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Monday, July 15, 2013

What Does Mullaly Do?

Guest Blogger Blake Grady, edited from April 30, 2013 post on the Econ 244 site

For those of us who do not have much of a business or even economics background, it is difficult to truly understand how large corporations work. One may not truly know the answer to basic questions such as: what does a CEO actually do on a day to day basis? Or: how do meetings of the board of directors work? These questions become even more difficult to answer when dealing with massive - and thus complicated - corporations such as Ford or General Motors.

One of the big takeaways, as I see it, from Bill Vlasic’s Once Upon a Car, is the massive effect a CEO is capable of having. Given my lack of business experience, it was difficult before reading the book to grasp how a CEO is able to run a company straight into the ground – or save it. Through reading about Alan Mulally at Ford, and then talking with current Ford executives in Detroit (as well as Mr. Vlasic) one learns of a CEO's responsibilities and their potential impact on a company. Many of the qualities a CEO must have, at least in a time of crisis, are on display in comparing Mulally to Richard Wagoner. This ranges from the ability to motivate people and to put one's ego in check in order to grasp a situation. In short, Once Upon a Car is a book about competence and incompetence in running a business, focused on one industry.

An interesting side-story, which occurs towards the end of the book, revolves around Sergio Marchionne. Marchionne clearly has a very different style from Mulally, however he also seems to be effective as CEO. Perhaps it is a relentless drive towards accomplishing a concrete goal, and an ability to convince other people to also want to accomplish that goal, that links the two men.

The Prof poses additional questions:

  1. is the CEO in a turnaround situation is the best person for normal times?
  2. would Mullaly have been able to do anything at GM? he had absolute support from the board of directors (Bill Ford) and a coterie of exceptional senior managers (Lewis Booth as CFO, Mark Fields in several roles) plus there was a sense of crisis and a restructuring in already progress (the “Way Forward”) when he become CEO. At GM the Board was not united, there was no corporate-wide sense of crisis, and at least one key individual (the CFO) could provide neither a clear and timely financial overview of the company, nor a baseline against which to construct business plans.
  3. the decision to mortgage the company was made before Mullaly arrived; absent that, Vlasic suggests Ford would not have been able to stave off bankruptcy

Let’s rephrase this with the jargon of formal logic: something can be necessary but not sufficient. We’re attracted to personalities, we’ve been imbued with the idea that leadership matters. I’ll accept the premise that Mullaly (or someone similar) was necessary. (If I wanted to be a devil’s advocate I’d argue that what really mattered was splitting the CEO and the Chairman function in two, but I personally believe that was necessary but not sufficient.)

However, I do argue that Ford was ready for someone like him. GM wasn’t. And because it was bereft of new product, Chrysler was beyond saving – indeed people were jumping ship long before bankruptcy. Except ... Chrysler survived post-bankruptcy long enough to see decent RAM sales and the arrival of new product, and while today at GM the top couple people may be clueless, they're at least forcing lower-level people to make decisions. A standard quip in Detroit is that GM had the stupidest group of bright people you'll ever find – individually brilliant, collectively dysfunctional. Perhaps that's no longer the case.