Recently Pulitizer Prize-winning business writer Paul Ingrassia pondered the lessons of the bankruptcy of the company that couldn't fail, General Motors. Ingrassia’s newest book is, Crash Course: The American Automobile's Road from Glory to Disaster.
One of the wonders of Ingrassia's reporting is that he manages to write of business and economics without recourse to arcane vocabulary. In such matters, we've grown accustomed to words that hide more than they reveal. Words and terms like "financial instruments," "derivatives," “"everaged buyout," "hedge funds," and the lot. Ingrassia writes with admirable plainness.
In a Wall Street Journal article, he laid out three lessons from the failure of GM. Moreover, these are lessons that have implications for other areas of life beyond the auto industry and business. Here's what Ingrassia concluded from studying the GM bankruptcy:
- Problems denied and solutions delayed will result in a painful and costly day of reckoning.
- In corporate governance, the right people count more than the right structure.
- Appearances can be deceiving.
By "problems denied and solutions delayed" Ingrassia notes there was wide agreement that a host of GM practices were unsustainable. These included paying workers not to work, gold-plated retirement and health-care benefits, and maintaining unprofitable product lines, such as Saturn and Saab. Though everyone agreed these practices couldn't continue, they did. They continued, as problems mounted, for 30 years.
As for the right people being more important than the right structure, Ingrassia notes that on paper GM's corporate structure was a model of good corporate governance. By comparison, the governance structures of competitor For, were a complete mess. And yet Ford has fared better in facing its problems during this recession than GM. Why? Because even though the structure was a mess, the people weren't. Board members were invested in the company, knowledgeable about its nature, and most important, they were willing to challenge the status quo (including members of the Ford family) to make needed changes.
Finally, by "appearances can be deceiving," Ingrassia points out that the federal buy-out hasn't fostered moral hazard, as many claimed it would. That is, it hasn't allowed GM and those who make it up to "get off." Shareholders, creditors, and employees have paid a stiff price despite the bailout.
So what about the larger implications Ingrassia's lessons from GM, to other matters?
I am struck by how very difficult it is for any long-established entity that has enjoyed periods of success and vitality to face the need for change and make hard changes. Or to put it another way, many, if not most, long established entities are incredibly resistant to change or reform. In GM's case, it really took an outside force or intervention (the recession) to drive change.
One sees the pattern not only in businesses, but in schools, churches, universities, not-for-profits, and hospitals. The interests of the various vested insiders take priority over the core business or mission of the organization.
I found particularly intriguing the second of Ingrassia's observations, that the right people are more important than the right structure. In some respects, this goes hand in hand with the pattern of resistance to change and reform in established organizations. Often when things are not going well these days, the solution seems to be restructuring, or reworking the organizational chart, or reviewing policies, or establishing new policies, processes, or guidelines.
Of course, how we're structured and the procedures we have are very important. But I get the impression sometimes that reworking the structure or revamping the process is what we do when we 1) don't know what to do, or 2) don't have the courage to do what we know needs to be done.
>Ingrassia's final point, "appearances can be deceiving," has broad enough ramifications as to be the theme of novels and theater, as it has been. Ingrassia's more specific point — specific to this company and this recession — is that a government bailout didn't mean there were no consequences for poor management and performance. There have been.
But the theme may still have some wider resonance for all of us in these economic hard times. Resentment comes easy in such a period. Easy, too, is quick or harsh judgment of others as getting more than they deserve. Of course, sometimes it's true and our censure is deserved. But as a rule of thumb for life, "appearances can be deceiving" isn't a bad one. It may make us a little less quick to categorize, stereotype, or dismiss one another.
Besides, the truth, as a glorious summer day, the taste of strawberries, and the sight of Mount Rainier reminds us, is that in some real sense we all get more than we deserve.
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