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Did GM’s corporate culture help obscure safety issue?

June 5, 2014 at 6:07 PM EDT
The CEO of General Motors acknowledged that the American automaker faces public outrage for its delay in acting on the deadly ignition switch problem. Mary Barra released the details of an internal report on the defect and announced that 15 employees had been fired. Judy Woodruff talks to Micheline Maynard of Forbes and Erik Gordon of the Ross School of Business at the University of Michigan.
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JUDY WOODRUFF: General Motors released its own internal report today about a decade-long failure to recall cars with ignition switch problems. The investigation found a dysfunctional system within the automaker that for years didn’t take enough responsibility for years. But it also absolved the very top leadership of any kind of cover-up.

MARY BARRA, CEO, General Motors: What Valukas found in this situation was a pattern of incompetence and neglect.

JUDY WOODRUFF: General Motors CEO Mary Barra laid out the much-anticipated report by former federal prosecutor Anton Valukas. She told GM employees in warren, Michigan, the findings are — quote — “brutally tough and deeply troubling.”

MARY BARRA: Repeatedly, individuals failed to disclose critical pieces of information that could have fundamentally changed the lives of those impacted by the faulty ignition switch.

JUDY WOODRUFF: That long-running ignition switch defect, going back to 2002, is now linked to at least 13 deaths, and federal officials say the number may rise.

Since February, GM has recalled 2.6 million older cars because of the problem, which caused engines to stall, air bags to fail and power steering and brakes to malfunction.

Barra acknowledged the automaker faces public outrage that it took so long to act.

MARY BARRA: This recall issue isn’t merely an engineering, or a manufacturing, or a legal problem. It represents a fundamental failure to meet the basic needs of these customers.

JUDY WOODRUFF: The CEO announced 15 employees found to have acted inappropriately have been fired. More than half were in senior or executive roles.

At the same time, she maintained there was no conspiracy at the top to cover up facts and no evidence that employees made any tradeoff between safety and cost.

Barra said it’s still not clear why engineers and others largely ignored a problem that would have cost 57 cents to repair.

MARY BARRA: If this information had been disclosed, and I believe this in my heart, the company would have dealt with this situation much differently and appropriately.

JUDY WOODRUFF: With GM’s findings in hand Congress is expected to announce a new round of hearings. But some lawmakers are already calling the company’s report part of a public relations campaign.

Democratic Senator Richard Blumenthal of Connecticut:

SEN. RICHARD BLUMENTHAL, D, Conn.: This report leaves so many questions unanswered and fails to identify where responsibility really should be placed.

Firing a few underlings is no substitute for acknowledging moral and legal responsibility. And this document seems more designed for the defense of the company in court than for an acknowledgement for responsibility for the deaths and certainly more than 13 deaths, which the company so far refuses to acknowledge.

JUDY WOODRUFF: Going forward, GM has created a fund to compensate victims led by lawyer Kenneth Feinberg. The names have not been officially released. But, in April, when Barra appeared at a Senate hearing, families also traveled to Washington, holding up pictures of loved ones killed or injured.

LAURA CHRISTIAN, Mother of Victim: We are the people left behind when a loved one got into what was supposed to be a safe car, a GM car, a car that GM knew for years was dangerous and defective.

JUDY WOODRUFF: GM has already paid a record $35 million fine, and the ignition switch recall, plus others, have cost the company about $1.7 billion so far.

At her press conference, Mary Barra didn’t go deeply into the culture of GM that attorney Valukas described in his report, one where, he wrote — quote — “No single person owned any decision” — and there was — quote — “a phenomenon known as the GM nod. Everyone nods in agreement and the nod is an empty gesture.”

More on all of this with two who are watching it closely. Micki Maynard is a contributor to “Forbes” magazine. She’s the new director of the Reynolds Center for Business Journalism at the Cronkite School at Arizona State university. And Erik Gordon is a professor at the University of Michigan’s Ross School of Business.

And welcome you both.

Micki Maynard, to you first.

What did you learn from this internal report that wasn’t known before?

MICHELINE MAYNARD, Forbes: Well, what I learned is that General Motors doesn’t really have a way to explain what happened.

It’s a very interesting read, because there is a lot of material, a lot of e-mails, slides, that sort of thing. But what we don’t find out is why these General Motors employees really didn’t push to get this matter resolved. And Mary Barra was asked about this today, was it fear, was it intimidation? And she just sort of skirted the problem.

So that’s the answer that I’m looking for, and we don’t have it yet.

JUDY WOODRUFF: Professor Gordon, did you hear an answer to that question?

ERIK GORDON, Ross School of Business, University of Michigan: I didn’t hear it, but I may have read a clue to it in the report.

A GM employee named Steven Oakley says that he occasionally tried to get the attention of higher-ups by using what he calls hot words, and he gave an example: stall. He said that — but he was reluctant to push on safety issues because he thought his predecessor had been pushed out for having done just that.

I think that might be a clue to what the problem was at GM.

