Monday, December 7, 2009

The good and the bad of GM's new board

Disciples of Adam Smith believe that in a perfect economy, wages and prices freely rise and fall to appropriate levels. Therefore, if a golfer makes $100 million a year, or if a corporate CEO makes $100 million a year, the price is entirely justified in economic terms, and you would not be able to get someone to do those jobs for a mere $99 million.

But others counter that our economy is not perfect, and that one of the imperfections of the economy is when you have corporate boards of directors dominated by insiders. In the extreme example, the chairman of the company also serves as the CEO, handpicks board members from the inside of the firm, and ensures that outside board members don't cause too much trouble. Not that I have anything against Sidney Poitier, but is he the person to help run a multi-billion dollar firm? (As I previously noted, Sidney Poitier sat on Disney's Board of Directors during the Michael Eisner era.)

Well, when General Motors got a new owner - namely, the Federal Government - it shook up the GM board, and a Board of Directors actually got rid of a CEO. But by the same token, it may be hard to get a new one:

“The biggest impediment to hiring someone from the outside as C.E.O. will be the compensation issue,” said Jerome York, a former G.M. director who had pressed for new leadership at the company. “Most executives of that caliber expect a boatload of money to join a new company.”

That quote comes from the New York Times, that speculates that the new CEO of GM may be...the chairman of its Board of Directors.

In a small meeting at G.M. headquarters in September, Mr. Whitacre made a casual remark that proved prescient.

“I don’t know how not to be the C.E.O.,” Mr. Whitacre said, according to two people present who asked not to be identified because it was a private conversation. “I’ve never been anything but C.E.O.”

But look at one of the people who was urging back in the spring that corporations separate the chairman and CEO roles:

Businesses with separate chairmen "would perform better overall -- and not just in shareholder returns," contends Harry Pearce, a retired General Motors Corp. vice chairman who is chairman of MDU Resources Group Inc. and Nortel Networks Corp. Mr. Pearce heads the Chairmen's Forum, a group of independent board chairmen that helped organize the new campaign.

(Aside: I found the Wall Street Journal article quoted above via a Google search. Sorry, Ruppy.)

We'll have to see how this one emerges over the coming months.
blog comments powered by Disqus