GM’s Man Who Bested NBC Helps Rouse Sleeping Giant : Business: Counsel Harry Pearce wields vast power. He is seen as best of new talent shaking up troubled firm.

As a teen-ager in North Dakota, Harry Pearce was fascinated with rockets. He built several sizable models, including a two-stage missile that won a U.S. Navy award.

“I got to know a lot about rocketry,” said Pearce, 50, who dreamed of becoming an astronaut but instead became an engineer and lawyer.

Too bad for NBC News.

Pearce, executive vice president and general counsel for General Motors, made the network cry uncle last week, proving its “Dateline NBC” program rigged a crash test by secretly using model-rocket engines to ignite a fuel-tank fire in a GM pickup truck.

NBC quickly admitted the deception, and the bravura performance launched Pearce--a once obscure product liability lawyer--to national prominence, raising his standing as a man to watch at GM.

Since being promoted in November to oversee the giant company’s non-automotive businesses (including Los Angeles-based Hughes Aircraft) and lobbying efforts, Pearce has emerged as the best and brightest of the new talent that is shaking up GM’s stuffy, arrogant corporate culture.

Some analysts are skeptical that the changes at GM are deep enough, or have come quickly enough, to turn around the loss-ridden firm’s fortunes. But if so, the transformation--forced by an impatient board of directors--may serve as a model for other slumbering corporate giants, from IBM to Westinghouse Electric.

“I think this shows a very major change in the corporate culture,” said Ira Millstein, a New York attorney who serves as legal adviser to outside members of GM’s board of directors.

GM still faces numerous lawsuits over the safety of its 1973-1987 full-size pickup trucks. The government is investigating whether to recall the vehicles, and consumer groups charged Tuesday that GM systematically destroyed damaging documents in an effort to cover up a fuel-tank defect.

Yet last week’s events, choreographed by Pearce, stand as a stunning victory for GM, coming as the survivability of the nation’s largest auto maker was being called into question.

While the NBC case may be the most dramatic illustration of GM’s metamorphosis, there are numerous other examples of the auto maker’s attempt to reinvent itself:

* There is a new openness at GM. When the auto maker last week reported a record $23.5-billion loss (largely because of a one-time charge for future retiree health benefits), Executive Vice President G. Richard Wagoner split with tradition to hold a news briefing explaining the results. He even broke out data for the first time on GM’s troubled North American operations.

In the past, GM would provide journalists and analysts little help in interpreting its financial statements.

* The auto maker is emphasizing customer satisfaction. On Monday, GM said it would fix leaky head gaskets on its Quad 4 engines, extending its regular warranty to fix the problem on up to 500,000 vehicles.

The effort, which could cost the company $22 million, contrasts with the tough approach GM often took in the past on customer complaints.

* The walls of executive privilege are being torn down. For years, the posh 14th floor of the company’s Detroit world headquarters was an inner sanctum restricted to top managers. The atmosphere isolated top executives from lower-level managers and workers.

No more. Managers are encouraged to mix with the troops; the 14th floor’s executive dining has been closed. And more major decisions are being made at other locations, such as the GM Technical Center in Warren, Mich., north of Detroit.

* GM is trying to improve labor relations before the start of contract negotiations later this year. John F. (Jack) Smith, president and chief executive, gave nearly 300 leaders of the United Auto Workers union an informal state of the company report last Thursday.

Symbolically, the unprecedented gathering was held on the 56th anniversary of White Shirt Day, which commemorates the end of the 44-day sit-down strike in Flint, Mich., that earned bargaining recognition for the UAW.

The change occurring at GM is credited largely to Smith, a no-nonsense New Englander who took over operational control after Robert C. Stempel was forced out as chairman and CEO in a messy board coup last year.

Smith promptly promoted several young managers to top posts--with Pearce, a graduate of the U.S. Air Force Academy and Northwestern University’s School of Law, perhaps the most surprising of the appointments. Pearce does not fit the GM mold: He spent most of his career outside GM and is an attorney--not typical management material.

“Traditionally, it was thought that lawyers should be heard but not seen in GM,” said Millstein.

The taciturn but direct-talking Pearce has had opportunity to do both. His responsibilities are vast: GM Hughes Electronics Corp., Electronic Data Systems Corp., industry-government relations, environmental and energy affairs and all legal matters. He holds sway over issues as diverse as trade, emissions standards and auto safety.

Pearce, who has short-cropped gray hair and a military bearing, brings to the job a disdain for the old way of doing things.

He volunteers that the company has been “arrogant” for not listening to customers, that it has been too “compartmentalized” to be competitive. He believes in delegating authority, empowering employees to share their views and challenge management and being tough but compassionate with workers who can’t do the job.

Pearce has an ability to focus on the crucial facts, quickly understand complex, technical matters and explain them succinctly to the average person, friends and colleagues say.

“He is a good listener,” said Joel Gilbertson, a partner at Pearce & Durick, the BismarckD., law firm founded by Pearce’s father. “He is thoughtful, measured in his responses. But he has a certain aura about him.”

In joining GM as associate general counsel seven years ago, Pearce shook up the product litigation section by dismissing unproductive lawyers, many of whom had been hired right out of law school. Instead, he sought a more experienced and diverse group from outside GM. To eliminate bureaucracy, he eliminated all job titles.

“I got rid of the layers so we could focus more on the work we were doing,” he explained.

