Recommended Reading - Boards Refuse to Act Despite Poor Governance, Time.com

Douglas A. McIntyre wrote a piece for Time that attributed many of the recent problems top companies have been facing as a failure of the respective companies’ board of directors. McIntyre is very close to the truth. Boards have for too long just gone along and followed the lead of top management. It is now time for them to accept their real responsibilities to help guide management to make sensible corporate strategy and important business decisions. According to McIntyre,

… Each of these four companies ( referring to Bank of America, Citigroup, General Motors and Ford) has directors who chose not to ask hard questions and demand answers. How does a bank that was making $1 billion a year suddenly make $10 billion? How does a car company that nearly went out of business when oil prices rose sharply over three decades ago decide to reduce spending for the development of fuel-efficient vehicles?

Boards have some understandable reluctance to cross some lines if they may not have a tangible effect on company results. The Apple (AAPL) board clearly decided that Steve Jobs had some right to his privacy about his health. That may have been bad for investors. No one may ever know.

Several of America’s most famous companies have fallen on very hard times recently and investors might want to ask whey their boards appear to have done nothing demonstrable to help shareholders.

The short piece is worth a quick read.  Let’s hope boards get a chance to read the piece as well. 

CEO Watch, Rick Wagoner, GM, Update 10

It has been close to one month since my last warning on the possibility that Rick Wagoner, GM's CEO,  may be forced (and I contend should) to take a permanent vacation from General Motors.  According to stories in the press the pressure increased on GM to force Wagoner out if the firm is to get a government bailout.  According to a story by Gregg Stoll and Greg Hitt in today's Wall Street Journal,

On Sunday, Sen. Christopher Dodd (D., Conn.), a supporter of emergency loans for Detroit, suggested Mr. Wagoner should go if the government follows through and provides billions of dollars to help the auto giant restructure and return to profitability.

"I think you've got to consider new leadership," the senator said on the CBS talk show "Face The Nation." A Dodd aide said later the senator's demand for change would not be a "condition written into the" rescue package coming together on Capitol Hill, and draft legislation prepared by top Democrats doesn't make that explicit requirement. But Mr. Dodd's displeasure was clear. "If you're going to restructure, you've got to bring in a new team to do this," he said. "I think [Mr. Wagoner] has to move on."

...In a statement, a GM spokesman said the company "appreciates" Sen. Dodd's comments but added GM's employees, dealers, suppliers and its Board of Directors "all support Rick Wagoner and are confident he is the person to lead GM through these difficult times."

But calls for Mr. Wagoner and others to step down appear to be growing. In a statement from his office Sunday, Sen. Charles Schumer (D., N.Y.), said that, "while it can't happen tomorrow because of the urgency of the companies' financial situation, I would like to see management changes as part of any restructuring."

On Sunday, Jerome B. York, an adviser to billionaire investor Kirk Kerkorian who served as a GM director in 2006 when Mr. Kerkorian owned a stake in the company, called publicly for sweeping change at GM.

"Aside from a failure of leadership at the most senior executive management level, GM has five long-serving directors who have been on the board 10 years or more," Mr. York said in a telephone interview. "They have approved of and overseen many of the moves that have contributed to the company's troubles. They should also resign."

We will just have to wait and see how this all plays out.  Unfortunately, it is very late in the game to be considering new management but at a minimum it's a start.  Of the big three Wagoner has to be the first to go.  Mulally at Ford has shown he understands the situation and has made a start at turning Ford around. 

For more:

Globe and Mail (12/10) AP Story

AP (NPR Marketplace)

Portfolio.com

Reuters

The Deal.com

Jalopnik

Auto News (video)

U.S. News and World Reports

CEO Watch - Rick Wagoner, General Motors Update 8

Speculation is beginning to arise about the fate of Rick Wagoner as GM's CEO should a deal be made with Chrysler/Cerberus.  While the chances for a deal between the two car companies still seem a bit remote, should it happen, would Wagoner remain CEO?  I would doubt it.  

Earlier today a piece in Bloggingstocks.com speculated on a number of possible choices who would come from Cerberus.  While I am skeptical of the choices listed, I do think a deal would necessitate the need for a new CEO excluding both Wagoner of GM and Nardelli of Chrysler.

Stay tuned.

