Bob Nardelli. A good leader for Chrysler in its present plight?

November 4, 2007

bob-nardelli.jpgIf you believe in situational leadership you may feel that Bob Nardelli’s style is an appropriate one for Chrysler, following the Cerberus takeover

The bloodletting at Chrysler is not going to be pleasant. It calls for a special kind of leadership to avoid worse outcomes than might have been possible. There have been business leaders in the past who relished the prospects of being in charge in such a crisis. They had earned their reputations as uncompromising men willing to made the big decisions in a slash-and-burn situation.

Uncompromising men? It’s just that there are fewer stories about equally ruthless business women, because they haven’t had as many opportunities. A few years ago there was Linda Wachner, America’s first Fortune 500 female boss, whose high-handed management style was blamed for the bankruptcy of clothing company Warnaco. And I have little doubt that if Margaret Thatcher had found herself in change at Chrysler at the moment, she would have entered into the spirit of things with her legendary energy and decisiveness.

Heroes and villains

In times of crisis, it is tempting to portray events as dominated by the actions of great villains or heroes depending on your view of capital market mechanisms. The leader as hero rescues what can be saved, and in the process accepts that casualties as a vital part of winning the battle. That might be called the unconditional free-market view. Opposed to that, is notion of the leader brought in to a company in trouble is a villain, a mercenary, a ruthless bounty-hunter contracted to deliver what is required, ‘dead or alive’ in order to earn his own booty on behalf of a powerful rapacious corporate raider. That’s the unconditional anti-capitalist view.

Young people around the world learn of their national heroes and traitors in terms rather like these. Cultural forces sustain the views, as part of each culture’s ‘national heritage’, regardless of efforts at history teachers to offer a more nuanced explanation of events and of the impact of individuals.

Many years ago, Thomas Carlisle took the view that great leaders could be excused human flaws. Assuming they have something special which achieves great results, we must beware of belittling them for being all too human. That’s one argument. Carlisle warned against what he called valetism. (‘No man is a hero to his own valet’).

One of various objections to Carlisle’s idea is the way in which heroes suddenly become villains (the hero to zero effect), but in either case are granted exceptional abilities. It anticipated the more technical studies of leadership in search of the right stuff, the essence of leadership.

It took us a hundred years of work to suspect that the impact of great leaders was to a considerable degree based on the perceptions of followers. That’s why I am rather keen to promote the suggestion that we get the leaders we deserve, and that they are to some degree the creation of our collective imaginations.

Remember Chain-Saw Al?

Before returning to Chrysler, it may be worth recalling the rise and fall of other leaders once hailed great, and then trashed. ‘Chain saw’ Al Dunlap comes to mind. Older subscribers will remember Al as hero of Wall Street, the wizard of down-sizing. Al was in demand for a company in need of the slash and burn treatment. Al kept producing the goods, metaphorically. He eventually was found not to be producing the goods literally, and had been engaging in all sorts of creative accounting.

Morer recently, we witnessed had the rise and fall of Sam O’ Neal at Merrill Lynch. Sam had been lauded as Sam the Man who had shaken Merrill Lunch out of its strategic slumbers. He had also presided over the company at the time when it hit the buffers as one of the biggest losers in the sub-prime markets this year. Exit Sam with some $16 million compensation for his efforts during the good years.

Once the performance of Merrill Lynch fell, Mr O’Neal’s contribution, and his leadership style were called into attention. He was autocratic. He would not listen to advice. He could be very difficult to work with. And so on.

Which brings us back to Bob Nardelli

When Nardelli left Home Depot, earlier this year, the consensus was that

Home Depot faces a well-known dilemma. It has long passed a growth phase when its stock was rising in sensational fashion. Efforts to maintain the growth led to a decision to bring in new and dynamic management. When the desired growth was not achieved, the leader was deposed. Nardelli’s demise was made easier by his management style and a skill at extracting extremely favourable personal rewards. It should be noted that this might suggest he was a difficult boss, but not a stupid one

When Cerberus acquired Chrysler, they turned to Nardelli.

Why? Private Equity business deals require leaders to be able to follow a plan, stick to the numbers. They may or may not be ‘good with people’. If they are, it’s a bonus.

Matching the situation and the leader

Situational leadership suggests that different situations call for different leadership skills. In one well-known leadership formulation, leaders are invited to assess situations and seek an appropriate style. In Chrysler’s situation, the temptation for the new owners is to regard a directive style as appropriate. That’s how it’s worked in the past. Hello, Bob, I think we’ve got just the job for you …Yes, a bit like Al., but we don’t want any financial tricks. Remember what happened to Al.

