The Coming Revolution And Corporate Governance

Decent Essays
To understand proper governance principles one has to look at an article published by Leblanc and Gillies (2003) entitled ‘The Coming Revolution in Corporate Governance’. Here Leblanc & Gillies (2003) focus on three major aspects of proper corporate governance. These include board process, board membership and board structure. For an effective board to be in place not only do the members needs to be independent (Board Structure) but, there needs to be two other criteria that are met. The members need to have the competencies and skills in the industry and be able to work together to come to effective decisions. Yes, separation of the chair from CEO needs to happen, but without the proper balance of board structure membership and process,…show more content…
For example, a $9,000 Pontiac looked like a $25,000 luxury Cadillac automobile. This in turn increased costs for GM for their luxury car market as they had to add decorative work such as extra chrome for their luxury cars and they forgot about mechanical, electronic safety and efficiency advances. As a result of the above, GM’s market share fell and quality was reduced. By 1989, GM was losing more than 2,000 dollars on every car built due to this organizational restructuring. Around this time GM was under the control of CEO Roger Smith. His tactic was to manipulate the GM board of directors and have board members that were close friends of his, two academics (who did not know the car industry well) and a social activist reverend. This lack in knowledge of the industry and poor board structure and process led to poor decisions and a decline in the company.
From 2000-2009 a new CEO came on board – Rick Wagoner. He took control of chairman and CEO and thus assuming greater board control. Wagoner then made up his board with past fallen CEO’s of other companies, which were not successful in their previous roles as CEO. As a result of this poor culture and lack of independence of board members and non-separation of chairman and CEO roles led GM to lose $82 billion in four years and the resulting cash management was so poor which led to a huge GM debt. (Sonnefeld 2009) In addition, as CEO, Mr. Wagoner made poor product decisions such as supporting a poorly performing Pontiac
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