Big Companies

Was Wagoner too ‘fundamentally decent’ for the job ahead at GM?

By Justin Fox | March 29, 2009 | +

So Rick Wagoner is out at General Motors, at the request of the Obama administration. I’ve never known quite to make of the guy—most of GM’s many troubles aren’t his doing at all, but he had eight years to resolve them and came nowhere close to succeeding. I went to Alex Taylor’s November 25 Fortune cover story on GM to see what more I could learn about Wagoner. Turns out Alex kind of likes him, but he did come up with this:

Wagoner’s biggest flaw may be that he has been too forgiving. Here is a company that has lost more than $72 billion in the past four years, and yet you can count on one hand the number of executives who have been reassigned or lost their job. After spending $1 billion to shut down Oldsmobile, Wagoner has allowed GM’s other weak divisions to live on despite their fading resonance in the marketplace. (A competitor says Wagoner is “too fundamentally decent” to cut off dealerships and put their employees on the street. GM says closing divisions isn’t cost-effective.)

What this decision means, I think, is that the Obama auto team doesn’t believe GM can survive in anything remotely like its present form. Wagoner’s whole career was about trying to preserve GM in something like its present form. So much for that.

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  • stuartzechman

    When will Citi’s CEO be required to step down, I wonder?

  • Justin Fox

    Oh, one of these days. Although, unlike Wagoner, Pandit wasn’t the legacy CEO—he’d been brought in relatively recently from the outside (at ridiculous cost) and put in charge after Citi was already in deep trouble.

  • tc125231

    I don’t know why Wagoner being unwilling to demand performance for pay from highly paid executives makes him a decent guy. It just makes him a part of the incessant class warfare waged by the highly compensated upon the rank and file. If his pals underperform, he can always close a few more plants and throw a few more thousand workers out of jobs.

    Read Carl Icahn’s Op-Ed on corporate governance in the NY Times today.

  • tc125231

    It is clear however, that the inability to make hard decisions is a sign of incompetence. A senior manager (not even an executive) who can’t lay off one guy –no matter how likeable –to save the jobs of three others is like a surgeon who can’t prioritize trauma cases over hangnails in an Army MASH.

  • leighblue

    Wagoner’s behaviour is typical of what we see in lots of small businesses, but a little less often in large ones. The comment “closing divisions isn’t cost-effective” is quite revealing.

    In fact, closing divisions is probably very expensive in the short-term (up to 3 years I would imagine), but (with hindsight) could have been the right thing to do in the long-term. But instead of facing the short-term pain, and possibly having to raise extra capital, they kept things open in the hope that somehow it would all come right in the end.

    This could be explained by the perverse incentives of quarterly reporting and annual bonuses; by the fact that Wagoner did not know in advance that he had 8 years to fix things; or by an attachment to the past and unwillingness to write off sunk costs. All three may have contributed.

  • http://www.124monkeys.com Sean DeCoursey forgot his password

    Sorry Justin, I completely disagree. “Decent?!?!?!” Who exactly was Wagoner “decent” to? The shareholders? GM’s stock literally lost 3000% during his reign. The employees? The company is on the verge of bankruptcy and tens of thousands have already been laid off. The senior management? Yeah, well, I guess he did do a good job of not firing anyone while the company repeatedly tanked year after year.
    -
    The guy was weak. And where the living hell has GM’s board been? If I remember correctly didn’t they give Wagoner a raise two years ago? I mean, why did it take the White House to finally fire this guy? Where were the board members on this?
    -
    tc – yeah, I read Icahn’s piece in the NYT. Good stuff. The whole structure of American corporations is broken – badly. Wagoner was weak. His board was weaker. I just can’t wait for heads to start rolling in the finance industry.
    -
    It seems like it’s too obvious to state, but “If you’re in charge of a company and it collapses, it’s your fault.” Can we please, please start clearing out more of this dead wood?

  • curmudgeon57

    Why do we keep forgetting that Wagoner was the one in charge when GM lost $10 billion in 2006, at a time when they sold the most cars ever? Taylor says that if Wagoner had retired last year, he would be remembered as one of the greatest GM CEOs ever. I don’t remotely understand how he could make that statement. This guy should have been gone years ago. Although, I guess this passes as acceptable performance in the American auto industry. Hopefully not any more.

  • curmudgeon57

    @Sean: I hope you’re exaggerating for hyperbole. It’s impossible to lose more than 100 percent.

  • http://www.124monkeys.com Sean DeCoursey forgot his password

    Curmudgeon,
    -
    Eh, a bit, but only sort of. To get back to where it was, the stock would have to increase by 3000%. I just used that number ’cause it’s bigger and better illustrates the depths of Wagoners suckiness.

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