Guest Editorial: Retooling GM's Culture, Part Three

[Editor’s Note: This is the third part of a four-part series by Dr. Rob Kleinbaum. Parts one and two are still available.]

What is fascinating about GM, and offers some hope, is that it really has two cultures. The one described above is an accurate depiction of the culture in North America and Western Europe but there is another in the rest of the world that is very different. The culture of GM’s operations in Asia, Latin America, Africa and Middle East, Russia and Eastern Europe, is much more progressive and it is in these areas that GM is doing very well. On almost all of the measures listed above, they would come out on the progressive side. Working for GM in Asia Pacific, Latin America or the Middle East, you would think you were in a completely different company. People are very forward looking, they are capable of making the tough decisions, they are business focused, debate is tolerated but discipline is enforced, relations with their labor force and dealers are usually positive, and authority is genuinely dispersed to the smaller business units within each of the regions.

Numerous people have commented on the difference in economic health and attributed it to the absence of the UAW, retiree’s health care burden and government regulations such as CAFE. While these are important, it is misleading to attribute the differences to these factors. Since many of these issues are the result of the deliberate policy choices of GM, they are more symptoms of the underlying malaise than the cause; plus the healthy regions all have tremendous challenges of their own that are not present in North America or Western Europe, where the static culture is really confined.

Many of the people running GM have had extensive international experience. There is a common practice of rotating executives on the CEO track to international postings; the classic path is for a high potential finance executive from a traditional background is to be made head of GM Brazil; a business unit whose culture is quite progressive and has been consistently profitable over many years. Rather peculiarly, there is very little rotation of executives who have “grown up” in overseas operations into the key spots in North America. With a couple of exceptions, none of the top team has spent the majority of their careers in these regions that have been the most successful.

Furthermore, Asia Pacific and Latin America/Africa/Middle East are headed up by people with quite different backgrounds; one is British, the other is a female Canadian lawyer; neither have spent the majority of their careers in Detroit. The people operating the lower level business units in these healthy regions tend to be either foreign born or Americans who are considered “different” and who have quite deliberately chosen to stay as far from Detroit as possible, often explicitly to avoid a culture they find stultifying and dismaying.

Despite the progressive nature of the culture overseas and its consistent success, there seems little propensity to bring these people back into North America or Western Europe; somehow they are simply never seen as “developed” enough. When one or two promising individuals are brought back, they are often overwhelmed by the dominant culture in Detroit and either head back overseas quickly, leave the company, or fade into obscurity.

Twenty years ago, Elmer Johnson, a successful outside lawyer recruited into GM’s top ranks and a candidate for CEO, wrote a memo to the senior leadership, recently posted in Barron’s 4, which was heartbreakingly prophetic. Its central theme was that GM’s culture was preventing it from executing its strategy and unless there was a concerted effort to change its culture, there would be little chance of meaningful change. He was ignored and shortly afterwards left the company.

His prophecy that GM would fail in its bid to become a company that built the world’s best cars and trucks in a way that provided superior shareholder value has, regrettably, proven disastrously true. The recommendations he made; major changes in people at the top, the committee structures, the organizational structure, and decision making process, are still sound but now would not go nearly far enough.

This raises the question of what can be done. The first and most obvious is to change a significant number of people at the very top, replacing them either with outsiders or with GM executives from overseas operations who have not grown up in the traditional culture. This should go several levels down but also include substantial changes in the Board of Directors, as they are key enablers and drivers of the corporate culture. The Board has not put any pressure on management to change its culture or drive accountability; on the contrary they have consistently re-stated their support of the management team. There are few if any real change agents on GM’s Board. Changing large numbers of people at the top is a necessary but not sufficient condition, as the static culture is reinforced by so many other attributes.

[End of Part Three. To be continued . . . .]