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Summary: General Motors is upping its safety investigation measures after several shareholder lawsuits have been filed accusing the board of failing to be proactive in a recent ignition switch recall that has caused the deaths of thirteen people. The Department of Justice and the Securities and Exchange Commission also have ongoing investigations.
The board of directors of the “new G.M.”—the General Motors that evolved after filing bankruptcy and receiving a government bailout—is being held to a higher standard than previous boards. The board was expected to carefully watch over the company, which had some major slip-ups. The New York Times reports that this level of caution simply has not been implemented by the board.
Many are furious with how the board has handled several safety issues that General Motors vehicles have had this year. In February, the company issued a recall of thousands of vehicles that had defective ignition switches. Theodore M. Solso, chairman of the board, was criticized for taking such a relaxed approach to the recall and apparently not giving the recall the attention it deserved. In an interview, he stated, “I can’t remember the specifics. It was a large recall. There were probably cost estimates.”
Since February, approximately thirty million other G.M. vehicles have had recalls issued. Company officials revealed that they had had knowledge about the defective ignition switches for over ten years. Thirteen people have died as a direct result of the faulty ignition switch. The company is being thoroughly investigated, and has put aside close to $4 billion to cover costs.
Several lawsuits have been filed by shareholders against both current and former board members. Those suits allege that the board failed to exercise the fiduciary duty to oversee management of the company. One such lawsuit accuses board members of being “guilty of a sustained and systemic failure” to stay informed of safety issues. David Honigman, the plaintiffs’ attorney in that case, added, “They set up a system that is calculated not to inform them about safety issues.” The Justice Department, the Securities Exchange Commission, and 45 sate attorneys general are also investigating G.M.
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Senator Richard Blumenthal, who has been especially critical of G.M., accused the board of delegating too much responsibility for the ignition switches to management. “The board’s silence and apparent absence as a force is really regrettable,” he declared.
Mr. Solso defended the board, arguing that they were not as inactive as many think. Since February, he states that the board has met more frequently and that safety updates are regularly given to the board. “It was a period of time that we learned how serious the situation was. When we had all the facts we did our job,” he said.
G.M. also argues that it hired outside attorneys to scrutinize the company, approved a compensation fund for victims, and formed a new committee whose task is to monitor risks within the engineering and manufacturing operations.
Mr. Solso explained that the problem was an “evolving” one, which the board did not initially understand because even the management did not fully grasp the issue at the time.
Several executives and directors have revealed that the first few weeks after the February meeting were tough. One official who requested to remain anonymous stated that the directors were “very nervous” when G.M. stated there would be several recalls on its vehicles. Others argue that Mary T. Barra, the chief executive, and Michael P. Millikin, general counsel for G.M., had been given too much freedom to determine how the company would respond to the ignition switch issue. Many allege that Millikin persuaded G.M. to retain Anton R. Valukas, a former federal prosecutor, to investigate the recall. The investigation found no wrongdoing on the part of Millikin or Barra.
The board also relied upon Barra and several other executives when making its decision to dismiss fifteen employees for delaying the ignition switch investigation and recall. Board members, who were paid $200,000 per year, also relied upon Mark Reuss, the global product chief for G.M.
Solso admitted that the board “should have known earlier” the multitude of safety issues G.M. vehicle owners faced. “The way I look at it, G.M. has not been well run for a long period of time,” he said. He added that he was “shocked” and “stunned” at Valukas’ 315-page report. That report stated how dozens of employees failed to repair the ignition switch issue, despite the increasing amount of evidence they had which demonstrated the risk of death to drivers and passengers. Solso said, “The problem with the ignition switch recall is that people did not do their job. They didn’t have a sense of urgency, and they didn’t communicate up the ladder.”
Federal investigations have revealed documents that show the board did not devote a great amount of time to safety in the past few years. There was, however, one meeting that covered crash-test issues with the Chevrolet Volt. Usually, safety issues were glazed over during reports from management on product quality. The February meeting was the first one that covered the ignition switch problem.
Three of the company’s fourteen directors left in June. Joe Ashton was chosen as a new director the same month. Several members are becoming more involved in safety issues. James J. Mulva, the former head of the oil company ConocoPhillips; Adm. Michael G. Mullen, a retired former chairman of Joint Chiefs of Staff; and Thomas M. Schoewe, former CFO of Wal-Mart Stores, have all joined the new risk-management committee.
Photo credit: upi.com
