Perot Sounds Off : Ousted Billionaire Defies No-Comment Clause, Says GM Is Spinning Its Wheels
Nearly a year after his dramatic ouster from the board of General Motors, Texas billionaire H. Ross Perot sees GM in turmoil, its sales plunging and the company drifting and leaderless. And he thinks he knows why.
As always, the 57-year-old isn’t shy about telling the world what he thinks.
GM is troubled, Perot says bluntly, because it is beset by power-hungry top executives who spend all of their time trying to move up the ladder and who do little to improve the quality of GM’s cars.
“My greatest regret is over the maneuvering and politics and power-grabbing going on inside the corporation, which distracts them from making the finest cars in the world,” Perot said in an interview this week.
“Too much energy is being used up in corporate in-fighting. The corporation ought to be devoting its energies to making the finest cars in world, and not get tied up in management power struggles, and Machiavellian intrigues, and that’s what is going on. It’s sad to see.”
And, despite the threat of multimillion-dollar fines for making negative public comments about GM--a provision of the $700-million buyout agreement Perot signed when he sold his huge GM stake back to the corporation last year--he is also willing to identify who he thinks is the chief villain at GM.
It is Elmer Johnson, a GM executive vice president widely reported in Detroit to be mounting an intense drive inside the company to succeed GM Chairman Roger B. Smith, who is scheduled to retire in 1990.
Johnson is a 55-year-old former corporate attorney from Chicago who has been at GM for just four years and who joined the firm with no experience in the auto business. He started as general counsel in 1983 and since has seen his responsibilities expanded to include a broad range of staff functions, including public affairs, personnel and labor relations. He was the executive overseeing this year’s contract talks with the United Auto Workers.
Perot believes that Johnson, who was also the point man for GM in the company’s efforts to oust Perot last year, is representative of a larger malaise in the upper reaches of GM management, which he believes is paralyzed by corporate politics.
‘Maneuvering for Power’
“Elmer is clearly maneuvering for power,” Perot says. “Elmer has been busy for months tooting his own horn, allowing himself to be photographed playing his saxophone on the cover of the Detroit Free Press Sunday magazine and photographed with his feet on his desk. The last thing GM needs is an executive with his feet on the desk on the 14th floor (the top corporate suite in the GM headquarters building) who doesn’t know how to make a car.
“GM cries for an executive with both feet on the factory floor who knows how to make a car. Only in America could a man who was Playboy’s lawyer think he could become chairman of the world’s largest automobile company.” (One of Johnson’s Chicago legal clients was Playboy Enterprises President Christie Hefner).
“But you’ve got a giant organization that’s not functioning well, and there you go. People sense weakness, and step in and try to take control.”
Johnson and other GM executives declined to respond to Perot’s comments on Tuesday. “There is nothing to be gained by responding to Mr. Perot’s comments,” said GM spokesman Jim Crellin.
While General Motors refused comment Tuesday, it’s clear that Smith and other executives have tried to limit the damage from the Perot affair and have taken steps during the past year to boost GM’s tarnished image. Several months after Perot’s ouster, Smith launched a public relations offensive, wooing Wall Street analysts and investors as well as the news media. He sent letters to the company’s stockholders stressing the company’s effort to build better cars, and just this week he told reporters that he sees the 1988 model cars as the key to regaining lost market share.
Even Perot now says he has been pleased by GM’s effort to improve communication with its stockholders as well as by the company’s decision to replace its executive bonuses with a compensation package tied to corporate achievement.
Still, Perot has neither forgotten nor forgiven the rude treatment that he received at the hands of GM in late 1986. And a year later, he hints that he still doesn’t completely understand why it all happened.
A flamboyant superpatriot and self-made billionaire, Perot sold Electronic Data Systems, the Dallas-based computer services company he founded, to GM for $2.5 billion in 1984 and immediately became GM’s largest shareholder and a member of the board.
He sold his privately held firm only after GM’s Smith convinced him that GM needed EDS to help in the auto maker’s drive to become a world leader in factory automation, and likewise needed Perot’s fiery spirit to reinvigorate GM’s bureaucracy for the big battle with the Japanese.
But it didn’t take long for Smith to decide that Perot was really too fiery and that he was becoming a loose cannon in one of the most tradition-bound corporations in America.
Perot dared to question longstanding management practices, and openly sought to stir things up; he would go down to the factory floor to talk to workers about new ideas and would anonymously shop at GM dealerships, trying to gauge customer service.
