Opinion: Lessons from GM's Board of 1992

The other five outside directors largely had experience in academics or government, ample training on the operations of a monolithic bureaucracy. They included: Thomas Everhart, the president of the California Institute of Technology; Anne Armstrong, chairman of the board of trustees at the Center for Strategic and International Studies; Ann McLaughlin, a visiting professor from the Urban Institute and a former Labor Secretary; Marvin Goldberger, the president emeritus of the California Institute of Technology and Leon Sullivan, the pastor emeritus of the Zion Baptist Church in Philadelphia.

Stempel's year in 1992 began much like this year began for Wagoner -- with rumblings that he and his crew might soon be replaced.

Support for Stempel and his lieutenants waned quickly back then. What ultimately prompted the outside board members to plan and execute their coup was pride. One of the outside directors told me at the time that they were worried about their reputations and how they were being portrayed in some media reports as hapless caretakers who allowed GM's misfortunes to continue. I covered General Motors back then for The Detroit Free Press, which was part of Knight Ridder before it was sold to Gannett (GCI) in 2005. Like other reporters on the GM beat, I had moles within the board and the company who regularly supplied me with news that the paper would billboard on the front page the next day.

For any coup to be successful, it needs a mastermind who either plots the ouster or rouses the "masses" to do the work. GM's outside board of directors had both in Ira Millstein, a New York attorney who helped negotiate the Drexel Burnham Lambert bankruptcy settlement in February of 1990. Millstein had been the chief counsel to GM's outside board members for more than five years, according to the Wall Street Journal, and was an outspoken advocate for greater board supervision of CEOs and the companies they managed. The Journal summed up Millstein's ideology in a front-page article in April 1992 by noting a passage he wrote with a colleague in 1988: "In their permissive and passive stances, most boards are likely not to appraise the performance of CEOs critically enough . . . and to wait too long to respond to ongoing political, social, and economic change."

In the spring of 1992, the outside directors showed their mettle. They ousted two active GM executives from the board, reducing the number of GM insiders on the board from five to two. They also forced Stempel to give up the chairmanship of the board's executive committee and replaced him with Smale.

Around this time, one of GM's outside board members complained to me that they were not happy with the level of detail they were being provided by the automaker's top brass. It's fairly common among outside board members to believe that management's level of disclosure is subpar. The outside directors are not at the company regularly -- much less every day -- and must rely on management's reports and assessments.

GM's outside board members had a solution for this age-old woe. Smale began to meet with GM's other executives to get his own answers -- without the filter of GM's top brass. According to one outside director, the group was primarily interested in where the roadblocks were, who the rising stars were within the company, and ideas from executives who were below the top brass on how to right the giant automaker.

By summer of 1992, GM's ailments were painfully apparent and acute. In the first quarter, GM lost $167 million, followed by another $703 million in the second. By the end of the summer, headlines about Stempel were frequent and harsh. And unlike in January, when board members supported Stempel, no one uttered a syllable publicly on his behalf. In late October, Stempel resigned, setting the stage for the outside directors to name his replacement. One week later, GM's board named Jack Smith, GM's president, as CEO. Smale became GM's chairman, the first time in 34 years that the giant automaker had separated the two top corporate posts.

The separation of CEO and Chairman was prudent. Smith was left to focus on righting GM, while Smale handled the boardroom initiatives and goals. Since Smith was handpicked by the board, he had their support. But he stepped into the job with the understanding that his boardroom colleagues were demanding and focused.

It's difficult to understand what's different about today's GM board. Like in 1992, there are a host of retired and active chairmen and top executives from companies such as Coca-Cola(KO), Pfizer(PFE), AstraZeneca(AZN), Sara Lee(SLE), Eastman Kodak(EK), Ceridian and Compaq.

History suggests from GM's 1992 board that the giant automaker can manage itself under dire circumstances. As time passes, though, it is obvious that GM's board in 1992 was rare in that it acted and so many other boards since then have done little or nothing, or when they have acted, the results were far less stellar.

One result of the carnage of the past 18 months -- the company failures, the layoffs, the enormous executive bonuses despite poor corporate performance, the growing queue of execs going before Congress in search of help -- is that the public and investors have lost confidence in companies abilities to govern themselves and to put their shareholders first.

Governance begins with a company's management team and once that fails, it's up to the board of directors. GM's board worked wonders in 1992. They implemented a turnaround on their own, without any help from Congress.

It remains to be seen whether GM's current board, or any other company's, can live up to that precedent.

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