President Obama says he wants to save America's auto industry. He says General Motors Corp., under a new CEO, has 60 days to sharpen its restructuring or submit to bankruptcy. He's giving Chrysler LLC 30 days to complete an alliance with Fiat SpA of Italy lest Detroit's No. 3 carmaker find itself in a federal court.
But what the president didn't say Monday, as he detailed his administration's prescription for Detroit's two sickest automakers, is what he actually did -- oust a sitting CEO, GM's Rick Wagoner, and begin the process of remaking a board of directors deemed to have done too little, too late to prevent GM's slide into the arms of the federal government.
The terror of Wall Street, disgraced New York Gov. Eliot Spitzer, would love it.
In one swift act, the president effectively overruled the oversight and fiduciary responsibilities of GM's directors, duly elected by the automaker's shareholders, because he could -- and the federal government, officially a lender of $13.4 billion to GM, doesn't own a single share of the automaker.
A chilling message? It should be if you run a bank recapitalized with Treasury money, lead an auto supplier likely to tap into a new $5 billion federal fund, are considering a pitch for a government bailout or are Fritz Henderson, the GM president-turned-CEO who has two months to accelerate the automaker's restructuring.
"Firing a CEO is usually what a board does," says Peter Henning, a law professor at Wayne State University who worked in the enforcement division of the Securities and Exchange Commission. "We now have a CEO-in-chief ... overseeing large sectors of the economy. We are certainly in a brave new world."
And it looks like this: the federal government, in a bid to "save" companies determined crucial to the economy, is prepared to use whatever thin financial connections it has to them to broom management, void employment contracts, reload boards of directors and, if necessary, force bankruptcies.
Monday, the president's people -- the president himself -- amped the threat of bankruptcy because without it there can be no deal between GM, its bondholders and the United Auto Workers. Should GM be forced into bankruptcy, as seems increasingly likely, White House pressure to replace the CEO and GM's directors could enable the president's allies to influence the shape and priorities of a new, leaner and smaller GM.
In the Detroit-based auto industry, a crisis crystallized by $4-a-gallon gas, the credit crunch and plunging consumer confidence offers a Democratic White House with close ties to the environmental wing of its party a golden opportunity to turn the General "green" -- even if doing so means beggaring the retiree health care promises of hourly workers.
The argument here isn't whether Wagoner should have been pressured to resign to speed a concessionary deal with bondholders and the UAW that would keep GM out of bankruptcy. GM's massive problems -- $82 billion in losses this decade, a collapsed credit rating, massive outstanding debt made worse by its borrowing from the government -- will partly define Wagoner's legacy.
Nor are GM's directors, sharply criticized for being too beholden to Wagoner & Co., remotely blameless. Their stewardship is marked by a tolerance of incremental change and rejection of boardroom activism (see investor Kirk Kerkorian's Jerry York) that is even more suspect when compared to the dramatic progress made at crosstown rival Ford.
The issue is principle and the lengthening arm of government into commerce. How can corporate governance and the fiduciary responsibility of directors to shareholders be so easily usurped to satisfy the political exigencies of the day? Stunning is too mild a word to describe the precedent set here.
"Certainly they have a large investment in General Motors," says spokesman Steve Harris, referring to the $13.4 billion-and-counting federal lifeline to GM. "We certainly knew that would involve a certain amount of oversight and involvement of government in our activities."
They just didn't know how much. Not since World War II, with the arguable exception of President Harry S. Truman's brief control of the steel industry, has a president exercised such forceful unilateral control over firms in the private sector. And the double-standards? Towering, as if that makes any difference.
What does it say that on the same day President Obama made nice at the White House with the nation's leading bank CEOs -- none of whom have lost their jobs despite sitting on vastly larger sums of taxpayer dough -- the head of the president's auto task force was urging Wagoner to "step aside?"
"There is no standard," Rep. Thaddeus McCotter, R-Livonia, told me. "You cannot look at what happened to Rick Wagoner and draw any policy certitude about what happened to the Wall Street CEOs. How do you reconcile the two images on Friday?"
You don't because you can't.
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