So is Nardelli likely to be a good leader for Chrysler?

There are no easy answers in a case study like this one. Conclusions have to be supported by argument and indications of the assumptions being made. So far, I’ve been putting forward a qualification that it is not possible to put leaders into one of two boxes ‘good or bad’. This is based on the evidence that leaders may have a style that suits them to some circumstances better than others.

The next point to consider is good for what and for whom. In evaluating Nardelli’s impact at Chrysler we may wish to take the broad view that Chrysler appears to be in need of drastic and painful change, and that Nardelli was attracted with a deal in which he is generously rewarded for carrying out the painful operation of change.

I suspect he has some of the characteristics of the tough-minded leader required to meet the short-term financial objectives of Cerberus. I don’t know if he will succeed in the wider challenge of creating something permanent that will be recognised as the New Chrysler. Sadly, among the biggest losers at Chrysler will be tens of thousands of workers who will be without jobs over the coming months. The unconditional free-marketeers will Maybe argue that the alternatives would likely have led to even more job losses at Chrysler further down the line. Maybe a tough approach now will create more jobs elsewhere, than a more ‘humane’ and collaborative approach which fails to bring about changes in market prospects of the ailing corporation.


Cerberus bags Nardelli for Chrysler

August 6, 2007

nardelli.jpgA name leaks out as new CEO for Chrysler. It is Robert Nardelli, recently deposed head of Home Depot. Why Nardelli? Why an anonymous leak? What are the implications for Chrysler’s future?

The fate of Chrysler is now in the hands of Private Equity organization Cerberus. If step one is win the take-over battle, step two is installing the top management team to execute the transformation plan.

It is difficult to conceive of step one being completed without parallel efforts occuring to secure the person or persons believed capable of getting the job done. Sometimes the leader has been in place before the venture capital is sorted out.

The leak

It was Associated Press that broke the news.

Chrysler’s new private owners have picked former Home Depot boss Bob Nardelli to head the No. 3 U.S. automaker in its effort to return to financial health, a person close to the process said Sunday

The leak was rapidly followed by official confirmation. Bob Nardelli has been appointed. The complex twists and turns in Chrysler’s fortunes continue.

Recent events

German auto magnate Dieter Zetsche had headed the Merger between Chrysler and Daimler. But the move failed to deliver its promise of a transition to a globally competetive firm. The escalating debts at Chrysler led Zetsche first to indicate that all options had to be sonsidered. Eventually, the ultimate option was exercized, and Chrysler put up for sale. In May 2007, Cerberus Capital Management won over other bids.

There were further twists to the tale. The planned finance packages could not be sold to the finance houses. With a jittery financial context, it seemed that the deal would fall through. But where there’s a will there’s a way. Daimler even played a part in financing its own sale. The deal squeeked through.

Why Nardelli?
Private Equity deals rely on having a clear plan for recovery of investments. The financials often indicate assets that can be sold off to that effect. Sometimes the deal implies replacement of lethargic leadership with others more willing to ‘do what it takes’ to ‘liberate’ those under-utilized assets. Detractors point to the excessive zeal from such slash and burn leaders, and lack of concern for the historical purpose and values of the target organization.

Nardelli is a controversial figure. But the pattern of his leadership behavior may fit rather well for asset liberation. He is reputed to be high-handed and authoritarian. These may not be
particularly desirable characteristics, particularly for colleagues, including former Chrysler head Tom La Sorda, They may, however, appropriate for circumstances where speed outweighs consensus in decision-making.

Nardelli’s removal from Home Depot was attributed partly to a high-handed style particularly over his remuneration demands. It seems likely that such behaviors would have been overlooked, if the company had been able to achive its aspirations of growth under his leadership (which were probably unrealistic, but that’s another issue).

The new job offers a fascinating case study. (Not so fascinating as tough for employees, almost certainly). Will such a style fulfill the requirements of Cerberus and its future plans for the company? The conventional wisdom is that this sort of deal will provide generous financial rewards for the key players. In which case Nardelli’s leadership abilities will outweigh the bevaors that contributed to his problems at Home Depot. In either event, Cerberus will have obtained the leader they believed they needed and deserved.


Magna under the microscope over Daimler Chrysler

May 14, 2007

250px-cerberus-blake.jpgoleg_deripaska.jpg

Canadian firm Magna comes under renewed scrutiny as a potential bidder for Chrysler through its recent backing from Russian billionaire Oleg Deripaska. As the complex leadership story unfolds, a new suitor, Cerberus appears centre-stage.

