Maverick Perot Ousted in Feud With GM Chief : Auto Maker Paying $700 Million to Remove Critic From Board and EDS, Firm He Founded

Texas billionaire H. Ross Perot, after a bitter and increasingly public feud with General Motors Corp. Chairman Roger B. Smith, was ousted Monday from the helm of Electronic Data Systems, the huge computer services company he founded and sold to GM two years ago.

Perot, 56, a maverick entrepreneur who founded Dallas-based EDS with $1,000 after quitting his job as an IBM salesman in 1962, was also forced to resign from GM’s board of directors, where he had become a lonely dissenting voice railing against the slow pace of change at the world’s largest industrial company.

Given Title of ‘Founder’

In return, GM said it would buy back Perot’s stake in GM for about $700 million, and, although giving up his position as chief executive of EDS, Perot will be allowed to retain the honorary title of “founder” of EDS.

But, in a dramatic gesture late Monday afternoon, Perot urged the board to take a second look at its decision to buy back for $700 million his 11.3 million shares of a special class of GM stock that is tied to EDS earnings. Instead, Perot--GM’s largest stockholder--said the company should use the money to improve its competitiveness.

“I feel very strongly that this is money that could be used to improve GM and create jobs,” Perot said in an interview. “I would want to use the money to build and strengthen the company. And, if they could use that to make some plants that might otherwise close competitive enough to remain open, that would be terrific. All I want is to create jobs for Americans.”

He offered to place the money in an escrow account until Dec. 15 to give the board time to rescind its decision to buy back the stock.

Late in the day, however, GM’s board rejected Perot’s suggestion. The board, meeting in New York without Perot, voted unanimously to proceed with the agreement, buy back Perot’s stock and completely sever GM’s ties with him. “The board was unanimous in its judgment that the course of action it chose, terminating GM’s relationship with Mr. Perot, serves the best interests of General Motors,” said James H. Evans, chairman of the audit committee of GM’s board.

Meanwhile, three other top EDS officers--Vice Chairman Morton H. Meyerson, chief financial officer J. Thomas Walter Jr. and Senior Vice President William K. Gayden--executives Perot described Monday as the core group who helped build EDS, also received stock buy-out offers from GM and will be forced to leave EDS.

GM agreed to buy back a total of 12 million shares of its Class E stock and contingency notes from the EDS officers for a total of about $60 a share, or roughly double their current market value. But the total amount is about equal to the price that GM was obligated to redeem the stock for in 1991.

In an apparent move to consolidate its control over EDS, which has been known for an entrepreneurial, free-wheeling corporate culture that reflects Perot’s personal style, GM announced also that it will merge EDS into a new defense and electronics unit. That group will include GM’s Hughes Aircraft subsidiary, as well as its Delco Electronics unit and related defense operations. As a result, EDS, which had been previously run by its own separate management, will now come under the direct control of a GM executive.

Perot’s ouster, certainly the most dramatic in the auto industry since Ford Motor Co. President Lee A. Iacocca was fired by Henry Ford II in 1978, was widely viewed by analysts and other industry observers as a sign that GM is still dominated by a highly structured bureaucracy resistant to change and internal criticism.

“If Ross Perot couldn’t change it, that just shows how firmly entrenched the bureaucracy at GM is,” Michael Luckey, automotive analyst with Shearson Lehman Bros., noted.

“If this means they are going back to the old homogenized way of thinking that used to dominate the auto industry, then I’m worried that the Hondas of the world are going to eat them for lunch,” Martin Anderson, an industry consultant, added.

Perot’s flexible style--and his willingness to openly criticize GM for giving its executives lavish perks while failing to meet the competitive challenge from the Japanese--apparently put him on a collision course with Smith and other career executives at GM.

A cross-country war of words between Perot and Smith had broken out as a result. Perot opened the battle with Texas-style fighting words about the lavish lives of GM executives, and how distant they had become from the process of building cars.

“You’ve got to move Roger and the rest of those people out of the 14th floor of the GM buildings and down to the real places where people are doing the real work of building cars,” Perot said earlier this year.

