NEWS ANALYSIS : Leadership Turmoil Latest Woe in GM Bid to Revamp

The world’s largest company seemed suspended in midair Thursday, the center of a maelstrom stirred by its own struggle for recovery in a climate of confusion, anger, finger-pointing and plummeting morale.

The storm is the argument over how to reinvent General Motors Corp., a bellwether of American competitiveness fallen on very hard times, and who should be in charge. This week, it is not clear whether anyone is.

At the storm’s eye is Robert C. Stempel, chairman of the board and chief executive officer, whose uncertain future was thrown deeper into doubt Thursday by cryptic comments from the board itself.

In response to repeated news reports that Stempel, 59, will be asked to resign by directors dissatisfied with GM’s progress, board member John G. Smale issued a statement that offered no support for Stempel and seemed to be almost an invitation to resign.

But no resignation was forthcoming, and GM remained in a managerial limbo that promptedemployees, dealers and industry analysts to take aim at the outside directors who have caused all the excitement.

Analyst Joseph Phillippi, who follows GM for Shearson Lehman Bros., said the board’s failure to clear the air “adds to the chaos and turmoil that’s already going on at GM as they try to reorganize. To throw this half-gallon of gasoline on the fire is totally counterproductive.”

The affair has caused resentment throughout GM, where many are convinced that the board is more worried about persuading Wall Street that it is meeting its fiduciary obligations than about the debilitating effect on the morale of employees working hard to resuscitate the firm.

“They’re covering their own ass, and in the process they’re tearing this place apart,” one mid-level corporate manager said.

An angry John Rock, general manager of GM’s beleaguered Oldsmobile division, said: “There seems to be the pervasive thought in GM that, if you want to take a leak, you have to raise your two fingers to ask (the) goddamned board of directors.”

And the heat taken by the well-liked Stempel, who landed briefly in the hospital with high blood pressure last week after a published report that his job was in jeopardy, prompted testimonials to his leadership from troops who do not understand why the board would want to replace him.

“It beats the hell out of me,” a manager on GM’s technical staff said. “I am 100% willing to believe that the board knows things about the business that I don’t know, but I am sure that whatever those complicated issues are, no one could handle them better than Bob Stempel.”

The week’s developments are the latest scene in a corporate soap opera at least partly scripted by an erstwhile soap salesman from Cincinnati, retired Procter & Gamble Chairman Smale.

Stempel became GM chairman shortly before the collapse of consumer confidence that followed Iraq’s invasion of Kuwait in August, 1990, and has been battling the economic aftermath ever since. But the downward spiral of the auto industry caused by the recession made clear that GM’s problems were far worse than those of its smaller, nimbler domestic competitors, Ford Motor Co. and Chrysler Corp.

By late last year, as GM prepared to announce the worst corporate loss in American history at $4.45 billion, complaints surfaced that Stempel was slow to recognize the severity of GM’s problems and was not moving fast enough to combat them. A major restructuring and the announcement of plans to close 21 plants and eliminate 74,000 jobs were not enough.

In April, Smale led a boardroom revolt that installed him in Stempel’s seat as chairman of the board’s executive committee, ousted President Lloyd E. Reuss and replaced him with John F. Smith Jr., with expanded powers atop GM’s deeply troubled North American motor vehicle business.

The action was backed by the 12 directors out of 15 who do not work for GM. In addition to Smale, the outsiders include such figures as former ambassador to Great Britain Anne L. Armstrong, Caltech President Thomas E. Everhart and Marriott Corp. Chairman J. Willard Marriott.

Since that bloodletting, Stempel has withdrawn from day-to-day operations and focused instead on policy issues, often in the public arena. Smith, by most accounts, has turned GM’s North American operations upside-down, hacking away at costs, demanding price cuts from suppliers and lopping off tens of thousands of jobs sooner than scheduled. Today, Smith is expected to disclose plans to consolidate and simplify GM’s car lines.

But GM has not been able to stop the financial hemorrhaging. It has indicated that it will shortly report an $850-million loss for the third quarter and miss by a wide margin the board’s goal of returning to profitability by year’s end.

The board’s dissatisfaction found its way anonymously into the Washington Post in two recent articles, including a Wednesday report that said directors hoped to get Stempel to resign within a month. He might be replaced by Smale, the newspaper said.

Smale has done nothing to discredit the reports. In a statement Thursday disseminated by GM, Smale said GM’s board “has taken no action regarding any management changes at GM. However, the question of executive leadership is a primary concern to the board of directors of any company, and GM is no exception. The GM board of directors continues to carefully reflect upon the wisest course for assuring the most effective leadership for the corporation.”

The board’s sudden activism last April after years as a rubber-stamp institution won widespread praise as beneficial to GM and as an example for boards of other companies in a new era of independence among corporate directors.

But the board’s latest effort to light a fire at GM is viewed by some as misplaced because Stempel no longer controls GM’s domestic car and truck business. And the leadership confusion undermines the company’s efforts to fix its problems.

“There is a fine line between implanting a sense of urgency, which is essential, and creating panic,” said David Cole, director of the Office for the Study of Automotive Transportation at the University of Michigan. “If they were to stick the knife into someone like Stempel, who has universal respect within GM, it would be very damaging right now.”

Even on Wall Street, long impatient with GM, some people question the need for such actions. John Casesa, auto analyst at Wertheim Schroder & Co. in New York, says, “I feel at this point that the company is moving as fast as it possibly can on every major front. The problem is, the obstacles are enormous.”

Phillippi chides the board for letting GM’s problems develop over the past 30 years. Noting that Smale has been on GM’s board since 1982, he said, “He’s part of the problem.”

What role Smale sees for himself in the GM solution remains unclear, and there are signs that the ambiguity in GM’s chain of command is beginning to take its toll.

At a news conference Thursday to rebut published reports that the board might also get rid of GM’s 95-year-old Oldsmobile division, Rock, in a video message beamed to his 3,000 dealers, declared that Oldsmobile is here to stay. But he admitted that he had not heard from any board members, which undermined his credibility with anxious dealers.