybody or in this case, anything.
Kondratieff: I assure you that the head of AIG, as well as that of Cassano, is well and truly servered. Meanwhile, Chuck Prince, Stan O’Neal, John Thain, and Jimmy Cayne were all ousted by their boards or their creditors. The feds were beaten to the punch.
Bishop: The feds have announced their intention of dismantling the deadwood on GM’s board.
Firing Pandit would be the equivalent of firing Nardelli or Mulally, men who all walked into their respective messes only months ago. Regardless of your belief in their abilities (I’m looking at Mr. Home Despot here), it would be absurd to fire them for the losses caused by several years’ mistakes.
#2, clearly. Is there any doubt? That’s what politicians do, they try to achieve their goals while staying popular. His goal is to “save” the US auto industry; i.e., give them more money. To do that while staying popular he had to make a sacrificial offering to the rabble. It isn’t “bad” any more than politics in general is bad.
It’s no way to run a business, of course.
The apologentsia, of course, will not speak up until we are all crushed in the iron grip of the Generalissimo.
Is this a serious question? Who cares. The important point is that the President of the United States just fired the head of GM. What universe are we living in here?
Which principles do you think should be governing the disposition of leadership in major U.S. corporations?
It should be the responsibility of the board. The board, however, should actually be chosen by the shareholders, in actual elections, rather than in Soviet-style elections where there is one nominee per seat, chosen by the CEO of the company.
What’s the R^2, F statistic and Akaike/Schwarz information criteria for each theory?
No, really. Which fits the consequences better, which is more distinguishable from no theory at all, and which adds more significant information to what we know of Obama’s industrial policy?
A bit of #1, more of #2, and also some of #3 – Henderson is a better public speaker who is superior at sounding confident-but-tough. Wagoner’s pink slip was written when he bumbled around in front of Congress, it was just a bit late in the delivering.
#1 – he has steadily done a poor job over 8 years. In addition, when given a months-long boost by the government, he did not move aggressively. For example, 7-8k white collar GM employees are still given cars and gas cards. Maybe, just maybe, it’s time to reel those in.
Take into account this – in order to survive, GM either needs another $20B+ in cash and/or a structured dash through bankruptcy, aiming for no longer than 30-45 days. Wagoner has a bankruptcy proof pension (really, since 2006), more than just the cash that is being reported.
You cannot have a leader who has failed for 8 years, then failed for another couple of months, lead the company into bankruptcy when he has no stake in the outcome and yet is still incredibly wealthy($50m+ before the pension). Bondholders getting cut down to 20% – let alone the unions – would riot. While this appears to be leaning towards #2 for political cover, it also drags the bankruptcy process to a halt, getting worse when parts of GM are sold to SAIC.
Check out http://www.thetruthaboutcars.com. They’ve been doing a GM deathwatch for well over 3 years now, and if you can go back and look at what hasn’t really changed in 3 years (aside from urgency), then maybe it’s time to go.
This one is from October 2005 – things haven’t gotten better. http://www.thetruthaboutcars.com/general-motors-death-watch-35-rick-wagoner-rip/
Neither. Wagoner had his chance and failed. The administration can’t work with him. Henderson’s interim by necessity. GM is different than AIG.
Who cares why he did it. The government needs to stop interfering and allow companies that cannot compete due to mismanagement and too much debt to go bankrupt. This includes the banks, especially the banks.
The government should be providing a safety net for its citizens while the economy recovers. It should not be spending trillions of dollars for ridiculous Keynesian stimulus packages and bank bailouts.
I feel better now. Thanks for allowing me to comment!
Obama fired Wagoner because Wagoner’s plan was to focus on popular models like trucks. The Great and Powerful Obama has decided that we will henceforth drive hybrids, electric cars and similar energy-saving death traps.
When the driving death toll rises due to small, unsafe cars .. just remember, to our eco-overlords like Obama, that’s a feature not a bug. Think of all the energy you’ll save and CO2 you won’t emit after you are crushed by a 1996 Chevy Tahoe!
Obama’s only doing this for own good. Truly, he is wise in ways mere mortals can never know.
Theory #3: In order to achieve twenty years of dominance for his political party, this move was one of many which are being made; this one, in order to weaken the market’s investment in the company, force bankruptcy, further align Obama’s political party with the union workers, and ostensibly wave to the masses awed by the current administration’s raising of the Phoenix from the ashes of what should have been a righteous sacrifice.
This decision wasn’t economic any more that the “economic recovery act” was stimulus.
