Last week GM management issued a statement declaring that, contrary to press reports, Stempel was firmly in charge. But John G. Smale, the lead outside director, made a statement much less comforting to insiders. The board was continuing to “reflect” on the leadership question, he said. Neither executives nor directors would make any other comment. But sources close to the company were following every play in the power struggle. Stempel, they said, will be replaced as CEO by John F. (Jack) Smith Jr., now president, and Smale, perhaps temporarily, will take over as chairman. Smale has spent endless hours in recent months grilling GM executives and sizing up Smith. “It’s David and Saul,” says one observer, referring to the Bible story in which David was secretly anointed king while Saul was still on the throne. Last Friday, The Wall Street Journal reported that the new lineup will be announced next Monday, Nov. 2, at the board’s regular meeting in New York.
GM directors had hoped it wouldn’t come to this. They sent Stempel a powerful warning back in April when, in what’s become known in corporate circles as the Coup, they demoted his handpicked lieutenants, named Smith president and put Smale in charge of the board’s executive committee, which Stempel had headed. Stempel was expected to attack GM’s problems with new zeal. They wanted to see him speed up plant closings, slash white-collar jobs and use his bully pulpit to declare a new, lean GM. Stempel could have made the point, for example, by moving quickly to consolidate GM’s overlapping businesses and eliminating classic but faltering divisions like Oldsmobile, where he began his career in 1958 as a chassis designer.
But Stempel has not gotten religion. While Smith led a new strategy group (which on Friday announced some initiatives), Stempel was seen more often at industry luncheons. The summer was studded with strikes and strike threats. Recent auto-sales reports show GM losing while Chrysler and Ford gain. And the directors will have to stand by this week when GM announces that it lost about $845 million in July, August and September alone. Now directors are hoping that Stempel, who was briefly hospitalized this month with high blood pressure, will step down gracefully, with a note from his doctor. If not, they may just hand him a pink slip.
As renegades, however reluctant, GM directors are in growing company. Economic malaise, bigger, more insistent shareholder groups and the courts have given directors new power-and responsibility–as stewards of company health and made CEOs more vulnerable (box). Still, in the sphere of corporate politics, Stempel’s ouster would have the symbolic weight of a crumbling Berlin wall. And, says shareholder activist Nell Minnow, “GM is just the beginning.”
In the fiercely private corporate world, the boardroom has been a pretty serene place. The CEO is traditionally an autocrat, however talented and benevolent he (almost always he) may be. The board, technically there to represent stockholders, is a coterie of fellow CEOs, golfing partners and, in the case of big public companies like GM, what one critic calls “we the people” members: blacks, women and retired statesmen. Except for an extraordinary event like a takeover battle, directors’ work is routine: approve the CEO’s recommendations, along with his salary, and expect the same from him on their boards.
For years GM’s board was typical. Run by the imperious Roger B. Smith (no relation to Jack), its veteran outside directors included the Rev. Leon Sullivan, known for the “Sullivan Principles” for corporate behavior in South Africa; Anne Armstrong, former Nixon aide and onetime ambassador to England, and Charles T. Fisher III, a Detroit banker whose family name was on GM’s Fisher Body parts. Directors are paid about $50,000 a year for their services and take home a new GM model car every three or four months. When Ross Perot sold GM his company, EDS, in the mid-1980s, and joined the board, he railed that GM was ignoring both customer and employee, and labeled his passive colleagues “pet rocks.”
But a different GM board has emerged, composed of new and newly energized directors. Many spent recent years braving corporate crises of their own, often doing what GM should have done. A turning point may have come, ironically, when the board approved former chairman Smith’s plan to shut up the noisy Perot by buying back his GM stock for $700 million. To protect themselves from shareholder fury about the deal, the outside directors turned to Ira Millstein, a New York-based attorney who has crusaded against passive boards for years. Millstein became strategist, coach and shuttle diplomat between frustrated shareholders.