CEO Watch - Rick Wagoner, General Motors Update 7

As the news  General Motor's performance and sales continues to send tears down the cheeks of General Motors' shareholders, I find myself in a surprising position. I am in total agreement with Henry Blodgett, the former analyst and now successful writer in chief, CEO and co-founder for New York City's Silicon Alley Insider.  While I was on vacation last week, Blodgett wrote a short piece about the horrendous job Wagoner has done for GM as CEO and the surprising fact that his board continues to provide him with "solid support". The piece appeared in the Huffington Post.   According to Blodgett,

In the past three and a half years, General Motors (GM) has lost more than $67 billion. In the past eight years, the company's market cap has dropped by $37 billion. Add the two numbers together, and GM's shareholders have lost more than $100 billion so far this decade.

I rarely find myself in agreement with Blodgett, but his views on Wagoner and mine are exactly the same.  If you are interested in GM or the auto industry, I suggest you check out Blodgett's piece and the other journalist stories he refers to.  

For more:

Financial Times

CEO Watch List - (Recommended Reading) Rick Wagoner, GM, Update 6

As General Motors GM (NYSE) continues to bleed the company is finally sending out signals that it understands the difficulties it faces.  As is so often the case with GM the drastic measures it is now taking may still be too little and too late.  Rick Wagoner GM's CEO continues to insist he is on the right road and understands what he needs to do to right GM.  I remain skeptical as I have in my previous blog posts.  Alex Taylor III has written another fine story for Fortune outlining the new steps being undertaken by Wagoner and his team to turn GM around.   According to Taylor Tuesday's announcement of GM changes illustrate,

... GM is reacting to events instead of anticipating them. Nowhere in Tuesday's announcement is there any mention of the structural changes that will allow GM to compete with a smaller market share shorn of its high-profit light trucks. No product lines were killed, no brands were euthanized, no big budget items wiped off the books. GM still has too many dealers selling too many individual models - and now it has even less money than before to market them.

Wagoner likes to say that nobody could have foreseen the spike in oil prices that made GM's old business model in North America obsolete. But he might have picked up a report titled "In the Tank: How Oil Prices Threaten Automakers' Profits and Jobs" that was produced by research operations just a few miles from GM's headquarters, in cooperation with the Natural Resources Defense Council.

It predicted that "sales, profits, and American jobs are at risk if Detroit automakers continue with their current business strategy in the face of higher oil prices."

That report was published in July 2005 - exactly three years ago.

Wagoner may survive his position but at what continued cost.  As GM workers, shareholders and the U.S. economy suffer the U.S.' largest automobile company should really be planning for the future rather than just reacting to events.

For more:

Financial Times

Bloomberg

Guardian UK

Businessweek

CEO Watch List - Rick Wagoner, GM, Update 5

As the American Automobile Industry flirts with a serious financial contraction or possibly worse, General Motors GM (NYSE) continues to lead the pack downward.  Earlier today Goldman Sachs listed GM as a sell.  According to a story today by Kevin Krolicki of Reuters, 

Shares of General Motors Corp hit their lowest level since 1955 and dragged down the auto sector on Thursday after Goldman Sachs cut the struggling U.S. industry's largest manufacturer to a "sell" rating and warned it would have to raise capital.

... With the Thursday price fall, GM's market cap fell to less than $6.5 billion. The company has the smallest market cap in the Dow Jones industrial average .DJI, of which it has been a component since 1925.

As I have been discussing for some time now, Richard Wagoner, GM's CEO, remains on the hot seat.  He was recently interviewed by Smart Money Magazine's, Reshma Kapadia.  I have excerpted below two of the interview's Q and A's to give you a flavor for Wagoner's problems and how he views them.

A lot of people are talking about a U.S. recession. Can the great American automaker still turn things around?

Sure. There are a number of things that will play out over the next couple of years that should improve our earnings. When we complete the 2007 labor agreement, we will get $4 billion to $5 billion in savings, a half billion when our supplier Delphi gets out of bankruptcy, and if the U.S. industry gets back to average sales, that will be $1 billion to $1.5 billion, conservatively. We don't have the profitability we want, but we are improving our cash flow. So even in a very difficult U.S. environment, help is on its way. But we're not waiting for help to get here. We are coming up with other ways to improve our cost structure, including a buyout offer for U.S. hourly employees.

What do you say to those shareholders who are fed up with the stock price?