Smith Breaks Silence Smith remained silent for months but finally struck back in an interview last week. He told a Detroit newspaper that Perot’s office at EDS made his own look like “shantytown . . . . He has Remingtons; he has a Gilbert Stuart painting on the wall. Nobody runs around saying get rid of Ross’s office.”

Smith was apparently so fed up with Perot that he even tried to sell at least a part of EDS to American Telephone & Telegraph Co. earlier this fall, before deciding simply to buy out Perot’s stake in the company.

In an interview Monday, Perot said one of the two central “stress points” that led to his ouster was “my aggressiveness about getting GM competitive . . . . All I ever wanted for GM was for it to become the best it could be.”

He said the other major dispute resulted from EDS’s insistence that a profit margin be included in written contracts for the work it performs for GM, while GM sought a more informal relationship.

Agreed to Leave

Perot insisted that he agreed to leave--and noted that GM could not have ousted him without his approval because of his position as the company’s largest shareholder. “This was not a unilateral thing,” Perot said. “People forget that stockholders elect management.”

Still, he said he was surprised when GM executives and board members opened negotiations with him two weeks ago about buying out his shares and getting him out of the company. “I was surprised, because I didn’t think the board would want to spend this much money this way.”

But he said he agreed to leave in part because he had grown tired of fighting an uphill battle inside GM.

“I felt it was not the best use of my time to try to change GM,” Perot said. “Very simply, they were not receptive to my ideas, and at some point you decide that’s not the best use of your time.”

Can’t Criticize GM

Under his termination agreement, Perot agreed not to publicly criticize GM or to try to take it over. There had been widespread speculation in recent weeks that GM’s Smith, who was not available for comment Monday, felt threatened by Perot and was worried that Perot might try to challenge his leadership of the $100-billion company. But Perot said Monday that he never had any intention of trying to oust Smith in order to run GM himself.

But he said he may consider starting another computer services firm. Perot’s agreement with GM allows him to start a nonprofit computer services company immediately and a for-profit computer company within three years, Perot said. And he can hire away up to 200 EDS executives after 18 months for any new firm he starts. But he insisted that the agreement allowing him to start another firm is simply a “fire escape” in case his former managers at EDS find they can no longer work within the GM system. He said he plans to stay with EDS in his undefined role as “founder,” in order to try to help keep the company on track.

Perot’s ouster occurred against a backdrop of mounting problems throughout the GM empire, problems that Perot talked about openly while other GM executives remained extremely defensive.

GM’s highly publicized reliance on high technology to become competitive with the Japanese has come unglued, and GM now has little to show for the billions of dollars it has spent to install modern automation equipment throughout its manufacturing plants, except soaring costs and mounting operating losses.

The $2.5-billion acquisition of EDS in 1984, designed to help streamline computer operations inside GM and to integrate state-of-the-art manufacturing technology, has instead sparked fierce internal rivalries between EDS and GM staff members, while creating new layers of bureaucracy, industry experts say.

Meanwhile, GM’s look-alike new models have left car buyers cold, and GM’s market share has been declining over the last two years. And, for the first time since 1924, GM is likely to post lower profits in 1986 than Ford, despite GM’s enormous edge in sales volume and financial resources. Already, GM’s per car profit margins trail those of both Ford and Chrysler.

Industry analysts warned that Perot’s ouster will only increase GM’s problems, as morale at EDS plunges. Some noted that the Perot affair will also send a signal to GM staff members that the company will not tolerate those who buck the system. Maryanne Keller, a highly respected industry analyst with the investment firm of Furman Selz Mager Dietz & Birney Inc., removed GM from her list of recommended stocks Monday as a result of the Perot ouster.

“They bought EDS because it was a fast-growing, maverick company that might infuse some energy into GM,” Keller noted. “Now, GM is assimilating EDS into its bureaucracy because it was too much of a maverick. They might as well not have made the acquisition at all.”

Added Keller: “GM is in a state of disarray.”

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