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Ed Whitacre: Poor Choice for General Motors

By       Message Pete LaTona     Permalink
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As a staunch supporter of President Obama, I still cannot help but express disappointment in some of his economic decisions. I am skeptical that we can borrow and spend our way out of a calamity that was largely caused by over borrowing and spending. Yes, I know that stock market has been rising and 90% of economist say recovery is around the corner, but beware! These are the same economist who did not see the meltdown coming and this market rally is driven by professional investors afraid of missing the next up tick. In other words, greed and fear are the key drivers and not economic data.

 

President Obama’s automobile task force announced this week that the former CEO of SBC/AT&T, Ed Whitacre, would become the Chairman of GM. I have the same concern in this matter as stated above. How can we expect to fix problems created by the good old boy system of CEOs with another good old boy? As a manager in Mr. Whitacre’s organization for nearly 20 years, I say the American tax payers should be very nervous.  

 

Mr. Whitacre has acknowledged that he knows little of the automobile industry. Perhaps this should be a concern, but it is not my concern. His claim to fame is creating the world’s largest telecommunication company, but is large necessarily good? How did it get so large? Did it make life better for customers, employees and stock holders? Let’s look at this before turning over the keys.

 

In the case of SBC/AT&T, large gave Mr. Whitacre great bullying power in the market place. He could bully vendors and suppliers into better deals that were not win/win. He could bully competition by forcing them into court battles that drained them of their available capital. In other words, he could win the poker game not because of his skills, but because he had so much more money to blow. Size does wield power and this power was used at every opportunity. While this tactic was effective, today’s GM is in no position to employ it. Ed, GM cannot bully anybody.

 

Mr. Whitacre’s creation of AT&T was a man building an empire. He enriched himself and senior management, but not customers, employees and stock holders. The new AT&T was created predominantly by purchasing Pacific Bell and Ameritech. Many financial analysts felt that Mr. Whitacre vastly over paid for these acquisitions and based on today’s stock price they are correct. The company still trades at only 67% of its enterprise value. As employees, we knew each purchase would send our stock price down and work load up. While Mr. Whitacre’s pay and perks increased, our pay and benefits decreased. Mr. Whitacre actually expected us to celebrate these acquisitions. We got nothing but longer hours, increased pressure and less money. Thanks a lot Ed!

 

At SBC/AT&T, an already low level of customer service only got worse as the financial pressures from acquisitions grew. The company became obsessed with getting more and giving less. Customer service departments focused on protecting revenue not customer complaints. Money was the only goal and customers were just a means to an end.

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How did the stock holders fare as Mr. Whitacre put together the world’s largest telecommunication company? Not so good! A stock that once brushed up against $60 now has a hard time breaking $25. The stock price today is just about where it was when Mr. Whitacre took over. It appears the only people making money was Mr. Whitacre and his direct reports.

 

Mr. Whitacre is a shinning example of the arrogance of CEOs. He left AT&T with a $158 million dollar retirement package despite the fact that his company under performed relative to peers and the stock price ended no better than when he took over. He would have fired me for that kind of performance! At the height of his arrogance, Mr. Whitacre was given a $20 million dollar bonus just so he would not retire. No kidding! On top of the tens of millions he was making each year, his buddies on the board of directors’ gave him an extra $20 million to stick around. I say, quit if you hate the job that much!

 

As taxpayers with a huge stake in GM we should appeal this decision. The world has changed and we need new thinking and new ideas. We don’t need to start recycling old CEOs like baseball recycles managers. We cannot expect an icon of the practices that created the mess to fix the mess. We need leaders who put the desires of their customers and employees ahead of their own. We need leaders who make sacrifices instead of asking for sacrifices. We need leaders who understand that we live in a global economy and every company and every nation has an affect on each other. We need to find and new ways of doing business that are more cooperative and less competitive. Mr. Whitacre, stay home, enjoy your Augusta membership and spend your ill gotten gains.

   

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Pete Latona enjoyed a lengthy sales management career with AT&T and retired in 2006 to form his own consulting business. He currently resides in Edmond, Oklahoma with his wife Nancy.

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