March 26, 2023

Common Sense: U.S. Ownership and Regulation of G.M., Like Oil and Water

This, essentially, is what the United States has done to General Motors and its signature new vehicle, the Chevy Volt.

If it wasn’t already obvious, at least one reason the government shouldn’t own controlling stakes in major companies is that ownership and regulation are inherently incompatible. This week, the Republican presidential candidate Mitt Romney defended his tenure as head of the private equity firm Bain Capital by comparing Bain’s role in troubled companies to the government’s rescue of G.M.

Rest assured that if Bain Capital owned G.M., it would not be subjecting the Volt to severe safety tests and trumpeting the negative results.

More than a year after G.M.’s return to public ownership, the government still owns just less than 30 percent of the company, or about 500 million shares. Of course, the government must hold G.M. to the same strict safety standards it applies to all auto manufacturers. The National Highway Traffic Safety Administration, or N.H.T.S.A., said in late November that it would assess the risk of fire in Volts after two incidents of fires following crash tests.

But some Republican congressmen questioned whether the Obama administration had concealed the results. And conspiracy theorists and others have taken to the Internet to argue that the agency has been too soft on G.M. and has a motive to soft-pedal or even distort the results because of the government’s ownership stake.

Safety Research and Strategies, a Massachusetts consulting firm, claimed the government’s Volt crash report was little more than a “sales pitch” for the plug-in hybrid vehicle.

Others have suggested that the agency was too tough, even if subliminally, in an effort to forestall any perception of a conflict, and that the danger of a Volt catching fire was remote.

Car and Driver magazine noted that the Volt’s batteries caught fire three weeks and one week after the crash tests, and said that “if you ask us, even just one day is plenty of time to safely exit a vehicle that’s in peril of burning.” The magazine noted that no Volts had caught fire in the real world and that only three safety complaints showed up in the government’s database for all of 2010 and 2011, none involving fire hazards. “No vehicle is completely and infallibly safe,” the magazine said. The risk of fire following a crash in an electric car also appears to be vastly less than in a conventional gas-powered vehicle.

Tim Massad, assistant Treasury secretary for financial stability, told me this week that Treasury, which oversees the government’s investment, “is not G.M. or Chrysler’s regulator and has no involvement with N.H.T.S.A.” I haven’t seen any evidence that the agency acted in anything but a professional and independent manner with respect to the Volt, but the controversy illustrates why even appearances of a conflict need to be avoided.

How much has the Volt controversy cost G.M.? One measure of the new G.M. is its aggressive, albeit expensive, response. The old G.M. might have dug in and fought the government. It could have appealed and stalled for years while losing the public relations war. This time, G.M. immediately offered a loaner vehicle to any existing Volt owner concerned about the vehicle’s safety. Since then, G.M. has announced that it will make structural enhancements and install a sensor to warn of any battery fluid leak.

Of course, what choice did G.M. have, given that its regulator is also its biggest owner?

Consumers seem to be reacting positively. N.H.T.S.A. has now awarded the Volt five stars, the top ranking, in its crash test results (a ranking that is also suspect to conspiracy theorists). G.M. said December was the best sales month ever for the Volt, but it’s still selling in small numbers, and it’s impossible to know how many potential customers were discouraged by the bad publicity. And the damage to G.M.’s image is also hard to quantify, but surely considerable. The Volt was expected to deliver a halo effect to all of G.M.’s brands and bolster its overall reputation, much as the Prius did for Toyota until the company ran into its own safety and quality issues. That effort has suffered at least a temporary setback. (A G.M. spokeswoman declined to comment.)

And it’s not just safety issues where the government’s interests conflict. Along with other bailout recipients who remain under government oversight, G.M. is subject to executive pay restrictions. No private equity owner would agree to such limitations on its ability to attract and keep management talent. The pay constraints apply to the top five executive offices and extend deep into the ranks to include the 20 most highly compensated employees.