Stop Press

The following addressed the Chrysler deal as most commentators saw it in early May. I added the last paragraph as Autoworld blogs began touting a new suitor for Chrysler. By the end of the day (Monday 14th May) the whole post appears to have been overtaken, as I cautioned:

How to make sense of it? It’s worth bearing in mind there may still be other players waiting to enter the drama. There may still be a few more twists and turns before we find out Chrysler’s fate.

The twist came sooner than I expected, with the dramatic news that US private equity firm Cerberus Capital Management is to buy a majority stake in Chrysler

The Original posting follows ..

The future of Chrysler has been the subject of increasing speculation since Dieter Zetsche, Chief executive of parent Daimler Chrysler, admitted recently that the group has started negotiations with a number of parties about its sale.

A firm mentioned as interested in acquiring Daimler is Magna. The firm is a relative newcomer, founded by an Austrian entrepreneur Frank Stronach. Mr Stronach emigrated to Canada in the 1950s, and built up a successful auto-business. One of its interesting features is its Governance structure. According to the company web-site,

In 1971 Mr. Stronach introduced his management philosophy, known as Fair Enterprise, to Magna. Fair Enterprise is based on a business Charter of Rights that predetermines the annual percentage of profits shared between employees, management, investors and society, and makes every employee a shareholder in Magna. These rights are enshrined in a governing Corporate Constitution.

Enter Oleg

There has been substantial investment by a Russian organization Basic Element, headed by Oleg Deripaska. [Photo above by A. Sazonov, from MosNews Archive]. Rated up there with Ambramovitch as one of the world’s richest individuals, Oleg dominates the Russian metals industry through his RUSAL organization.

The story was picked up by Forbes:

A Russian industrial conglomerate will sink $1.54 billion into auto parts supplier Magna International Inc., raising speculation that the Canadian company is generating cash for a bid to buy Chrysler …After the annual meeting, Magna founder and Chairman Frank Stronach said he did not think the investment would have any bearing on the company’s efforts to buy Chrysler, although he thought the Russian partner would make Magna more attractive to Chrysler’s German parent, DaimlerChrysler AG.

While Magna continues to receive attention, the Russian connection, and alleged side-deals leave some doubt that the move will be straightforward.

Leadership issues

The story is replete with leadership issues. This is partly because of the different levels at which it is playing out. Considering the parent company Daimler Chrysler with its celebrated and wealthy leader, Dieter Zetsche broadens it to a global scale. Enter a Russian entrepreneur in cahoots with a Canadian business leader. Then there is Chrysler, still a large outfit, and one of the gang of three ailing American auto-giants, with its increasingly beleaguered leader, Tom LaSorda, a former GM executive.

How to make sense of it? It’s worth bearing in mind there may still be other players waiting to enter the drama. There may still be a few more twists and turns before we find out Chrysler’s fate.


Gettelfinger in the ESOP pie?

April 25, 2007

180px-the_boy_who_cried_wolf_-_project_gutenberg_etext_19994.jpgChrysler’s future looks increasingly precarious. Union President Ron Gettelfinger has a tough call to make. He may be able to disrupt progress towards a takeover. Or he may soften the Union’s stance over pension rights with the parent company. But that makes Chrysler a more attractive morsel for a predator. ESOPs offer a possible way forward.

The financials make gloomy reading. Chrysler made a $1.5bn loss last year as its US sales deteriorated. Kirk Kerkorian has tabled a $4.5bn offer. Magna is believed to be considering making a marginally better offer. Parent company Mercedes Benz faces 90% loss of the $40bn it paid for Chrysler in 1998.

How ESOPs may be the way forward

An ESOP (Employee Share Option Plan) is an old idea that has found recent favor in Private Equity deals. In principle, an ESOP is a form of worker incentive through participative ownership. As such, it has a distinctly liberal or (dare I whisper the word?) socialistic ethos. Strange, then, that such an idea would be popular in that most red-blooded of capitalistic barbarians at the gate, the private equity consortia.

Unsurprisingly, The Economist takes a mildly cynical view:

If all else fails, hand the workers some equity. That seems to be the new philosophy of America’s private-equity firms, at least, judging by the bidding war for Chrysler [and The Tribune Newspaper]. ..
Anyone seeking in this the spirit of Robert Owen, the father of the workers’ co-operative, or of Louis Kelso, an American lawyer who invented the ESOP in 1956, is likely to be disappointed.

