General Motors — Going Outside the Company for Top Talent

I’ve been quoted in an article in Human Resource Executive Online on the shake-up in leadership at General Motors.  Why should companies go outside the company for a new CEO, rather than promoting from within?

In the case of GM, it’s the ultimate Change-in-Control — with government intervention, a bankruptcy filing, public scrutiny and new independent Directors impatient with the lack of progress and improvement.

Note the fast-paced crescendo of massive change:

  • Longtime incumbent chairman and CEO Rick Wagoner resigns at the request of the Obama administration in March 2009.
  • COO Fritz Henderson ascends to the top slot
  • GM files for bankruptcy protection on June 1.
  • Edward Whitacre Jr., former chairman and chief executive of AT&T; steps into the driver’s seat as Chairman of the Board on June 9.
  • The company exits bankruptcy on July 10.
  • Fritz Henderson resigns as CEO on December 1 — after only five months in the leadership role.
  • Chairman Whitacre becomes interim CEO
  • GM reaches outside the company and the auto industry for a new chief financial officer;  announces on December 21, the hiring of Microsoft’s Chris Liddell as vice chairman and CFO.
  • Whitacre drops interim from his title and assumes CEO role on permanent basis on January 25, 2010
  • On March 4, automotive design icon and ultimate ”car guy” Bob Lutz announces his retirement.

Is your head spinning yet?  Certainly a mode of shock and awe in Detroit.

In the B.W. era – Before Whitacre — doing things the ”the GM way” was very ingrained in leaders who had never worked anywhere else.  The organization was homegrown and in-grown, in the opinion of many.

Stakeholders could not wait for improved results. Thus, going outside the company and infusing new talent and “tone at the top” was the only option.  Continuing the ”promotion from within” succession plan would only guarantee more of the same.

Ed Whitacre knows how to operate in a company that was highly-regulated, then de-regulated, with union/labor aspects. He scaled it up to a market leadership position in a highly-competitive, chaotic, margin-pressured environment. He’s leading and mentoring a younger generation of GM talent that might be ready to break out of the old, outmoded “GM way.”

Throughout its history, GM was able to hire the best and the brightest. Young turks would gain traction and and build momentum for innovation – only to be squelched by the status quo, in many cases.

For a fascinating view on the inside culture of GM and the Detroit auto aristocracy, track down a copy of the book On a Clear Day You Can See General Motors.  It is the story of John Z. DeLorean, a young, hot high-potential on the fast track and how his career derailed in light of too much innovating, media visibility and personal controversy.  It was the book Detroit did not want published — very explosive and controversial at the time.

Companies are living entities. They are not static. They evolve through various stages of growth with a wide range of competitive challenges. A leadership team must be able to navigate with certainty and surety.

This is very typical in entrepreneurial companies. Often the founder, a visionary/inventor, takes the company to a certain level, and ”tops off” in terms of ability to move the organization forward. Scaling up to the next level is critical, so going outside for a CEO is the logical path for:

  • Revenue experience at the next level. If the company stalls at the $100 million level, finding a CEO who has grown an operation from $50 to $500 milion would be a good target. The VC-backed high-tech business model typically called for an infusion of ”professional management” at the top when the founder/entrepreneur had reached his/her limit of mastery in company size, operational complexity, etc.
  • Process improvement and best practices. A strong operations leader can deliver consistency and perhaps pick off ”low hanging fruit” — obvious areas for improved efficience — without disturbing the culture.
  • Industry knowledge and experience to match new customer opportunities. If the business evolves and new opportunities arise, a new CEO from that sector can bring credibility, relationships and product ideas that can deliver big results.
  • Leadership in dynastic family organizations when the incumbent generation is ready to step down , but the next generation is not ready to lead. In this case, a CEO or COO can be recruited to lead the company and mentor the younger leaders-in-waiting for a specified period of time. It might be a senior executive seeking one more role before retirement.
  • Positioning the company for a future sale — to a private equity entity or strategic corporate buyer. A new leader can improve the balance sheet, strengthen operational efficiencies, conduct ”bolt on” acquisitions to strengthen the company and its attractiveness to a potential acquiree. When valuations are low, this is often a step taken in anticipation of a more lucrative liquidity event.

If the CEO has never led through a certain type of turbulence, then that is the time to go outside the organization for the best talent to succeed for all stakeholders in the company.

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Copyright © 2012 Nancy Keene