JUDY WOODRUFF: Well, is that — Professor Gordon, staying with you, is that coming through? Is that being acknowledged by the leadership of GM?

ERIK GORDON: No, I think they went to great pains to do the opposite.

Right in the opening, the CEO said the real problem here is that lower-level people didn’t do whatever it took to get it to the attention of the high-level people. It’s the fault of the low-level people. They didn’t bang the drums loudly enough.

Well, we have at least from one person some idea about why they don’t bang the drums loudly enough. And in the rest of the report, I think you get a second idea, which is it would take a lot of drum-banging, because, in fact, a lot of people at GM did know about the problem, batted it back and forth, and all of those actions apparently somehow weren’t enough to get it to the attention of the higher-up — higher-level people.

JUDY WOODRUFF: And Micki Maynard, this raises the question which we mentioned, and I want to ask you about this culture where there’s a nod or a gesture. What was that all about?

MICHELINE MAYNARD: Right.

So, there were a couple of instances that are defined in the report. One is the GM nod. And, apparently, this is where everyone sits in a meeting. Ideas are exchanged. Solutions are suggested. Everyone nods in agreement, leaves the room, and nothing happens, which has to be absolutely maddening to a manager.

And then the other one is called the GM salute. And I have actually witnessed this myself, where people sit with their arms crossed, sort of their elbows pointing out, almost defiantly, as if to say, this is someone else’s responsibility, the elbows pointing out, and not mine.

And, you know, when outsiders can read the culture like that, I think you have an issue. I think you have an issue of people who maybe say they will do something, don’t do it, and that shows that either they don’t trust management or they don’t have faith in each other to solve the problem.

JUDY WOODRUFF: And we should have pointed out — I meant to say this earlier — we did invite General Motors to send a representative to be part of this conversation. They declined.

Professor Gordon, but what we want to understand, though — and the two of you are getting at this — is, what was it that stopped the information about this ignition switch that clearly people at lower levels knew about, as long as more than a decade ago, maybe 15 years ago, that didn’t move up the chain?

ERIK GORDON: I think there are two things.

And they are somewhat touched on in the report, if you read it carefully. One is, it’s a highly technical legal culture. For example, they said that Mary Barra really didn’t know anything, what was going on.

Well, actually, she knew about the stalling, moving stall problem, but she didn’t know that it was caused by the ignition switch, so no problem there. So I think there is a very technical — “we win on technicalities” kind of culture.

There’s also a don’t do anything that louses up a product launch. There’s a story about an attorney who I think is one of the people who lost his job, Bill Kemp, who somehow gets involved in a story that’s going to be run in “The Cleveland Plain Dealer” about the Cobalt, and he wants to try to do something to soften the story, and is advised by another GM attorney that it probably won’t work.

And his comment, as related in the report, is something along the lines of, wow, if this story runs, we had better not look as if we haven’t done everything possible to support the new product launch.

I think those two factors combined make it very difficult to expect information that’s negative about a GM product to make it up the line.

JUDY WOODRUFF: So, Micki Maynard, what about these 15 individuals who were fired? And I guess some others were suspended. How would you characterize the roles they have had in the company and why no one at the highest level is having to answer for what happened?

MICHELINE MAYNARD: Well, first of all, one of the people who was fired is an engineer named Ray DeGiorgio.

And he is probably not a household name, but he’s certainly a name that’s become well-known to us in the auto industry, because this is the fellow that apparently approved GM changing the part in 2006 for repair, but not changing the part number.

As the sister of an engineer, I can tell you that engineers keep very careful records. And you wouldn’t modify a design without changing the part number. But that made it impossible through the years for General Motors to tell which ignitions were defective and which ones were OK.

And that continued to be a problem until last year. So you have six years of investigation going on. The part number seems to be fine. The design seems to be fine. And they can’t find it. So he’s one of the gentlemen that was let go. The head of the Cobalt program was apparently let go, other people in legal, in engineering, in public policy, which usually means Washington.

But one of the things I found so interesting was that the report specifically says that Mary Barra, Mike Millikin, who is the head of GM’s legal department, and Mark Reuss, who is head of global product development, all knew nothing about this.

So, these are three very senior people at the company, people that you would think would be getting briefings on matters like this, and instead apparently the information never got to any one of the three of them at the top of the company.

JUDY WOODRUFF: So, with just 30 seconds left, Professor Gordon, what are the — we can expect this is not the end of this.

ERIK GORDON: Yes, it is certainly not going to be.

In fact, I think, today, especially the press conference that was held today probably damaged GM. I think the lack of transparency, the almost patently self-serving approach that seems to have been taken, has fired up the critics. And I think there will be hearings. I think the hearings will be pretty nasty.

And I think the easy pass that the CEO got because she was new will not be available the next time around.

JUDY WOODRUFF: Professor Erik Gordon, Micki Maynard, we thank you both.

Again, we did invite General Motors. They declined to participate.

Thank you both.