Bail-Out III coming to a Congress near you?

[Nethead]

From www.leftlanenews.com:

Auto task force was ?shocked? by mismanagement in Detroit
10/21/2009, 2:15 PM By Drew Johnson

It?s no secret that poor management led General Motors down the path to bankruptcy, but President Obama?s auto task force was ?shocked? by the level of mismanagement found in Detroit. The auto task force headed up the restructuring and bankruptcy efforts at GM and Chrysler.

Speaking to Fortune magazine for the first time since leaving his post in July, Rattner revealed just how bad things were in Detroit when the auto task force arrived. ?Everyone knew Detroit?s reputation for insular, slow-moving cultures. Even by that low standard, I was shocked by the stunningly poor management that we found, particularly at GM,? Rattner said.

Rattner added that GM had the ?weakest finance operation any of us had ever seen in a major company?, with equally kind things to say about Chrysler.

According to Rattner, the auto task force was split 50-50 on whether to save Chrysler. In fact, the task force only gave Chrysler a 51 percent survival chance beyond two years, even with the bailout loans. In the end, the Obama administration decided to move ahead with the loans as the liquidation of Chrysler would have resulted in about 300,000 job losses.

Although the downfall of GM was years in the making, Rattner put a significant chunk of the blame on former GM CEO Rick Wagoner, saying he ?set a tone of friendly arrogance that seemed to permeate the organization.?

Rattner didn?t give a future outlook for either company, but it sounds as if both automaker are already light-years ahead of where they were just a few short months ago.

[r0tor]

bleh... rattner only saw what was going on after everyone stopped caring as the writing was on the wall that the companies were done for

[TBR]

This illustrates exactly how important executives are for a company, and why salary caps are foolish notion.

[sportyaccordy]

This illustrates exactly how important executives are for a company, and why salary caps are foolish notion.

Yea but Richard Fuld was making Jamie Dimon money

There's no incentive for executives to do better. I think a salary cap is dumb, but the govt is fair in adding those kinds of stipulations when... .... bailing out companies. Otherwise what's stopping a CEO from taking out a huge loan, setting up a nice golden parachute and having the board out him?

[TBR]

Yea but Richard Fuld was making Jamie Dimon money

There's no incentive for executives to do better. I think a salary cap is dumb, but the govt is fair in adding those kinds of stipulations when... .... bailing out companies. Otherwise what's stopping a CEO from taking out a huge loan, setting up a nice golden parachute and having the board out him?

As a debt holder, they have absolutely no right to restrict executive compensation. As a stockholder (which they are now, though it's of questionable legality imo), they do have this right, but it is not in their best interest to do so. The compensation package should be properly structured, but if anything the person in the top position should be paid more than Wagoneer was (which, for the scale of the company just wasn't all that much. A third of what Mullaly makes to run a smaller company). The compensation should, however, be very carefully structured so as to reward performance and avoid a golden parachute situation.

Also, an executive giving loans to himself from the company coffers is illegal without board permission, hence the Tyco scandal.

[FoMoJo]

CEO Rick Wagoner, saying he ?set a tone of friendly arrogance that seemed to permeate the organization.?


This was very apparent during the Senate hearings.  I think it really pissed some of them off.

[TBR]

And, actually, what GM really needs is someone from the outside, but who the hell would want to take that on? To be accountable to the UAW, the CAW, and, by proxy of the government, the American people sounds like absolute hell. It would take one strong willed person to lead GM effectively against all the opposition. And, yes, I think the current stockholders of GM can be considered the opposition as their goals aren't in the best, long-term interest of the company. The government simply wouldn't let GM pay a new CEO enough to make it worth it to a talented and successful executive because it would cost the administration and congress too much politically.

[FoMoJo]

And, actually, what GM really needs is someone from the outside, but who the hell would want to take that on? To be accountable to the UAW, the CAW, and, by proxy of the government, the American people sounds like absolute hell. It would take one strong willed person to lead GM effectively against all the opposition. And, yes, I think the current stockholders of GM can be considered the opposition as their goals aren't in the best, long-term interest of the company. The government simply wouldn't let GM pay a new CEO enough to make it worth it to a talented and successful executive because it would cost the administration and congress too much politically.

One person cannot make a company successful and, AFAIC, CEOs are overrated. 

[TBR]

One person cannot make a company successful and, AFAIC, CEOs are overrated.  

One person can make the difference between success and failure. A CEO sets the tone for the entire company. He directly supervises and hires the most important executives. A CEO is very important. Yes, it takes more than one good person to run a successful company, but the CEO hires the people key to a company's success. A good CEO can make all the difference, Ford is proof of that.

