Case Study: The Shake-UP in GM’s Hierarchy
POINT OF VIEW
The case will be studied from the point of view of a third party consultant.
Robert Stempel became CEO of General Motors in August 1990. Unfortunately, this decade began with an economic recession, which inevitably took a toll on the automotive industry. General Motors experienced big losses during this period. Members of the board and investors sought Stempel’s leadership, along with his handpicked team of executives, to recover from the slump. In 1991, General Motors loses (industry record) $4.5 billion. Costs were out of control. An internal study revealed that GM produced lower-quality vehicles while spending $800 more per car than their competitor Ford Motor Co.1. Wall Street threatened to remove General Motor’s high investment rating. The previous fall, the outside directors and board members pressed Robert Stempel for solutions to the crises that confronted the organization. On December 18, Stempel announced the plan to downsize General Motors by closing 21 plants, including the elimination of 74,000 jobs, and the sale of several nonautomotive operations. A subsequent announcement in February detailed plans to reduce duplication and overhead by reorganizing the company’s three car and truck operations into a single North American group2. The board liked Stempel’s plans, but was dismayed with the pace that he intended to phase it; Stempel proposed the cuts would not be completed until 1996. Outside directors were far from pleased with Stempel’s approach. John G. Smale, former chairman and CEO of Procter & Gamble and General Motors Director for 10 years, particularly was seriously alarmed. He arranged meetings with General Motors’ Executives to discuss the firm’s strategy and management. Regular secret meetings between directors took place to monitor and discuss the situation, excluding inside directors. On the 5th of April 1992, outside directors met in Dallas for dinner and...
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