New Leadership Named at GM; Dividend Slashed
In what is seen as a watershed for U.S. industry, General Motors Corp.’s board of directors on Monday installed one of its own atop the company, slashed the dividend by half, swept out four top executives and anointed new leadership at the ailing automotive giant.
The action marked a dramatic bid to resuscitate once-mighty GM--bellwether of the nation’s industrial economy that has been driven into a financial morass by inefficiency and deeply entrenched bureaucracy.
Named to oversee the recovery effort as chairman was John G. Smale, 65, an outside director who once ran Procter & Gamble, the giant consumer products concern. Smale spearheaded an uprising by GM’s board that began last April and culminated in Monday’s action at the company’s offices here.
But the board was at pains to identify career GM executive John F. (Jack) Smith Jr., 54, who was handed the chief executive’s reins in addition to his president’s title, as the man “with full responsibility for running the corporation.”
The board also named William E. Hoglund, 58, GM’s chief financial officer, to a new position in which he will assist Smith in running the company’s North American operations, which is the source of GM’s woes. Hoglund was also named to GM’s board, leaving himself and Smith as the only employees who are also directors.
The splitting up of the chairman and chief executive’s post is a first at GM and still relatively rare at big, publicly held companies. But it has been urged by boardroom activists and other critics of corporate America who bemoan the “rubber-stamp” role so often played by corporate boards.
“We are confident this new team is the right leadership to take the reins at this critical juncture,” Smale said in a videotaped statement broadcast via satellite from the GM building on Fifth Avenue in New York to thousands of dealers and the company’s more than 300,000 North American employees.
Privately, directors sought Monday to downplay both the power held by Smale and the suitability of such a format to other corporations. But its adoption by the No. 1 company on the Fortune 500 establishes it as a credible route for others to take.
The bloodletting at GM is heavily symbolic of a changing of the guard for the nation’s industries as they try to remake themselves to survive in the global marketplace. Moreover, the events at GM took place at the end of a presidential election campaign that had industrial transition as a centerpiece.
The directors met Monday at what is still called the General Motors building on Fifth Avenue, a convenient meeting site for GM’s Wall Street-oriented directors and the locale for great corporate intrigue over the decades. Although the company sold the building last year to raise money, its lobby still sparkles with new GM cars and trucks, some of them suspended from the ceiling, and would-be customers were kicking tires as GM’s new management team conducted a news conference nearby.
The actions announced Monday are in line with the rumors and speculation that have engulfed GM, the world’s biggest industrial enterprise, which lost a record $4.5 billion last year. Reports were published more than two weeks ago that Chairman and Chief Executive Robert C. Stempel’s job was in jeopardy. He submitted his resignation under fire last week.
There is presumably more to come because the board was said to be dissatisfied with the pace and scope of Stempel’s cost-cutting. Smith indicated that further consolidations may be announced Nov. 12 after he meets with investment analysts. The closing of seven more factories, a plan to get laid-off hourly workers off the payrolls, and a cut in the number of GM’s auto “platforms,” or chassis, are among the expected announcements.
However, Smale and Smith said GM would continue on the path begun last April rather than lurch off in a new direction. Contrary to some published reports, Smith told reporters that he expects no sizable increase from the previously announced target of eliminating 74,000 jobs. He also said the announced closure of 21 factories, 14 of which have been identified, “are all we have planned at the moment.”
Smale and Smith moved to repair the damage of recent days in their closed-circuit television address Monday. Shaking hands and calling each other “Jack” and “John,” they stood before a camera that also panned the dozen other directors sitting around a huge table. Absent was Stempel, who skipped the meetings.
In the televised pep talk, Smith apologized for the turmoil and uncertainty and declared that he, not the unknown Smale, was in charge. Smale “will not be an officer of GM, he will not be an employee, and he will not run the company,” Smith said as Smale sat by his side. For his part, Smale declared the board’s “enthusiastic and unqualified support” for Smith.
They also said the arrangement is not necessarily permanent, suggesting that a return to financial health might clear the way for Smith to install a more traditional corporate power structure.
The refrain of Smith’s complete control appeared to be a campaign to shore up employee morale by convincing them that the board of directors is not running the company.
Apparently sensitive to criticism of their inaction amid GM’s mounting problems during the 1980s and the handling of Stempel’s ouster, several longtime board members agreed to talk anonymously Monday.
“When a corporation is doing very well (financially), as we were, it’s difficult to see your defects. In hindsight, I wish I had focused on some of the small things that were beginning to go wrong,” another director said.
Some directors insisted that they didn’t lose confidence in Stempel, but that his effectiveness was undermined by the news media after the April shake-up. They said they didn’t know who leaked the report last month that Stempel was in trouble with the board.
Yet the report proved accurate. Moreover, Smale made similar vows of support for Stempel last spring, and Stempel insisted right up until submitting his resignation that he was in charge. Smith conceded that he, too, will be gone if he can’t move GM’s staggering North American car and truck business to profitability.
Smith made numerous references to progress in GM’s relations with the United Auto Workers and suggested that was his most immediate task. Cutting labor costs is high on the board’s agenda, but will have to be done with the union’s cooperation.
Among the highlights of Monday’s decisions:
* The board slashed its common-stock dividend by half, to 80 cents per share annually, a step that will save GM about $500 million a year. It was the second time in 18 months that the company has cut the payout to shareholders. GM’s stock closed up $1.125 a share to $31.875 on the New York Stock Exchange.
* Three Stempel loyalists also resigned: Lloyd E. Reuss, 56, already demoted from the president’s job last April; F. Alan Smith, 61, an executive vice president, and Robert J. Schultz, 62, vice chairman and a director, who oversaw the GM Hughes Electronics Corp. and Electronic Data Systems Corp.
* Smith, Hoglund and three newly promoted men were named to the GM management committee: Louis R. Hughes, 43, president of General Motors Europe, who was also put in charge of all of GM’s overseas operations; G. Richard Wagoner Jr., 39, elevated to chief financial officer from his current job as head of GM’s subsidiary in Brazil; and Harry J. Pearce, 50, general counsel, who replaces Schultz as head of Electronic Data Systems, GM Hughes and several corporate staffs.
Harmon reported from New York and Woutat from Detroit.
GM Shifts Gears
Details of the General Motors Corp. shake-up, announced Monday:
Executive and board changes: Board promotes president John F. (Jack) Smith Jr. to chief executive and elevates outside director John G. Smale to chairman. In addition, new executives are named to four key positions, including chief financial officer and head of GM Hughes Electronics Corp., the nation’s biggest electronics defense contractor. Outgoing chairman Robert Stempel officially retires but will stay on as an adviser to the company. But three of Stempel’s associates depart.
Dividend cut: GM cuts the $1.60 a year dividend in half to 80 cents per common share. The move is expected to save $500 million a year.
Saturn’s autonomy limited: GM’s highly successful Saturn subsidiary, the company’s answer to small car competition from Japan, no longer has autonomous marketing, engineering and manufacturing operations. The move is seen as part of a broader GM strategy to simplify and centralize all vehicle operations.
Market reaction: GM stock gains $1.12 1/2 a share to $31.87 1/2 on the New York Stock Exchange. Auto analysts expected many of the executive changes and the dividend cut, although some expected more drastic measures to be announced quickly.
Source: Times wire services