I'm a big shareholder myself; I share the frustration. I'm confident that as the market psychology turns and assumes some of these issues are behind us, we'll be well positioned. I talk to major investors regularly, and of course they would love to see a higher stock price. But they say, "Keep going and do the right stuff for the future." So that's what we are trying to do.

The real question I am thinking -- is it now too late to make a change at the top of GM right now as gas, inflation, the economy, SUVs, Hummers and trucks all conspire to complicate the problems facing General Motors? 

For more:

LA Times

CEO Watch List - Rick Wagoner, GM, Update 2

Back in early November I placed Rick Wagoner, General Motor's GM (NYSE) CEO, on my CEO Watch List. Many specialists have given a positive take on Wagoner due to his efforts to turn the company around. I have been far more suspect. The recent GM announcement that current CFO, Frederick Henderson was promoted to Chief Operating Officer COO is just another indication of the company's frustration with Wagoner. According to a story by Mike Spector in yesterday's Wall Street Journal the promotion means,

Chief Executive Rick Wagoner will spend more time lobbying and traveling now that Frederick "Fritz" Henderson, the auto maker's current chief financial officer, has been promoted to chief operating officer.

Mr. Wagoner, speaking to a small group of reporters at the Geneva Motor Show, declined to say whether Mr. Henderson was being groomed for the auto maker's top job and stressed that the shuffling in executive ranks wasn't a reaction to GM's recent struggles. The promotion was "something I'd been thinking about for a while and talking to the board [of directors] about," Mr. Wagoner said.

... Mr. Wagoner, 55, said GM's top ranks had been "stretched" and that he will now be able to focus on other pressing issues facing the auto maker while Mr. Henderson focuses on more day-to-day concerns, such as maintaining the company's evolving global structure. Mr. Wagoner pointed to lobbying on environmental regulations and spending more time in fast-growing emerging markets as key priorities amid his new lighter workload.

If you look at the change more closely one might interpret Henderson's promotion as way to dilute Wagoner's power and actually push him upstairs. That is the way I interpret the promotion and is also the same take that Douglas McIntyre who wrote a piece in today's Bloggingstocks. According to McIntyre,

General Motors' (NYSE: GM) CEO Rick Wagoner has been kicked upstairs [subscription required], according to the Wall Street Journal. He will focus on international expansion and advanced technology. Not much of a job for a chief executive. Frederick Henderson will take over as COO and run the company's daily operation.

Wagoner's sin was that he could not launch products that would get GM back some of its market share in the U.S. He was able to cut costs and get an improved deal with the UAW, but GM's January sales were down over 12% in its home market. Its share in America is only about 25%. Toyota (NYSE: TM) has muscled GM out of its lead in small and mid-sized cars.

I plan to keep Wagoner on my watch list but there already appears to be a change at GM. Stay tuned.

For Update information see:

Financial Week 3/10
Lansing State Journal 3/6

CEO Watch - Rick Wagoner, General Motors

Rick Wagoner CEO of General Motors GM (NYSE) has previously been slated by analysts and top investors a number of times as a sacrificial lamb for General Motors declining fortunes. He has to the surprise of many managed to survive despite these challenges. To his credit, lately many of his most vocal naysayers thought he might actually succeed in turning the company around. That was somewhat true until the latest report that GM reported the largest three month loss in the company's history. GM has been caught in the credit crisis as have many others particularly in the financial industries.

In an article by Chris Isidore of CNNMoney.com he stated,

(GM) reported an operating loss more than 11 times larger than expected and a $39 billion charge that was among the biggest profit hits ever reported.

The nation's No. 1 automaker, which was hit with a soft U.S. auto market and a two-day strike by the United Auto Workers union during the quarter, lost $1.6 billion, or $2.80 a share, excluding special items.

That compares to the forecast of a 25-cent-a-share loss from analysts surveyed by earnings tracker Thomson First Call and earnings per share of $497 million, or 88 cents, on that basis in the year-earlier period.

Among the problems hurting GM results was a $2.3 billion loss in the home loan business at GMAC due to problems from the meltdown in subprime mortgages. GM sold a majority of GMAC but still owns 49 percent of the lender.

It is difficult to imagine, even with the high-level of support Wagoner has managed to receive from his board that he will be able to ride these results out and remain in charge of GM.

Stay tuned this will be a continuing story.

For more:

BusinessWeek
LA Times
Financial Times
BBC
SmartMoney
BloggingStocks