The Automobile Manufacturers Return to Washington (Pressure Builds for Regime Change) (Part 3)

The auto companies have been seeking a bailout.  The first trip to Washington was a public relations disaster, arriving with no plan and leaving in private jets after asking for $25 billion in loans.  On the second trip, the heads of the three auto makers came with a plan.  But as we have mentioned several times on this Blog, the plans did not involve any meaningful corporate governance reform designed to ensure proper handling of the government funds.  The CEOs agreed to take a $1 salary and in general indicated a willingness to abide by the executive compensation limits contained in the Bailout Bill.  All and all not much.

On this Blog, we recommended a number of reforms including whole sale change at the board level, the inclusion of shareholder nominated directors, and the separation of the position of chairman and CEO, with the chairman an independent director.

Slowly, support is building for these types of reform.  On Sunday, President Elect Obama held a short press conference where he addressed the plight of the auto companies.  He had this to say about management:

• “If this management team that’s currently in place doesn’t understand the urgency of the situation and is not willing to make the tough choices and adapt to these new circumstances, then they should go,” Obama said at a brief Sunday afternoon news conference here.

Senator Dodd indicated similar views.  Neither called for comprehensive governance reform, but the comments were an indication that a bailout may require changes in leadership at the auto companies.   More to the point, Jerry York, a former GM director, called for changes at the board level.  As he noted:

• "Aside from a failure of leadership at the most senior executive management level, GM has five long-serving directors who have been on the board 10 years or more," Mr. York said in a telephone interview. "They have approved of and overseen many of the moves that have contributed to the company's troubles. They should also resign."

While that is also not systemic reform, it does place blame on the persons assigned with oversight responsibility.  As the last proxy statement for General Motors reveals, they made about $200,000 each for their oversight function and voted themselves a raise for 2008 (increasing the retainer from $150,000 to $200,000).  For that kind of money, shareholders of GM are entitled to more effective oversight.