[FoMoJo]

One person can make the difference between success and failure. A CEO sets the tone for the entire company. He directly supervises and hires the most important executives. A CEO is very important. Yes, it takes more than one good person to run a successful company, but the CEO hires the people key to a company's success. A good CEO can make all the difference, Ford is proof of that.

Yes, the team of experts, executives notwithstanding, are the key to a successful company.  A CEO must be capable of recognizing those who are effective in their positions and replacing those who are not.  Although I admire Mulally, much of that which allowed Ford to survive without a bailout was in place before he arrived; most significantly, the cash reserve for which they mortgaged the house in order to invest in product development.  That Bill Ford recognized the need for someone from outside is credit to him; as Ford had many aspiring executives but due to inhouse competitiveness, anyone one of them who was promoted to CEO would have left others bitter.

[TBR]

Yes, the team of experts, executives notwithstanding, are the key to a successful company.  A CEO must be capable of recognizing those who are effective in their positions and replacing those who are not.  Although I admire Mulally, much of that which allowed Ford to survive without a bailout was in place before he arrived; most significantly, the cash reserve for which they mortgaged the house in order to invest in product development.  That Bill Ford recognized the need for someone from outside is credit to him; as Ford had many aspiring executives but due to inhouse competitiveness, anyone one of them who was promoted to CEO would have left others bitter.

And Bill Ford was CEO

The CEO doesn't really directly do anything. He/she doesn't design cars, doesn't market cars, doesn't build cars, and doesn't supervise people who do this stuff either, but the key to a successful company, as you alluded to, is putting the right people in the right places, and that's what a CEO does.

[giant_mtb]

One person cannot make a company successful and, AFAIC, CEOs are overrated. 

Hm.  Bill Ford comes to mind.  Didn't he bring in Mullally?  Oh, yeah.  Didn't that pretty much save Ford?  Oh, yeah.

[FoMoJo]

And Bill Ford was CEO

He was Chairman of the Board, President and COO as well .  He remains as Executive Chairman of the Board of Directors.  Much of Ford's reorganization came about under his direction; after he fired the gladrag Nasser.

The CEO doesn't really directly do anything. He/she doesn't design cars, doesn't market cars, doesn't build cars, and doesn't supervise people who do this stuff either, but the key to a successful company, as you alluded to, is putting the right people in the right places, and that's what a CEO does.

Certainly a CEO needs leadership abilities as well as political skills.  Some difference is in whether they cater to the board, such as Nasser and Wagoner did, or to the needs of the company.

[FoMoJo]

Hm.  Bill Ford comes to mind.  Didn't he bring in Mullally? 

Yes he did.

Oh, yeah.  Didn't that pretty much save Ford?  Oh, yeah.

Not really.  Ford was well under control before Mulally arrived.  However, Mulally has reinforced their direction.  His contribution of note has been in renaming the Five Hundred to Taurus; well, maybe a few other odds and ends as well .  Ford, for some time, has had an outstanding team of executives; likely more than they needed for their own good.  Mulally is the right person to turn this somewhat fractious group of experts into a harmonious team all heading in the same direction.  Another quality of a good CEO.

[giant_mtb]

...Mulally wasn't CEO when Ford turned around. 

Am I missing something?  You said CEOs are overrated, yet now you're saying how they're important players in the big game.

[TBR]

I am not really sure what his point is. And, while Bill Ford got the ball rolling, he stepped down because he was over his head. Mullaly turned around Boeing as a CEO, and he has been a major player in the continuing Ford turn around. You know the Move Forward plan? (I think that's what it's called) Well it's all Mullaly.

I am not really sure why we are arguing about this minor detail, as the your initial argument was that CEOs aren't all that important yet you definitely seem to be going back on that.

It isn't unusual for a CEO to be Chairman of the Board and President, though it is odd that the responsibilities of CEO and COO weren't separated. They are very different jobs with very different responsibilities.

[the Teuton]

Mulally came on in 2005. The Way Forward and One Ford plans were all him.

So yeah, he probably deserves his $19 million/year if he can get them back to profitability.

[TBR]

Mulally came on in 2005. The Way Forward and One Ford plans were all him.

So yeah, he probably deserves his $19 million/year if he can get them back to profitability.

I was close on the name. And wasn't that when they restructured the debt as well. Regardless, he has definitely been instrumental to Ford's turn around. Plus he's an engineer, not a bean counter. That should make some people happy (though, in reality, very few true bean counters (accountants) manage companies).

BTW, Mullaly's total 2008 compensation was 13.5m and his salary was 2m.

[TBR]

http://money.cnn.com/2009/10/21/autos/auto_bailout_rattner.fortune/index.htm?postversion=2009102109

When I spoke with the GM board by conference call that Friday night, the reaction was violent, including veiled suggestions of mass resignations. The directors felt that one of their most important responsibilities -- hiring and firing of the CEO -- had been usurped by the government without any warning or consultation.