Pearce made similar moves throughout the legal department when he became general counsel in 1987 and implemented a “feed-back loop”--a system of case review to learn from past mistakes. Then he took on the company’s outside lawyers, demanding that they cut costs but giving them more latitude in handling cases.

“He stopped the micro-managing,” said Thomas A. Gottschalk, a partner in Chicago-based Kirkland & Ellis who has worked closely with Pearce.

Such efforts have reduced outside counsel expenses by about $50 million in the last three years, Pearce says.

Pearce holds frequent informal meetings with groups of six to eight employees, including secretaries and file clerks, as well as middle managers. There is no agenda; workers are encouraged to make suggestions that could make them more efficient.

Now Pearce hopes to make other areas of GM work better as well:

* In the last three months, he has reorganized Hughes Electronics. Its key units, Delco Electronics and Hughes Aircraft, were brought under the same operating structure in hopes of improving their sharing of technology.

“There are a lot of synergies to defense and automotive electronics,” Pearce said. “We didn’t take good advantage of that in the past.”

Hughes will emphasize automotive electronics and telecommunications--fields expected to be more lucrative than defense electronics as the Clinton Administration accelerates cutbacks in military spending. Attention will focus on telecommunications satellites, wireless telecommunications systems for developing countries and direct television broadcast.

Even with cutbacks in the military, moreover, there are likely to be big contracts to support integrated strike force operations. That means a continued demand for laser guided weaponry, smart bombs and night-vision systems--areas in which Hughes is strong.

* Pearce now is turning his attention to EDS. The data processing company has been profitable, but he thinks it can do more for GM in everything from information processing to computerized parts design.

“We have a huge opportunity to become more efficient,” Pearce said.

Still, in his effort to use EDS’ technology more effectively, Pearce will have to be careful not to stir up old animosities. After GM acquired EDS from founder Ross Perot in the mid-1980s, there were clashes between EDS’ entrepreneurial style and the auto maker’s bureaucratic culture.

* Pearce wants to get GM more involved in environmental issues. One area of particular concern is the development of an electric car. Pearce--who says GM is committed to that project--is critical of government efforts, particularly in California, to mandate when those cars should be brought to the market. California has insisted that 2% of vehicles sold in the state in 1998 be zero-emission or electric-powered.

“I’ve always been troubled by any government trying to tell the market what the customers want,” Pearce said.

* Although the Big Three--reportedly led by GM--backed away from filing a major anti-dumping case last week that would have accused Japanese auto makers of selling vehicles here for less than in Japan, Pearce said the U.S. auto makers have a valid case and could file it in the future.

“The Big Three want to give the Administration a chance to develop a rational trade policy,” he said. “We didn’t want to put them in a box.”

* Another area in which Pearce hopes to have national influence is reform of civil litigation. He would like to see a limit placed on punitive damages and a prohibition on contingent fee arrangements, which he says encourage the filing of frivolous lawsuits.

Such issues are close to the heart of a longtime product liability lawyer. For 15 years, he handled cases for GM, Ford and American Motors, losing only one case--and even that verdict was reversed on appeal.

His handling of the X-car case--involving such models as the Chevrolet Citation and Buick Skylark--brought Pearce to the attention of top officials of GM. The government, alleging that the cars had a faulty braking system, ordered a recall. Pearce, as lead co-counsel with Gottschalk, won the high-profile case, saving GM the expense of recalling 1.1 million cars. Nonetheless, the publicity hurt X-car sales and the line was soon dropped.

Larry Moloney, the assistant U.S. attorney who opposed GM in the case, recalls Pearce as a “substantive” and “professional” attorney.

“He has a very special talent for understanding and explaining in very simple terms very technical information,” said Moloney, now a private attorney in Minneapolis.

It was this ability that Pearce displayed so well last week against NBC. In a two-hour press conference resembling a courtroom summation, he meticulously unraveled the “Dateline NBC” deception in layman’s terms.

It was just that style which caught the eye of former GM general counsel Elmer Johnson, who asked Pearce to join the company in 1985, during the X-car trial.

At the time, according to Gottschalk, Pearce was frustrated with the role of the trial lawyer, fretting that he had an impact only after a problem was uncovered. He longed to be involved in the front-end--preventing problems from developing.

“He thought that he could improve on GM’s processes,” Gottschalk recalled.

Even before Pearce was appointed to his current positions, he kept extensive notes on all aspects of GM with which he came in contact. Now that he is near the center of power, Pearce hopes to use his diverse experience--as a military judge, U.S. magistrate, police commissioner, trial lawyer, husband and father of three children--to make a mark.

Profile: Harry J. Pearce

Here is some background on Pearce, GM’s executive vice president and general counsel.

Age: 50

Born: Bismarck, N.D.

Education: Bachelor’s degree in engineering science from U.S. Air Force Academy; law degree from Northwestern University.

Family: Married with two daughters and a son.

Career: After law school, he served as a staff judge advocate in the Air Force. In 1970, joined the law firm of Pearce & Durick, which was founded by his father. He specialized in product liability litigation, handling cases for General Motors, Ford and American Motors. He joined GM in 1985 as associate general counsel. In 1987, he became general counsel. Pearce added the title of executive vice president in November.

Management philosophy: Delegating authority, empower employees to share their ideas and challenge management and be tough but compassionate on workers who cannot do the job.

Quote: “The more direct and intellectually honest you are, the more successful you will be.”