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.
You can share Power Sheet with friends and followers here.
What We’re Reading Today
Pennsylvania AG: Hershey Trust must make changes
The attorney general’s office, which has oversight over the trust, has demanded governance reforms in the next 17 days, including replacing three members that have served for longer than a decade. This complicates but could eventually help efforts by Irene Rosenfeld‘s Mondelez to buy Hershey; the trust controls 81% of Hershey’s voting shares, and a newly constituted trust could be more open to an acquisition. The AG’s office is threatening to take the trust to court if changes aren’t made. The trust’s board has already lost four members since late 2015. WSJ
California rejects VW’s large diesel fix
Matthias Müller‘s company has had difficulty finding a fix for its 3-liter diesel engines equipped with emissions-cheating software. The California Air Resources Board rejected the company’s latest proposal as too vague. The U.S. Environmental Protection Agency agreed, leaving the future of about 85,000 vehicles in the U.S. unresolved. Volkswagen struck a deal last month to buy back affected cars with smaller engines. USA Today
Theresa May names her new cabinet
The U.K.’s new prime minister announced her new government, naming former London mayor and Leave advocate Boris Johnson foreign secretary; David Davis was named Secretary of State for Exiting the European Union. In conversations with German Chancellor Angela Merkel and French President Francois Hollande, May reiterated that she needs time before starting negotiations on Britain’s separation from the E.U. Fortune
Philadelphia airport workers to strike…
…at the beginning of the Democratic National Convention in less than two weeks. The baggage handlers, security guards, wheelchair attendants, and aircraft cleaners have united for a planned strike as Hillary Clinton and the rest of the Democrats arrive, though they haven’t specified the day. ABC News
Building a Better Leader
When should a founder leave?
Birchbox’s Mollie Chen realized it was time to leave when the need to create new products and ideas conflicted too much with the company’s need for steadiness. Medium
A new index…
…tracks the number of board seats at private and public tech companies filled by women. It’s a project of tech entrepreneur Sukhinder Singh Cassidy. Fortune
Before reaching out to a potential new mentor…
…make sure your reasons are pure. Ask why this mentor is really the right person to talk to and whether you’re committed to what you’re doing. Small Biz Trends
Elizabeth Warren targets Airbnb-like rentals
The Massachusetts senator and possible v.p. candidate wants an investigation of whether short-term rentals via Brian Chesky‘s Airbnb and other hosting sites have raised rents and pushed out long-term renters. Warren, along with Senators Brian Schatz and Dianne Feinstein, asked the FTC to examine the trend’s effects. Reuters
Drug prices continue to rise
Despite regulatory efforts and public shaming of companies like Valeant for rapid drug price increases, two-thirds of the largest drug companies say that increased prices boosted revenue in the first quarter. Prices of U.S.-made drugs increased nearly 10% in May vs. a year ago. Ian Read‘s Pfizer, George Scangos‘s Biogen, and John Milligan‘s Gilead Sciences all said drug price increases raised revenue. WSJ
E.U. levels third antitrust charge against Google
European Competition Commissioner Margrethe Vestager has accused Google of blocking rivals in online search advertising. The E.U. claims Google is blocking third-party websites from posting search advertisements from certain competitors. It’s the third antitrust charge brought against Sundar Pichai‘s company, owned by Larry Page‘s Alphabet; Google says it will respond after it has examined the complaint. Fortune
Up or Out
Time Inc. (Fortune‘s parent) has named Fortune editor Alan Murray chief content officer, succeeding Norman Pearlstine, who becomes vice chairman. Ad Age
Cravath, Swaine & Moore has named Faiza Saeed its new head. Law.com
Fortune Reads and Videos
One of Paramount’s suitors is China’s richest man
Wang Jianlin‘s Dalian Wanda Group wants a 49% stake in the movie studio, owned by Viacom — but majority shareholder Sumner Redstone is on record as opposing any sale. Fortune
The FCC’s plan to “unlock the box”…
…seems to have fallen apart. Two of the Democrats on the commission now seem to favor a counterproposal from the TV industry. Fortune
Earnings have dropped in 70% of households…
…across 25 advanced economies in the past decade, says a new McKinsey report. Earnings fell in only 2% of households over the previous 12 years. Fortune
Former Valeant CEO has dumped almost $100 million of shares
Michael Pearson began selling the shares in late June. Fortune
Quote of the Day
“Your title makes you a manager. Your people will decide if you’re a leader, and its up to you to live up to that.” — Intuit chairman and CEO Brad Smith speaking about lessons he learned from the late leadership coach Bill Campbell at Fortune’s Brainstorm Tech conference. Fortune