General Motor’s faulty Ignition Switch saga, which has been a major story for the past year, made us all aware of just how bureaucratic a company can become.
The problem began in 2005, when the faulty switches were first installed in some GM models. The Switch could accidentally flip into accessory mode, thus disengaging the Air Bag, leading to potentially serious injury or death if that car had a bad accident. As the deaths mounted year by year, GM investigated but did nothing
Amazingly, it was not until 2013 that a group of GM lawyers and technical personnel came to the unanimous agreement that the suspect ignition switch was causing the air bag problem.
In April of 2013, when that GM group came to their agreement, what did they do? They hired experts to Review the data. After six months, the “experts” agreed with the group’s conclusion. Hence, in January 2014, where they ready to take action? Not yet! Instead they launched several internal committees to review the results of the “expert.” It was during this period of internal committee reviews that a new CEO was appointed, and she quickly blew the whistle on the whole dreaded mess. In March, 2014, a massive recall was issued and a $1 billion+ reserve was set up.
It’s an incredible story of a pathetically slow and over-staffed bureaucracy finally coming to grips with a serious problem.
One thing that strikes me about this example is how the GM world of those days represented something that is the exact opposite of what Private Equity companies strive to achieve. It’s instructive to review the basic tenants which private equity uses to run companies:
1.) Keep Headcount to an Absolute Minimum – This helps prevent excessive use of committees and complicated decision-making bogged down by endless review of issues.
2.) Personal Responsibility – For literally every issue that gets pursued, in all areas of the business, one individual is assigned and held responsible for that effort.
3.) Incentives and Measures – People who have responsibility for particular areas of the business are required to perform against a clear set of measures and are typically compensated by a set of incentives that relate to those measures. If bad things happen, people are held responsible for the results with clear-cut consequences.
4.) A Sense of Urgency and Aggressive Deadlines – Any project or initiative operates against an aggressive and agreed upon timetable that prevents long drawn out investigations and endless debates.
The GM ignition switch story is sad example of just how bureaucratic and slow-moving organizations can become when they incur extended periods of success. The wise leader takes the four private equity principles to heart and aggressively uses them in every aspect of his or her endeavors.