On the board, he provoked Smith when he became the only member to vote against GM’s $5.2-billion acquisition of Hughes Aircraft in 1985.
And, most importantly, he refused to turn over the reins of EDS completely to GM. Since EDS remained a separate unit under GM, with its own publicly traded class of stock, Perot repeatedly demanded that GM meet its contractual obligations to EDS for the computer subsidiary’s work in GM facilities. He felt that EDS had to show real profit in its business with GM in order to guarantee that its stock, GM Class E, would retain its value.
Smith finally tired of Perot, and briefly toyed with selling EDS to AT&T;, apparently in part to get rid of Perot. When that didn’t work, GM decided to simply buy him out. On Dec. 1, 1986, the company announced that Perot was resigning from the board and GM was paying Perot roughly double the market price for his stake in the company.
But even today, Perot remains somewhat puzzled by Smith’s decision to push him out. After all, he had always felt that Smith wanted him to act as an irritant inside the organization to shake things up.
“I thought one of Roger’s major reasons for acquiring EDS was that I had certain strengths that he didn’t have,” Perot says. “My long suit is execution. Roger is a great financial guy. But he didn’t spend his career down in the trenches cracking the whip, getting it done. I thought he felt I could work with him, with me getting down there, to get it humming.
“He got me convinced that there was nothing better for me to do with the rest of my life than help GM build the finest cars in the world.”
But while he still wonders why Smith turned on him, Perot apparently believes that Smith was just as much a victim, engulfed by GM’s mammoth bureaucracy, as he was.
“I would get so frustrated. . . . Roger would shout an order, saying absolutely the right things, and nothing would happen,” Perot recalls.
“I understood in my world how to make (things) happen. But that whole big amorphous featherbed up there . . . they were always tentative when it was clear you had to do something. I could go down to the plant floor and talk to guys, and everybody would get excited and say let’s go take over the world, but then when it went back up the ladder and got to the upwardly mobile guys trying to be chairman, they would just freeze, they would say I was just trying to take over.
“They have all these little power cliques, all these little guys grabbing for power, it’s like a miniature Washington.”
Now, with GM behind him, Perot says he remains busy in his hometown of Dallas, overseeing his massive investments, which include Texas real estate and oil and gas properties.
The biggest piece of his portfolio, however, is in “liquid” securities, Perot says. He claims, however, that he was not investing in the stock market when it crashed; he got out long before.
“I did fine. I looked at it (the stock market) a year ago and said I didn’t understand it. (Wall Street) didn’t make any sense at all. What business pays 28-year-old boys a half-million or a million dollars a year? There’s only one other place where money is like that and that’s the dope business. It’s just a damn joke. And whenever I don’t understand something, I’ll get out.”
Along with managing his vast holdings, Perot is also biding his time until May, 1988, when he will be free, under the terms of his GM buyout, to build a new EDS, and hire anyone from his old firm that he wants.
He said he will only found a new computer services company to compete with EDS if his “guys”--his loyalists still at EDS--are unhappy with GM next spring. He adds that he is generally pleased that GM now seems to be living up to its contractual agreements with EDS. Whether he goes ahead, he stresses, is up to GM.
“I’m not going to push it or encourage it; it’s in GM’s hands,” he says. “If the guys are still happy, we will forget about it and we won’t do it.”
1962--Former IBM salesman H. Ross Perot quits his job to found the Dallas-based Electronic Data Systems with $1,000. EDS begins supplying computers to large-and medium-sized corporations.
1984--General Motors buys EDS for $2.5 billion as part of its drive to use computers and robotics to become a world leader in factory automation. Perot becomes GM’s largest individual shareholder, with 11.5 million Class E shares, and joins the GM board. He remains EDS chairman.
1986--November: AT&T; admits that it has been negotiating with GM on the possibility of buying all or part of EDS as rumors mount of a split between Perot and GM Chairman Roger B. Smith. The talks stall over a wide disparity on the price.
1986--December: The GM board votes to buy out Ross Perot’s GM stake for $700 million, with the requirements that he both resign from the board and avoid public criticism of GM.
Perot says he will put the money in an escrow account until Dec. 15, 1986, to give GM a chance to rescind its offer. He claims that the money can be better used to improve GM products and possibly save some outmoded factories slated for closure. The board stands its decision, and Perot accepts the buyout.