I explained our decision, including how we had chosen to implement it, which was partly to give Rick the dignity of putting his departure in whatever context he chose to with the board. After about an hour, I left the board to its deliberations. In the end, all the directors agreed to stay on through the restructuring.

Absolutely, the government had no standing to make that request.

Jimmy was apoplectic. As the negotiations proceeded, the lenders were particularly aggrieved that the UAW's health-care trust, which ranked below the secured creditors, was slated to exchange an $8 billion existing claim for $4.6 billion in notes and 55% of the equity in the reorganized company. While arguably close to a 50% haircut, it was a higher-percentage recovery than we were offering the banks.

The secured creditors received less than 33% of their claim and no stock. Way to ignore bankruptcy law for political benefit.

[ifcar]

http://money.cnn.com/2009/10/21/autos/auto_bailout_rattner.fortune/index.htm?postversion=2009102109
Absolutely, the government had no standing to make that request.

From that same page: "He who eats my bread sings my song."

[TBR]

From that same page: "He who eats my bread sings my song."

That isn't how business works. Debtors don't have a say in the operation of a business. The government was a debtor. They didn't even represent the biggest group of debtors.

[ifcar]

I don't even know what that means.

"If I'm funding your existence, I call the shots."

[TBR]

"If I'm funding your existence, I call the shots."

Nope. That isn't how it works, at least not for every other debtor out there. Only owners have a say and the government was not an owner until they made themselves one. I am not saying it wouldn't be appropriate for them to approach the board with a recommendation, but to actually go behind their backs is absurd (and rude and bad business).

[the Teuton]

Nope. That isn't how it works, at least not for every other debtor out there. Only owners have a say and the government was not an owner until they made themselves one. I am not saying it wouldn't be appropriate for them to approach the board with a recommendation, but to actually go behind their backs is absurd (and rude and bad business).

I agree with you. The government served as a decision-making bondholder. That isn't right.

While I defend free market capitalism, and I always will, assuming that the bailout was inevitable, how else would you light the fire under the ass of a stuffy set of managers to get them working in the right direction?

Wagoner wasn't going to do enough to get the ball rolling again. He wasn't nearly dynamic enough.

[GoCougs]

It's comical that people who have never met a payroll, started a company, or had a private sector job of any import can judge what a CEO of a Fortune 100 company should make. Absolutely comical.

[giant_mtb]

It's comical that people who have never met a payroll, started a company, or had a private sector job of any import can judge what a CEO of a Fortune 100 company should make. Absolutely comical.

YOU MEAN THAT THE CEO OF A MULTI-BILLION-DOLLAR, WORLDWIDE COMPANY SHOULDN'T MAKE MORE THAN, LYKE, $2M A YEAR?!?!?!

Psh.

[the Teuton]

YOU MEAN THAT THE CEO OF A MULTI-BILLION-DOLLAR, WORLDWIDE COMPANY SHOULDN'T MAKE MORE THAN, LYKE, $2M A YEAR?!?!?!

Psh.

I don't think he said that.

It's comical that people who have never met a payroll, started a company, or had a private sector job of any import can judge what a CEO of a Fortune 100 company should make. Absolutely comical.

But here's the question: Did they do a good job? That's what we should judge this against, based on what could have happened.

Like I said, I'm not defending manipulating capitalism, but it was going to happen anyway. Was it done well, though?

[giant_mtb]

I don't think he said that.

Sarcasm.

[Nethead]

That isn't how business works. Debtors don't have a say in the operation of a business. The government was a debtor. They didn't even represent the biggest group of debtors.

TBR:  Different circumstances require different approaches.  As the topical posting pointed out, this was about the worst run organization ever.  GM would have died completely and absolutely in January or February at the latest without a big cash infusion (there were insufficient funds to cover January's payroll--I'm being charitable to say they woulda survived until February).  No private enterprise was gonna sink that kinda money into a dying GM--without bail-outs 1 and 2, there was absolutely no hope of survival to the end of February, and ninety-plus percent likely that there woulda been no hope of survival to the end of January unless the workers agreed to work for free for a pay period or two (What are those odds?).

As the absolute savior of the company, the Feds let GM off lightly by not cutting deeply and widely throughout the organization ("Organization" has too positive a connotation for use here, but you know what I mean) .  In light of that topical posting from The Leftlane News, it appears that's what shoulda been done--but that's hindsight, and will be a sword to swing swiftly after Bail-Out III .

 

[Nethead]

I agree with you. The government served as a decision-making bondholder. That isn't right.
While I defend free market capitalism, and I always will, assuming that the bailout was inevitable, how else would you light the fire under the ass of a stuffy set of managers to get them working in the right direction?
Wagoner wasn't going to do enough to get the ball rolling again. He wasn't nearly dynamic enough.