As Recalls Mount, Was It Worth Bailing Out the 'Old GM'?
The U.S. automotive industry has surged past the previous vehicle safety recall record of 33.01 million it established in 2004, reaching 39.85 million vehicles recalled through July, and with five months yet to go in this year, the final number is tragically still "blue sky" in nature. This past week, General Motors (GM) announced six additional recalls covering 717,950 vehicles in the U.S. - although none of these recalls were for faulty ignition switches. This latest recall brings to 60 for the automotive manufacturer in 2014, totaling a record-setting 26.41 million vehicles globally, and with nearly 15 million of these recalls related to potentially lethal issues concerning ignition switches. While GM acknowledges that it is aware of three vehicle crashes and two injuries related to this recall, it is thankfully unaware of any fatalities.
In a statement issued by GM, Jeff Boyer, vice president of Global Vehicle Safety at GM, said that these most recent vehicle recalls "signify how we've enhanced our approach to safety. We are bringing greater rigor and disciple to our analysis and decision-making. If we identify an issue - large or small - that might affect the safety of our customers, we will act decisively." Boyer's statement is hopefully reflective of a tsunamic change in the corporate culture concerning the importance of consumer safety at GM.
In June, General Motors (GM) issued a 325-page internal report addressing how for 11 years the company ignored an ignition switch problem linked to at least 13 deaths and now nearly 6 million automobile recalls. The report identified a GM committee culture that "did not elevate the issue to ... superiors" and the company structure encouraged GM managers "to hold more meetings and refer the matter to additional groups or committees." Furthermore, the report noted that some GM employees informed investigators that they did not take any notes during these safety meetings. Why not? Because they did not believe that GM attorneys wanted them to - all part of "an urban myth that was followed, an instruction (‘the no notes direction') passed from GM employee to GM employee over the years."
Mary Barra, GM's recently appointed chief executive officer (CEO), further described a company cultural phenomenon known as the "GM nod" when everyone nods in agreement to a proposed plan of action, but then leaves the room with no intention of follow-through." Another GM employee described the ritualistic "GM salute", "a crossing of the arms and pointing toward others, indicating that the responsibility belongs to someone else, not me." The report further noted that, as early as 2011, outside counsel warned GM's in-house counsel that the company needed to act on this deadly safety issue. Maryann Keller, an auto industry analyst and author of two books on GM, argues that the report's findings "show utter incompetence that is bred by people working in silos and not having the accountability to fix problems."
A major criticism of this report is its perplexing conclusion that top GM management is "exonerated" from direct responsibility for the unprecedented ignition switch recall. The oversight responsibilities of decisions rendered (or not rendered) by mid-management subordinates is an integral component of what top management is ultimately accountable for - the financial and social performance of the company. At GM's Website, listed under the company's "Social Responsibility" agenda, is the category of "Safety", which begins with the following words: "Quality and safety are at the top of the agenda at GM." Corporate policy and operational reality apparently did not jibe, both at the "old" GM or at the post-2009 "new" GM.
GM's corporate responsibility policy, ostensibly focusing on the importance of safety as being "at the top of the agenda", makes for good public relations but not much else. As the report notes, GM "heard over and over from various quarters, including customers, dealers, the press and their own employees that the car's ignition switch led to moving stalls", however its employees "failed to take action or acted too slowly." Concerns the safety of its customers, the ethical organizational culture at GM has been seriously disconnected from the company's stated policies. If GM management cannot establish an effective ethical organizational culture which actively supports a fundamental product manufacturing responsibility such as customer safety, one has to ask whether the financial sacrifices made by former GM bondholders, non-union Delphi management pensioners, and American taxpayers were worth bailing out the "old" GM.
The onus of re-establishing GM's reputation for customer safety falls on the shoulders of CEO Mary Barra, who received the support of GM's Chairman Tim Solso and the company's board of directors at its recent annual shareholder meeting. Barra has stated that GM "will now focus on the goal of becoming an industry leader in safety. GM's ultimate goal is to create an exemplary process and produce the safest cars for our customers - they deserve no less." To this end, GM has created a new group, the Global Product Integrity Unit, focused on safety oversight, which Boyer now heads. Such organizational changes are necessary and overdue yet insufficient if GM management is not integrating ethical organizational culture with day-to-day operations, which requires an ongoing commitment from top management, not only by word but by deed. Thus, annual employee performance reviews must explicitly address managerial performance where certain "inaction" has led to ethically - and possibly legally - questionable behaviors and outcomes.
By operationalizing its corporate social responsibility policies into employee performance evaluations, GM (and its shareholders) will be less likely to face a repetition of its present situation, one involving civil lawsuits from plaintiffs' families suing GM for family member deaths, a U.S. Department of Justice criminal investigation, investigations by state attorneys general, a U.S. Securities and Exchange Commission investigation, and a $1.2 billion second quarter charge for the ignition switch recall. But most importantly, it will ensure that GM's ethical organizational culture matches its espoused company policies, making its "corporate social responsibility" congruent with its "employee social responsibility." Establishing an effective ethical organizational culture should go a long way in refurbishing GMs now tarnished corporate reputation.