For years, General Motors had one of the least assertive boards in business. And for years, critics carped that GM needed directors with the juice to force a hidebound executive suite to ditch failed strategies and remake GM into a 21st Century auto company.
Now GM has what may well be the most activist board ever. And its three most outspoken directors are private equity guys: Daniel F. Akerson, David Bonderman, and Stephen J. Girsky. Given private equity's disastrous forays at Chrysler and other companies, their presence on the board is controversial, both inside and outside GM. More broadly, governance experts worry the new board is overreaching. "There are extremes, boards that stay completely out and those that micromanage," says Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. "Both are dangerous."
How did GM wind up with private equity guys as directors? The Obama Administration wanted a hands-on board. And two powerful members of the federal auto task force, Steve Rattner and Harry J. Wilson, hailed from the private equity world.
A former task force member says Bonderman, 67, was chosen for his keen dealmaking skills and his managerial toughness. In 2002 he negotiated down the purchase price of Burger King (BKC) by about a third, to $1.5 billion, as his firm Texas Pacific Group, now TPG, and partners took control. Akerson, this person says, was selected for his operational abilities. A managing partner at Carlyle Group, Akerson, now 61, ran MCI in the early '90s.
The United Auto Workers, which owns 17.5% of GM and had the right to pick one director, chose Girsky, a former Wall Street analyst who had previously advised both GM and the union. Girsky, 47, worked for private-equity shop Centerbridge Partners and now has his own consultancy. He long criticized the previous GM management for money-losing investments in such automakers as Fiat, Isuzu, and Fuji Heavy Industries, which makes Subaru.
GM insiders complain that the trio has already brought to bear the private equity obsession with cost cutting at a company that badly needs to deploy its government-financed cash hoard to develop new cars and technology. At the September board meeting, GM executives asked the company's directors for $1 billion to fund a new engine program, which they saw as a routine investment.
The board batted the proposal back, say three people familiar with the meeting. Directors wanted to know how the company would get a return on the investment. "Unless you're in aircraft or some other big industry, this might be the first time you've seen this kind of expense," says a GM executive. Management responded that car companies need new engines to boost fuel economy and meet regulations. They don't calculate what they'll get from the money.
One of the three private equity directors asked if GM could buy an engine from someone else, say two people with knowledge of the meeting. So management had to go back, gin up a business case, and get approval. It took three meetings and two months, though the board did allow engineering work to continue during deliberations. The process cost GM precious time, says one executive familiar with the debate, and it demonstrated that management and the new board think about things very differently.
Akerson, Bonderman, and Girsky declined to comment. But Patricia F. Russo, the former CEO of Alcatel-Lucent (ALU), who became a GM director in July, says the debates between the board and management have been healthy. "This board understands the difference between running the day-to-day business and giving good governance and oversight," she says.
GM executives are being held accountable for the first time in years. It will be interim CEO Edward E. Whitacre Jr.'s job to play referee between the board and his new management team.