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Power Sheet: GM Put Volkswagen to Shame

July 14, 2016, 3:03 PM UTC

A small headline this morning illuminates a major do-this-not-that case study in leadership. “Appeals Court Deals Blow to GM on Ignition-Switch Suits” says the WSJ, and while that hardly sounds positive for GM, the news actually shows how General Motors CEO Mary Barra handled a massive crisis far more effectively than Volkswagen chief Matthias Müller handled a crisis of similar magnitude in the same industry. The bottom line: Barra was creative and risk-taking, while Müller was and still is conventional and risk-averse.

The news today is that a federal appeals court ruled that GM could not use its 2009 bankruptcy to block lawsuits based on its faulty ignition switches. The legal arguments are recondite, but the gist is that even though GM is strictly speaking a different corporation from the one that existed pre-bankruptcy, it’s still liable for faulty vehicles made by the old GM. (A lower court had ruled the opposite.) So GM now faces up to $10 billion in additional claims, though it will likely end up paying much less.

Where’s the good news? It’s just this: When was the last time you thought about the GM ignition-switch scandal or heard anyone mention it? Two years ago it was white hot, but it cooled down and disappeared long ago. Contrast that with the VW emissions-cheating scandal. Ten months after the news broke, the crisis is getting worse, not better. The company last month settled with the U.S. government and regulators for $15.3 billion, but it still faces massive undetermined liability in class-action suits. Then, a few days ago, German prosecutors announced they will impose a heavy fine on the company and would show no leniency. “We cannot say, ‘VW is already requested to pay a lot in the U.S., so let’s not be so strict,’” a spokesman said. “That’s not possible.” And then, on Tuesday, South Korean prosecutors indicted a VW executive in the case. That’s just this week’s news. The company faces criminal investigations in the U.S. and Germany as well.

Of course the two cases are different. You could argue that VW’s scandal is worse because it involved deliberate deception and high executives knew about it. But you could also argue that GM’s scandal was worse because it appears 124 people died as a result of the faulty ignition switches. The most important difference is the CEOs’ responses. Müller has tried to dispute every accusation and to minimize every damning fact that could no longer be disputed. Barra did the opposite. She maximized and embraced the crisis. She visited victims’ families and apologized in person; she testified to Congressional committees and accepted responsibility. Instead of fighting every claim for damages, she quickly established a compensation fund, administered by outside attorney Kenneth Feinberg, and offered payouts to all victims, including those whose accidents pre-dated the bankruptcy. The fund has paid out about $600 million. Most memorably, she told employees, “I never want to put this behind us.” Instead, she used the scandal to start changing a culture that desperately needed change; that job is far from over. VW’s sales have suffered significantly as a result of the scandal. While GM’s financial performance needs improving, there’s no evidence that the ignition-switch crisis hurt sales.

Two crises, two leaders, starkly different responses and results. It’s a case study that merits much more attention.

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Quote of the Day

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Produced by Ryan Derousseau