The leader of the pack is Smale, the retired chairman of Procter & Gamble, who doubled P&G’s profits in the 1980s, cut costs, made unpopular decisions to close plants and even proved that a U.S. company could make money in Japan. In 1985 he told the Harvard Business Review that the specter of decline in the auto industry helped spur him into action at P&G. And Smale is no stranger to shake-ups: at P&G, he named a dark-horse successor instead of the expected heir apparent. Smale is also on the board of J.P. Morgan, whose chairman, Sir Dennis Weatherstone, is a fellow GM director. Weatherstone has been setting a new pace at Morgan, even as he builds a reputation as a consensual manager with little need for hierarchy and a good eye for the long term. The posse also includes J. Willard Marriott Jr., head of a hotel chain that emphasizes employee input, right down to the bellboys. Recently, Marriott has had to bite his own bullet, selling assets and bringing in new executive blood.
The agitation by the GM outsiders really began last winter. Stempel announced in December that he would close 21 plants and lay off 74,000 workers-but he planned to take three years to do it. The press was ridiculing auto executives after their trip to Japan with President George Bush. At the Detroit auto show in January, the mood was sour. GM director Anne Armstrong climbed into a ‘93 Jeep Grand Cherokee and asked a fellow director, “Why don’t we have one of these?” Then, during the show, came a pivotal moment: Smale violated time-honored etiquette by convening a private meeting of the outside directors. With that simple decision, says Robert Monks, who has led a shareholder revolt against Sears, “they changed the rules of the club.” Feedback was encouraging. With the April putsch, GM stock moved up and investors sent thank-you letters. Business publications praised the rebels for their moxie.
But the signs of life faded. Wall Street agencies have raised warning flags over GM’s credit rating. Valued executives have threatened to follow the lead of Robert Eaton who left GM to succeed Lee Iacocca at Chrysler. Market share has been shrinking and the stock sinking. In May, sensing “massive change” at GM, James Craig III, manager of the $4.5 billion Janus Fund, bought 3.5 million shares of GM. By August, he says, he realized “we had made a mistake.” He sold out, at a loss.
As GM directors gird for battle, the stakes are extraordinary. In recent weeks a few analysts have even breathed the dreaded words “Chapter 11,” though that possibility is still very remote. Union leaders, facing a deluge of plant closings, want a sign that management, too, is accountable for the mess. And economists warn that a crippled GM would have vast ripple effects. GM is “on the cusp of undoing this country’s industrial base,” says analyst Howard Koenig.
GM directors don’t want history to tag them as navigators on an industrial Titanic. They have legal worries; in recent years directors deemed negligent have faced costly lawsuits and huge insurance fees. There is also an emotional dimension. “They don’t want the ridicule in their own community,” says Richard Greenfield, a shareholders’ attorney. When Stempel was named heir apparent back in 1987, writes auto analyst Maryann Keller, one observer remarked, “He’s walking into a buzz saw.” But even Stempel probably never guessed that his own board would be at the controls.
PHOTO: Caught in the headlights: Stempel started in a new direction, but not fast enough (TRACY BAKER–SIPA)
PHOTO: Agitator: Lawyer and adviser Millstein (STAN GODLEWSKI)
PHOTO: Ringleader: Former Procter chief Smale (LOUIE PSIHOYOS–MATRIX)
PHOTO: Bullet biter: Director, hotelier Marriott (DAVID STRICK–ONYX)
NO BOREDOM IN THESE BOARDROOMS
General Motors is only one of the troubled companies where boards have taken charge. At others, there’s mounting speculation that boards may have to step in.
CEO Tom Barrett resigned in June 1991, leaving behind $3.7 billion in debt. Director Stanley Gault took over, cut $1 billion in seven months and won analyst raves for bringing Goodyear back into the black this year.
Founder Ken Olsen resigned in July after his once docile board upped the pressure to remain competitive in the volatile computer industry.
Directors are reportedly annoyed at CEO Paul Lego for unexpected losses. They’ve already slashed his pay. On the scene: Ira Millstein, the activist advising GM’s board. Says Lego: “I feel very secure in my job.”
IBM reported a $2.8 billion loss, its first, in 1991, and its stock is at a 10-year low. So far, the board seems to be behind CEO John Akers, who is slimming Big Blue.