At this week’s North American International Auto Show in Detroit, Ford was showing off Lincoln’s new design director, Max Wolff, who took to the stage to unveil the boldly redesigned Lincoln MKZ. Ford poached Mr. Wolff from G.M.’s Cadillac division in 2010, and design directors are some of the most highly paid people in the industry. The G.M. spokeswoman wouldn’t comment on whether G.M. could match or top Ford’s offer, but said that the company continued to attract top talent because of its “iconic” status and because people wanted to be part of “an incredible comeback story.” Still, G.M.’s chief executive, Dan Akerson, has said he’d like to see pay restrictions eased.

(G.M. got approval to pay Mr. Akerson $9 million for 2011, which was in the lower quarter of chief executive pay at the nation’s largest companies, the automaker said.)

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DealBook: John Mack Stepping Down as Chairman of Morgan Stanley

Morgan Stanley’s chairman, John J. Mack, will step down at the end of year, paving the way for the firm’s chief executive, James P. Gorman, to take the role.

The bank’s board met by telephone on Thursday morning to vote on the decision, according to people familiar with the matter who were not authorized to speak on the record.

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Mr. Mack, a former chief executive of the firm, has been chairman since early 2010. He is expected to retain a senior advisory role, and is currently working on a book about leaders and his years on Wall Street, which is scheduled to be published next September.

It is expected that Mr. Mack, a graduate of Duke University, will join other corporate boards. He already sits on a number of not-for-profit boards and is chairman of the panel of economic advisers for the Republican presidential candidate Jon M. Huntsman Jr.

The decision to have Mr. Gorman succeed Mr. Mack as chairman was widely expected.

Mr. Mack, 66, is one of Wall Street’s best-known figures. He worked at Morgan Stanley for years, rising from bond salesman to become the firm’s president. After a long-running dispute with Morgan Stanley’s chief executive, Philip Purcell, he left the firm in 2001.

He soon resurfaced at Credit Suisse, which named him chief executive of the Credit Suisse First Boston investment bank, and later co-C.E.O. of the parent company, the Credit Suisse Group.

At Credit Suisse he lived up to his nickname “Mack the Knife,” drastically reducing jobs and cutting costs. But the relationship, in the end, was ill fated. At one point he proposed merging Credit Suisse First Boston with another investment bank. The Swiss bank’s board disagreed and his contract lapsed in 2004.

In 2005, after an uprising at the bank against Mr. Purcell, the Morgan Stanley board asked Mr. Mack to return as chief executive. He received a standing ovation when he walked into the trading floor on his first day.

Yet his record as Morgan Stanley’s leader was mixed. He ramped up risk after returning to the firm, giving it some of its former swagger, but he was unable to pull it back in time in 2007 and 2008 as the New York bank sustained significant losses.

During the financial crisis, Morgan Stanley required billions of dollars in emergency support from the federal government as well as a big investment by the Japanese bank Mitsubishi UFJ Financial Group in order to survive. Mr. Mack, however, received credit for negotiating the Mitsubishi deal, convincing the Japanese bank to move ahead with the partnership despite the difficult environment.

Mr. Gorman has been running the day-to-day operations of Morgan Stanley since 2010. He has been working to turn around the firm’s fortunes, reducing risk and rebuilding units that were injured during the credit crisis.

He has received credit from analysts for his efforts, but Morgan Stanley’s stock, like that of other financial firms, continues to languish. It is currently trading just above $16 a share, down from $29.60 when Mr. Gorman took over. When Mr. Mack took the helm in 2005, Shares of Morgan Stanley were trading above $43.

Morgan Stanley’s move to combine the role of chief executive and chairman is likely to raise eyebrows among corporate governance watchdogs, who typically encourage companies to have a nonexecutive chairman, a move they feel gives the board a more independent voice against management. Wall Street is now split on this issue. Citigroup and Bank of America have split the roles, while Goldman Sachs and JPMorgan Chase — and soon Morgan Stanley — have combined it.

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