Stempel resigns as GM chairman Board pressured him to step down

October 27, 1992|By Ian Johnson | Ian Johnson,New York Bureau

NEW YORK -- General Motors Corp. Chairman Robert C. Stempel, the hands-on engineer whose 1990 appointment was hailed as a shift toward long-term planning and quality, resigned yesterday after bowing to pressure from disgruntled board members.

The move came just days after board members, said to be impatient with his methodical style as the company lost billions of dollars, took the unusual step of refusing to back Mr. Stempel after rumors surfaced that they were considering his ouster.

But rather than help the ungainly auto giant return to profitability, industry analysts said, Mr. Stempel's resignation could create more problems and have little effect.

"There's a risk that the healthy sense of urgency that's developed in GM will turn into a panic. This looks like another quick fix for General Motors," said Michael S. Flynn, associate director of the Office for the Study of Automotive Transportation at the University of Michigan Transportation Research Institute.

Mr. Stempel, 59, who had worked at GM for 34 years, is expected to be replaced next week by John G. Smale, 65, chairman of GM's executive committee and the former head of Procter & Gamble Co., analysts said. Mr. Smale is widely believed to have organized the board's opposition to Mr. Stempel.

In a veiled criticism of Mr. Smale, Mr. Stempel said the attacks on him were destructive to company morale.

"I could not in good conscience continue to watch the effects of rumors and speculation that have undermined and slowed the efforts of General Motors people to make this a stronger, more efficient, effective organization," said Mr. Stempel, whose 27-month tenure at the top was the shortest in the company's 84-year history.

Board members, however, apparently felt they had no choice but to oust Mr. Stempel in favor of someone willing to take the more drastic steps to restore profitability.

The auto giant, which controlled 45 percent of the U.S. market 10 years ago and now holds just 34 percent, lost $4.5 billion last year, the most of any company in history. It stands to lose another $4 billion in North America this year, including $845 million in the most recent quarter.

Few analysts, however, hold Mr. Stempel responsible for the fiscal mess, with most believing that he inherited a directionless, bureaucratic and out-of-touch company from Roger B. Smith in 1990.

"You have to hold someone responsible and, unfortunately, it's a guy who inherited the mess, not the one who created it," said John E. Hilton, a GM analyst with Argus Research Corp.

Mr. Hilton said the new chairman would have to be more accountable to shareholders, who took a cut this year in dividend payments from $3 a share to $1.60.

Rumors of Mr. Stempel's departure has fueled a small rally in GM stock over the past week. It closed at $34.125 yesterday, up 62.5 cents for the day and more than $3 in the past week.

When Mr. Stempel took over two years ago, the veteran engineer was touted by Wall Street as a break from the usual financial managers who historically ran the company. Rather than juggling figures to maximize quarterly earnings, Mr. Stempel was supposed to introduce the real key to lasting prosperity: better cars.

But his tenure coincided with the start of the recession and subsequent economic stagnation, causing GM to lose money by the truckload and its board to lose patience.

Charles Fombron, a management professor at New York University and author of a book on strategic change in corporations, said much of Mr. Stempel's plan was good, such as project teams that unite marketing, research and engineering staffs and a goal to slim the bulging bureaucracy.

But other parts of his tenure did not take hold quickly enough for the board.

For example, after GM announced last year that 21 plants would be closed, only 14 had been named by this fall.

And while Mr. Stempel sought committee-style consensus to gently nudge the company in the right direction, the nervous board of directors wanted vigorous slashing, said Jack Gillis, a Washington-based auto industry analyst and author of "The Car Book."

"A lot of it was too little, too late," Mr. Gillis said.

But Mr. Fombron said that, on balance, Mr. Stempel was never given the time to do the job. Moreover, board members must have known two years ago that they were choosing a quiet and well-respected organization man rather than a flamboyant figure.

"It takes a long time to change the direction of a big, old corporation. He's clearly being scapegoated," Mr. Fombron said.

By last April, the board was running out of patience. It replaced Mr. Stempel as the head of the board's executive committee with Mr. Smale, who was to act as a watchdog to keep pressure on for radical change. Over the summer, several strikes crippled GM and Mr. Stempel was recently hospitalized for high blood pressure.

On Oct. 13, the rumors started that Mr. Stempel was on his way out.

Until yesterday's statement, he stoutly rejected the idea of resigning.

And in a statement yesterday, Mr. Smale praised Mr. Stempel but hinted that the company would pick up the pace of downsizing.

"We will now concentrate on what must be done in light of Mr. Stempel's resignation and will announce our management changes as soon as practicable," Mr. Smale said.

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