The New General Motors: A Paragon of Social Responsibility?

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At the May commencement of the Columbia University School of Business, General Motors (GM) Chairman and Chief Executive Officer (CEO) Dan Akerson, himself a U.S. Naval Academy graduate, asked the following question of graduating MBA students: What is leadership? "It's character, integrity. It's competence. It's hard work. It's making the hard decisions, not just the easy ones. It manifests itself in your relationships, your marriage, your family, your community and your company", said Ackerson. Such admirable executive leadership qualities will be translated into the day-to-day management of the "new" GM and reflected in the managerial decisions addressing the company's corporate responsibilities to its various stakeholders.

The new GM also remains a strong advocate of the "Sullivan Principles", a policy document which the old, pre-bankruptcy GM originally developed in 1977 in consultation with a former GM director, the Reverend Leon Sullivan, to apply economic pressure on South Africa in protest of its apartheid policy. In its first annual sustainability report, the new GM includes the new and expanded "Global Sullivan Principles of Corporate Social Responsibility", developed in 1999 to guide multinational corporations in support of international economic, social and political justice, as an integral part of the new GM mission. In this 2012 sustainability report, GM's board of directors states: "As a company that endorses the Global Sullivan Principles we will respect the law, and as responsible member of society we will apply these Principles with integrity consistent with the legitimate role of business."

Whether the new GM is operating with "character, integrity", "respect [for] the law", and aa a "responsible member of society", has recently come into question. In May, The Wall Street Journal reported that in a March 3, 2012 e-mail, a GM attorney demanded that the widow of an active duty Marine refrain from seeking punitive damages from the Detroit-based auto manufacturer - even though the company's 2009 U.S. government-brokered financial overhaul does not bar plaintiffs from suing the automaker for punitive damages. The plaintiff's suit alleges that the GM manufactured U-Haul truck that the plaintiff's husband was driving had a manufacturing defect that caused the rental vehicle's front left tire to break apart, resulting in the truck colliding with another vehicle on an Arizona interstate highway and leaving three fatalities.

In the March e-mail, the GM attorney recommended that the plaintiff's attorney drop any plans to sue the company for punitive damages, or deal with "legal headaches" that include possible intervention by the federal bankruptcy court to delay the lawsuit while GM argued that the punitive damages claim violated the terms of its 2009 sale to the U.S. Treasury. However, unlike Chrysler, which did enumerate in its judge-approved bankruptcy court documents that it not be exposed to any punitive damage claims, GM's bankruptcy agreement does not include enumerated immunity in product liability litigation and liable for third party punitive damage claims. The plaintiff's attorney, apparently fearful of having his case caught in an endless legal morass, recommended that his client not pursue punitive damages against GM. When confronted with the essence of the e-mail, the client agreed to pursue only compensatory damages.

Considering that it was only in 2009 that GM required nearly $50 billion in taxpayer assistance, it is surprising that the company's legal department should take such a "thuggish" approach to recognizing its civil liabilities to the same American consumers who were responsible for financially bailing out what eventually became the new GM. While it is often typical for a firm re-emerging from bankruptcy to establish a liability fund (as part of an agreement that includes complete immunity for all deaths and serious injuries) to cover past and future product liability claims (even if not on a dollar-for-dollar parity of what could be recovered in a civil lawsuit), this was not done by the new carmaker. Nor did the new GM purchase an insurance policy that covers such product liability financial losses. The reason appears obvious: the new GM is civilly liable for both compensatory and punitive damages for deaths and serious injuries caused by defective vehicles manufactured by the old GM.

For calendar year 2011, GM reported a record $7.6 billion in profits, with $1 billion reported for first quarter 2012 profits. The "poverty" defense is no longer viable for the new GM. In the case of the Marine killed in Arizona, the plaintiff has included Goodyear Tire & Rubber Co., the manufacturer of the defective tire, in its lawsuit. Goodyear is being sued for punitive damages. However, when you are "too big to fail", and Goodyear is not in that category, the upshot of a company not being overly concerned with moral hazard considerations can be infectious, even if involves remaining family members. For Chairman and CEO Dan Akerson, I would hope that he will continue to lead GM with the character and integrity he learned years ago at Annapolis, and uphold the letter and spirit of the Sullivan Principles (and respect for the law) when it comes to recognizing punitive damage claims on old, pre-bankruptcy GM manufactured vehicles. I am sure that would be what the late Reverend Leon Sullivan would have expected from the old GM, and now the new GM.

Thomas Hemphill (thomashe@umflint.edu) is a policy advisor to The Heartland Institute, and professor of strategy, innovation and public policy, School of Management, University of Michigan at Flint. 

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