When Daimler bought Chrysler in 1998, it paid $35 billion. Analysts now value it at no more than $8 billion, though Daimler may be fortunate to get anything close to that for a business that some experts think is destined, sooner or later, for bankruptcy, along with Detroit’s other giant car manufacturers, Ford and General Motors.

On April 5th Tracinda, the investment vehicle of Kirk Kerkorian, a buy-out veteran, offered to pay a paltry $4.5 billion for Chrysler .. Mr Kerkorian’s offer assumes that Daimler will retain some of Chrysler’s crippling health-care and pension liabilities and that the firm’s employees will take a big chunk of equity in exchange for giving up some promised benefits.

Overall, ESOPs seem to improve the performance of firms that have them, which may explain why they are increasingly popular. Some 10 million American workers are members of ESOPs, which together control assets worth an estimated $600 billion. However, it is less clear that they help firms in upheaval or confronting possible failure–such as Tribune and Chrysler.

The Economist argues that the move is more based on financial engineering than on the kind of social engineering required to harness the energies of the workforce towards competing globally, and contributing to a change of fortunes of Chrysler, (and by the same token, GM and Ford). In contrast, the rise and rise of the Toyota phenomenon (Toyataoism) is based on production and social innovation.

The view is one shared by those of more leftist disposition, typified by the following quote. I jotted it down from a lecture by a distinguished social scientist who was discussing worker participation schemes: ‘Scratch an enlightened employer, and not far below the surface you will find an unreconstructed exploitative capitalist’ .

But for all the mistrust, the workers at Chrysler may see such deals as offers they can’t refuse. To them, this is far more than an experiment in financial engineering. Magna, with its track record of employee share ownership, could have the better prospect in that respect. The almost forgotten third way of Kelso may attract more advocates.


Chrysler: The three most-rated raptors

April 9, 2007

286205351_a9245dd0a9.jpgWhen Chrysler-Daimler boss Dieter Zetsche said recently that all possibilities were under consideration for Chrysler, the vultures began to circle. Is it a simply a matter of time? We assess the three most rated raptors. [Update]

As the Easter celebrations began, so did the take-over rumors around the Chrysler division of Chrysler-Daimler. Tracinder, the investment vehicle for the influential corporate investor Kirk Kerkorian is reported to have made a $4.5 billion offer. Other names mentioned include the canadian engineering firm, Magna International, and the once all-powerful General Motors.

Update: I have no firm news to add to the post. However, I should have mentioned that as well as my identified three predators, there were reports of others. The Detroit News has suggested that Chrysler has opened its books to buyout specialists Cerberus Capital Management.

Original Post

In February, I blogged that Chrysler was in big trouble, and that CEO Dieter Zetsche of Chrysler-Daimler had indicated as much, in saying he would be exploring all options with new partners. He had left the door of the Chrysler hen-house open, with the foxes getting bolder by the day. Today I’ve changed metaphor in midstream. It’s not foxes eyeing carelessly-guarded chickens anymore, but vultures detecting some easy pickings.

Commentators had discounted the chances of takeover by non-American bids on various grounds. The product base was too dependent on gas-guzzlers with long-term declining prospects; the American market is notoriously hard for foreign firms to crack (although Toyota is among the ‘invaders’ who have found the successful formula: if it looks like a sheep, baas like a sheep, herds with the other sheep, perhaps it’s not a wolf in sheep’s clothing).

So attention turned to possible North American bids. GM had been mentioned, but had not been tempted by an earlier merger suggestions (by one investor, Kirk Kerkorian) to merge with Nissan and Renault.

Kirk Who?

Mr Kerkorian unsuccessfully opposed the original merger, generating a legal objection, claiming he had been unfairly disadvantaged to the tune of some $billion. He lost that appeal. Now he is back in action. His bid this week requires Chrysler to reach agreement with the United Autoworkers and make progress over unsettled pension and health costs.

Frank who?

Another firm mentioned as interested in acquiring Daimler is Magna. The firm is a relative newcomer, founded by an Austrian entrepreneur Frank Stronach. Mr Stronach emigrated to Canada in the 1950s, and built up a successful auto-business. One of its interesting features is its Governance structure. According to the company web-site,

In 1971 Mr. Stronach introduced his management philosophy, known as Fair Enterprise, to Magna. Fair Enterprise is based on a business Charter of Rights that predetermines the annual percentage of profits shared between employees, management, investors and society, and makes every employee a shareholder in Magna. These rights are enshrined in a governing Corporate Constitution.

