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How to Ruin a Powerhouse

by Dr. Linda Henman

Like most other automakers, GM has faced the ups and downs of a troubled industry, but until last year, it had remained a powerhouse since its inception in 1908. GM led global vehicle sales for 77 consecutive years from 1931 through 2007, longer than any other automaker, but then things changed. They faced bankruptcy in 2009 and a recall scandal in 2014.

The headline in the Wall Street Journal dated June 6, 2014 read “GM Takes Blame, Vows Culture Shift,” once again using that blunt instrument called “culture” to place blame. But what really happened to cause more than 120 deaths?  Faulty leadership, not a flawed shut-off switch. What factors led to the once-powerful GM’s decline in status? Let’s examine the beliefs and actions that fueled the results:

Beliefs:

  • Executives believed they did not need to understand how the company made cars, as evidenced by their failure to recognize that a sudden shut-off switch qualified as a safety concern, not a customer-convenience issue. Had senior decision-makers connected the dots and understood how they built cars, they would have recognized the need for an immediate recall, addressing the safety defect before it caused injuries and fatalities.
  • U.S Attorney Anton Valukas concluded that the information about the defect bounced around an astonishing number of committees without anyone making the recall decision—each person apparently believing it wasn’t his or her responsibility to make the tough call.
  • CEO Mary Barra described the “GM Nod” that involved meeting participants nodding in agreement that GM should take action but no one stepping up to make the decision or take the step.
  • Another GM official described the “GM Salute,” which involved crossing one’s arms while pointing, indicating that the blame or responsibility resides elsewhere.
  • Barra also denounced a pattern of incompetence and neglect, pointing out the company’s reluctance either to hire top talent or to expect top performance from the talent it had.

Actions:

  • Decision-making bounced around with no one taking responsibility for the decisions themselves, much less taking the actions they should have taken as a result of them.
  • No connecting of the dots, which would have allowed leaders to address the safety defect
  • A troubling disavowal of responsibility
  • Even though some realized the need in 2013 for the recall, leaders waited with no sense of urgency while they gathered more data and endangered more motorists.

Results:

  • Links to more than 120 deaths
  • $900 million penalty
  • $575 million to settle nearly 1,400 lawsuits
  • $625 million to establish a compensation fund for victims
  • Irreparable damage to the GM brand

Mary Barra, a GM veteran inherited the recall crisis shortly after she became CEO in January of 2014. Her promotion coincided with the release of a company-funded report that shone a negative light on the recall disgrace and a 315-page report by former U.S. Attorney Anton Valukas that outlined the devastating consequences. Berra’s vow to shift the culture that led to these consequences represented an important first step, but actually making that shift won’t happen until and unless she, other leaders, and board directors understand the factors that threatened GM’s status as a powerhouse.

Berra has made a start by firing 15 employees—more than half of them executives—for misconduct or failure to respond properly. The company also fired lawyers and officials responsible for safety. But Barra won’t truly change anything significant as long as she blames patterns of incompetence and neglect and not specific people and their bad decisions. The solution is neither abstract nor otherworldly. Rebuilding the powerhouse will occur only when leaders change the beliefs that led to the decisions that caused the consequences.

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