It finally happened.
One of the dozens of CEOs who have brought the American economy to its knees has gotten a pink slip. The President and his car task force told G.M. that unless CEO Rick Waggoner was shown to the door, the administration would withhold continued aid to the ailing automaker.
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Bob Nardelli, Chrysler’s chief, however, gets to hold onto his corner office a little bit longer while his company continues its merger negotiations with Italian carmaker Fiat.
This time, the President and his advisors got it right.
Waggoner deserved to be fired. As the CEO and the leader of the world’s biggest automobile manufacturer, Waggoner was myopic. He failed to correctly read the market. When other major carmakers were pushing efficiency, G.M. stood by and watched. Although G.M. is being squeezed by it obligations to its bondholders and swelling union retirement liabilities, Waggoner was ineffective in his ability to negotiate viable solutions.
But Waggoner is not the only CEO that must go.
A Harbinger of the Future
On Friday, the President met with the CEO’s of the nation’s largest banks. Like G.M. and Chrysler, all of these banks have gotten billions of dollars in federal aid. As of today, for example, the United States is the single largest shareholder in Citibank. Goldman Sachs has gotten nearly $23 billion from the bailout. It used $6.9 billion of those monies to pay bonuses.
If Waggoner got the axe for running his company into the ground, why hasn’t the same standard been applied to these bailed out banks?
If Waggoner is the poster child for everything that is wrong with corporate America, then CEOs like Citibank’s Vikram Pandit and Goldman’s Lloyd Blankfein also should be on the chopping block.
Blankfein’s continued longevity may be explained by the fact that Goldman was the second largest donor to the Obama campaign. Citigroup employees donated nearly $600,000 to Obama during the 2008 election cycle, and about $114,000 to the new President’s inaugural fund.
Looks Suspiciously Selective
These political donations may not be the sole reason why these CEOs have been able to hold on to their jobs when Waggoner couldn’t. But it certainly raises questions about the propriety of decisions by the White House when it comes to the relative kid glove treatment the President has given the banks.
During their Friday luncheon with the President, the bank CEOs were cautioned to use restraint on issues such as executive compensation and bonuses. The President asked for their support on his efforts to reform the financial system. Waggoner didn’t even get a sandwich. He was simply handed a box for his things.
Concern that Waggoner’s firing will not head off G.M.’s inevitable date with a bankruptcy judge is reflected in today’s deep stock market sell-off. Investors also seem to fear that the same fate will await Chrysler if it is unable to reach an accord with Fiat.
In reality, both companies’ best chance at success may include a quick, surgical bankruptcy. Unlike a liquidation or conventional bankruptcy, a government-structured process would make it easier for the companies to clear away liabilities and assure that the viable mechanisms of the carmakers remain.
If the Sunny Side Is up…
Although bankruptcy is clearly not the administration’s first choice, this option could hold several benefits. The bankruptcy process could be as short as 30 days. The government could provide so-called debtor-in-possession financing for the companies if needed. The government already has agreed to back the consumer warranties of the cars made by both companies. With this guarantee, a newer and sleeker version of both companies could be in place without significant delay.
In the end, if the administration is to retain credibility on these issues during the next several months, it cannot have a double standard. If Waggoner has been given his walking papers and G.M. ultimately is forced into a modified Chapter 11 reorganization, then the same criterion must be applied to the banks.
To do otherwise smacks of cronyism, and will undermine the President’s continued standing in his efforts to guide us out of this economic crisis.
John Cohn is a senior partner in the Globe West Financial Group, based in West Los Angeles. He may be contacted at www.globewestfinancial.com