And GM?

The old lady has not yet offered a convincing enough denial. The lack of a denial has been enough to induce a few trading jitters. When the news of Kirkorian’s bid came through, GM strengthened. One analyst suggested that the reduced possibility of GM becoming involved with Chrysler helped rally investors.

A three-horse race or a chess tournament?

The moves are taking place as Daimler-Chrysler shareholders met in Berlin for its annual meeting. There were strong representations to the company to get rid of the Chrysler operation.

Chief executive Dieter Zetsche admitted that the group has started negotiations with a number of parties about the sale of Chrysler and was reported by the BBC as saying

“I can confirm that we are talking with some of the potential partners who have shown a clear interest .. We need to keep all options open and I cannot disclose any details, because we need to have the maximum scope for manoeuvre”

If this were a chess tournament it would have the highest rating for the caliber of Grand masters taking part.. But unlike a chess tournament, we don’t even know the full list of competitors.


Chrysler Chills: Is this Thermal Denial?

February 18, 2007

Sunset
Ford and GM have shed nearly eighty thousand jobs. Chrysler now announces another 13,000 job cuts in North America. Chrysler/Daimler faces a tricky future as its head, Dieter Zetsche, weighs up all options for the ailing partnership. Against the growing reality of the job-cuts we ask: is there still thermal denial in the American auto-industry?

The overall story is now well-established. The mighty auto-industry in America is in a tailspin. There is a sense of the decline and fall of the Fordist Empire. Some of us learned that was caused by enemies within, as much as enemies from outside. Which translated points to the fiendish plot by Foreign-owned auto-companies to metamorphose into American companies.

Sales and sales projections say that big is not as beautiful as it was. It seems likely that the invaders such as Toyota can probably scale upwards in the new midi- or cross-over utility vehicle market more easily than the American auto-giants can scale down into the market.

Meanwhile at the Detroit Show

Meanwhile, the Detroit show recently indicated the approach to the market from the ailing giants. Chrysler could claim to have played a big part in creating the market for the rather large People Carriers. Tom LaSorda, head of the American Chrysler division of the partnership said as much at the show. He also indicated that the future product the company was backing was …The Grand Caravan, another people carrier.

In a sideshow, the Corporation’s chief economist was offering another interesting take on its thinking. Van Jolissaint described a gulf between views he found prevalent in Europe, and those in the States. He was dismissive of the Stern report and suggested that climate change was “way, way in the future, with a high degree of uncertainty”. He added for good measure that the Europeans appeared to be suffering from a quasi-hysterical condition producing Chicken Little behavior, running around saying the sky was falling in. The audience from within the auto-industry seemed to find both solace and confirmation of the correctness of its own views from his argument.

It may have escaped the notice of the audience that the Chrysler part of the partnership was performing particularly weakly, with strongest performance from the European Mercedes-Benz car and truck operations.

After the Show was over …

After the Show was over the auto-makers returned to their beleaguered manufacturing bases, and economists to wherever economists return to (Platonia? Milton Freedonia? Maynardsville?).

Then on Valentine’s day (of all days), Chrysler announces 13,000 job losses. The Chrysler Chief (sounds like part of a music group) is pressed about the future of the American side of the partnership. Dieter Zetsche, for it is he, indicated that he would be exploring all options with new partners.

But Mr Zetsche who used to run Chrysler, has also been engaged in a little denying. According to the BBC:
Mr Zetsche denies any plans to sell the company and pointed out that its problems could be temporary and cyclical .. “No one knows if there is a long-term shift in trends”

So what’s going on?

From a leadership perspective, who would wish to be in change of a global car operation at present? There are a very small number of names who are frequently mentioned as today’s super-leaders, and inheritors of the mantle of earlier greats. Am I right in thinking that the names are largely non-American? If so, is that not puzzling? And who will be in change of whatever is left of Chrysler a few years down the line? Probably not Mr. LaSorda, and that’s not at all because he bears an uncommon resemblance to another once powerful leader. I will leave that as a little challenge to anyone interested.

And why do I think the current crop of successful Auto-chiefs are not American? I hesitate even to offer the most tentative of hypotheses. I am still trying to work out why there are have been so few great English football managers, and such a statistical surfeit of Scottish ones. Or am I wrong about that as well?


Follow

Get every new post delivered to your Inbox.

Join 1,604 other followers