Saving GM: Sloan, Brown, and the Elements of Change

Back in 2001, General Motors Corp.'s then-CEO, Rick Wagoner, did something rarely done in the history of GM: He went outside to fill a top spot.

The hiring of former Ford Motor Company executive John Devine as GM's finance chief was viewed in the press as an unprecedented and transformative hire. It was neither. Back in 1946, a top GM finance executive by the name of Ernest Breech attracted the attention of Henry Ford II, who hired Breech to help rescue the company from a death spiral.

In the end, Ford's risky bet paid off, while GM's did not. When the Obama administration's auto restructuring team arrived at GM in 2009, the former Ford executive was long gone and two other executives had since filled the CFO's chair.

"You can imagine our surprise when we got there and found that the finance function was no longer a market leader, but was in fact as weak a finance group as I had ever seen in a major company -- or even, frankly, in a minor company,"said Steven Rattner, the New York financier who led the government's bailout of GM (see interview).

Unlike those who suggest that GM's problems were the result of having too little space to maneuver due to a legacy of costly worker and retiree benefits, Rattner points out GM's bankruptcy had as much to do with space as it did motion, or the ability to maneuver -- a capacity dependent on management practices and organizational transparency.

"The fact that the CFO did not have the systems available to him to tell us within $500 million how much cash GM had at any one point in time was startling,"explained Rattner, whose book Overhaul: An Insider's Account of the Obama Administration's Emergency Rescue of the Auto Industry (Houghton Mifflin Harcourt, 2010) details the March 2009 firing of CEO Wagoner as well as the many shortcomings of GM's then-CFO, Ray Young.

Young was replaced in late 2009 by GM's current CFO, Chris Liddell, who last month helped champion the biggest IPO in U.S. history -- raising $20.1 billion in common and preferred shares of stock.

Asked what persuaded people to buy the new GM shares, Liddell earlier this month told an interviewer, "We had to convince people that we had a business model that was sustainable. And people had to know that we had made cultural changes inside the company, that we would never make the same mistake again."

There's no doubt that convincing Wall Street that change is under way is a valuable part of the skill set of any top-rank CFO -- but now comes the hard part.

The Importance of Being Ernest

The year 1946 might seem an odd one in which to begin to get a read on the future of GM, but the year when Ernest Breech was hired away from GM is as good a place as any to look for clues that could help reveal the elements of change. That same year, GM's influential CEO, Alfred P. Sloan, would retire, along with Donaldson Brown, the company's just as influential but perhaps less-celebrated CFO. It was also the year when Concept of the Corporation, a text detailing GM's unique approaches to decentralizing organizations and management, was published.

Donaldson Brown

That famous text -- authored by up-and-coming management thinker Peter Drucker, is credited with influencing the adoption of GM decentralization and management techniques across an array of industries.

It's worth mentioning here that contrary to popular belief, when Drucker was invited to take a look around GM in the mid-1940s, the invitation came not from Sloan, but from Brown.

It was the CFO's invitation that in its own way became a hinge of history, when you consider how Drucker's resulting writings about GM influenced the broad adoption of management practices that Sloan has been credited with establishing.

And yet Drucker -- who thought of himself as a social and political scientist at the time -- appears never to have given the origins of his engagement much thought. It was almost as if the finance department had remained removed from his line of sight.