I vote for not speculating.
The AIG spectacle has shown that the American people would rather destroy an attempt to save a company if it appears that in doing so ‘justice’ will be subverted.
GM doesn’t operate in a vacuum. Wagoner could be God himself and would *still* have to be fired so that the public will allow GM to be bailed out.
It’s theory #1 because of theory #2.
He does it for the second theorem, but I wished he’d do it for the first one (actually, I wished he didn’t do it at all, but let GM go bankrupt).
The President never run a private business, so he is actually relying on his advisors and they most likely look for PR and markability for Obama rather than rescuing GM.
The rule to elect somebody to leadership should be: Are you willing to bet your money on him? This is usually the case, when a CEO is switched, he has no longer worth the money you put in. The problem is, President Obama has NO stake in this, he just hopes….
The important point is that the President of the United States just fired the
head of GM. What universe are we living in here?
Exactly. All while bloviating on about workers who want their company to succeed.
Really? About 25 years ago, Oklahoma had a steroid fuel linebacker named Brian
Bosworth, who in his book wrote about how heroic GM workers tied notes around
bolts saying “ha ha you found me” and placed them strategically in the recesses of
the body designed to create a maddening rattle.
Maybe that’s old history, but the UAW’s hard line isn’t. How crazy is it to
allow retirees to sail off @ 48 with a full pension and lifetime benes?
It is supreme arrogance to think that Obama, who doesn’t even DRIVE his own car
anymore has any idea about running one. He can’t even pick ethical and competent
POLITICAL appointees and in politics, unlike business, you can cover your
incomptence much easier.
Seriously, those of you that voted for this
megalomaniac need to have your voting hand amputated.
This looks like they are following the thugz advice from freakonomics: Kill one (but only one) of the killers.
http://freakonomics.blogs.nytimes.com/2009/03/18/got-clawbacks-thugz-on-the-bailout/
Theory 3:
Obama wants to take the companies to the brink, he is already set to replace the GM board, he will replace the board with eggheads and greenies, and the companies will become a failed experiment in going green in a mad rush.
There is usually more than one reason to fire a leader but the best reason is failure to lead. The government gave Wagoner more than one chance to come up with a plan to save GM, but he was too stubborn, foolish, or unimaginative to come up with one that had a chance to work.
The power of example is important too. When corporate leaders take your money but fritter it away, they need to be fired. Hanging an admiral every now and then helps remind the others of their duties.
There are more things in corporate (or any other) governance than are dreampt of in your theories, professor Cowen.
#2. The Obama Administration wants to keep GM out of bankruptcy proceedings by any means possible- UAW spent good money getting him elected, afterall. The only way to do this is to keep giving GM money to pay off the bondholders, and this is becoming more difficult politically as the backlash against bailouts grows. A sacrificial goat was needed in order to get the cover to keep the bailout operation going. Mark my words, the next offered plan will involve enough financing to carry to the end of Obama’s first term.
These theories are not mutually exclusive — in fact, they actually reinforce each other.
That said, the powers of the president should not include dictating (overtly coercing) that a CEO should step down.
#2 – obviously.
I still think that Obama knows darn well that GM is going to end up in bankruptcy. This is just theater to soften the outcry when it does.
“if the government is going to run a company, the company should be run the way the government sees fit until it can be sold off.”
How in the name of God – or Ayn Rand – does the government know how to run a company? It can’t even run a gormevner
And how the government “sees fit” to run a company will not have anything to do with how it makes sense
to run a company.
Obama is Mr. Goodwrench? OMG, what is the world coming to?
From Tuesday’s WSJ: The auto team prepared briefs for Mr. Obama on his options, as well as viability reports on both companies. The car team wanted an executive who could accelerate the changes it desired. Mr. Wagoner didn’t have any support within the group. “This is Obama, and symbols of change are important,” said one person familiar with the situation.
I would vote for Theory 2 but it could well be that Theory 1 or a combination of both is valid. But which theory we believe is not important because it is obvious by now that Obama is an empty suit. He is a person who has overestimated his own abilities to understand what is going on and has too much ego to do the job properly. This means that the USD is about to take a huge hit over the next few months to years and that Americans who have not protected their savings and purchasing power from confiscatory inflation are doomed.
How can we know the answer?
Regardless, I’m glad he’s gone. No efficient market would have let this guy stay given his track record. Obama did what the market couldn’t: getting rid of the guy who was really bad at his job. I don’t care if you think it’s unfair or offensive, it’s good for the economy and society.
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