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GM Needs a Leader Who Isn't Afraid To Redefine an Icon
posted by admin on 26/06/06

Recent dramatic moves in cost cuttings and asset sales are deemed not enough. GM needs a new leader who is able to foster change, offer substantial counsel and support innovation. 

Everyone these days is placing bets on whether General Motors can solve its morass of problems and earn money again. 

Chief Executive Rick Wagoner insists the company can, and that he's still the right man for the job. In a news conference last week, Mr. Wagoner listed the "dramatic moves" he has made to begin turning around the company. Among them: eliminating thousands of employees through buyouts, raising capital by selling a majority stake in GM's prized GMAC financing unit for $14 billion, and trying to halt the steep erosion of GM's U.S. market share by lowering sticker prices, preparing new models faster and engineering them overseas at less cost. 

Maybe he can pull this off and even get workers at Delphi, GM's big parts supplier now in Chapter 11, to accept big wage and benefit cuts. GM dealers placed an ad in this newspaper Friday announcing their support of him. But Mr. Wagoner's record after six years at the helm isn't inspiring a lot of confidence among shareholders. GM racked up losses of $10.6 billion in 2005 and last month announced a series of accounting errors that span Mr. Wagoner's tenure as CEO. 

Lead director George Fisher, in a statement last week, said the board is behind Mr. Wagoner. But privately, some directors have been raising questions about a possible management shakeup, according to reports in this paper. 

The situation raises another question: If Mr. Wagoner goes, what kind of leader should GM seek? 

Given the magnitude of problems, it's not a job a lot of executives will want. And among those, few are likely to have the right mix of experience, wisdom and chutzpah. 

Above all, GM needs a leader who can be believed, who doesn't make promises or forecasts that subsequently must be retracted, which has been a problem in the Wagoner regime. It's a job for a leader who is confident but not arrogant, who respects GM's legacy, yet has the creativity and boldness to sculpt something new. 

GM's behemoth bureaucracy and huge scale are antiquated. The company's survival may very well depend on dumping its McMansion-size organization for a smaller, more flexible one. 

Persuading employees to vacate the McMansion, however, won't be easy. For decades, GM managers have been proud of their company's size and the leverage it gave them with suppliers. They've become accustomed to waiting for proposals from production or marketing to wind their way through the hierarchy. "Every single problem is put through a management process analysis" that takes enormous time, says one former GM executive. 

If GM wants a shot at competing against Toyota, Nissan, or even Fiat -- which it paid $2 billion last year to end a disastrous alliance and which, unlike GM, is now profitable -- it must respond much more swiftly to customer tastes. That means the next chief must make quick decisions -- and then just as quickly adjust them to fit ever-changing circumstances. "Managers generally focus on planning, organizing and controlling how work gets done, while leaders must foster change," notes Stanford Graduate School of Business Dean Robert L. Joss. 

Recruiters say GM won't be able to attract strong talent to the corner office unless the person is guaranteed pots of gold. But a CEO who is guaranteed wealth while asking employees to take salary and benefit cuts isn't going to inspire loyalty. A leader who wants to get GM on its feet and dancing again has to be willing to share the sacrifices as well as the spoils. Mr. Wagoner in February took a 50% pay cut in his $2.2 million base salary. 

Cost-cutting is inevitable to stem the enormous losses, but this can only take GM so far. The auto maker will regain its panache if it energizes employees to think up new designs for cars and new ways to make them. The goal: to produce models that customers -- especially young customers who hopefully will keep returning to GM dealers -- line up to buy. 

Any leader at GM also needs a board with directors who don't just wring their hand over problems, or focus only on cost-cutting, but offer substantial counsel and support for innovation. GM's current boards includes several retired CEOs who failed to implement needed changes at their former jobs. "Some of the strongest voices on the board have had their own distresses at companies they ran and may identify too closely with GM's distress," says Jeffrey Sonnenfeld, a senior associate dean at Yale School of Management. 

What if GM, as we know it, can't be saved? GM is so sprawling in its reach that a bankruptcy filing certainly would have a domino effect on companies doing business with it, costing far more jobs. 

Still, the U.S. economy doesn't depend on GM. There are thousands of U.S. employees producing cars for the U.S. market each year (although many now work for foreign companies). With the right leadership, there's a chance GM will become a model for how to turn a dinosaur into a new species. If that occurs, GM will not only save itself, but help numerous other companies whose old business models no longer work and must find a new identity. 

• Email comments to inthelead@wsj.com. To see past columns, go to CareerJournal.com.


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