Corporate & Securities Law

Government Ownership of GM: Hands-Off Rhetoric Versus Jawboning Reality

In his recent speech on the GM bankruptcy, President Obama reassured Americans that the government, which now holds 60% of GM’s stock, is not going to try to take over management of the company:

What we are not doing, what I have no interest in doing, is running GM. GM will be run by a private board of directors and management team with a track record in American manufacturing that reflects a commitment to innovation and quality. They, and not the government, will call the shots and make the decisions about how to turn this company around. The federal government will refrain from exercising its rights as a shareholder in all but the most fundamental corporate decisions. When a difficult decision has to be made on matters like where to open a new plant or what type of new car to make, the new GM, not the United States government, will make that decision.

It wasn’t true when he said it. President Obama had already intervened on the issue of where GM should be headquartered. The night before his speech, the President telephoned Detroit mayor Dave Bing to provide assurance that he opposed moving the company’s headquarters from Detroit’s Renaissance Center to the suburb of Warren. The President’s opposition pretty much put the kibosh on any business decision by GM to relocate its headquarters to take advantage of incredibly lucrative tax incentives.

Perhaps it’s not fair, though, to call the President’s statement false. The statement was primarily forward-looking, so it’s not really inconsistent with past meddling. Indeed, it seems the administration was simply announcing future intentions, for it simultaneously set forth “four core principles that will guide the government’s management of ownership interests in private firms.” One of those principles stated:

After any up-front conditions are in place, the government will protect the taxpayers’ investment by managing its ownership stake in a hands-off, commercial manner. The government will not interfere with or exert control over day-to-day company operations.

Unfortunately, this reassuring rhetoric must confront the reality that President Obama and those he controls do not by themselves constitute “the government.” The government consists of lots of folks, most notably 535 members of Congress whose careers depend on winning popularity contests and who cannot be counted on to manage GM in a “hands-off, commercial manner.” Thus, in the last few days:

* West Virginia Senator John Rockefeller convened a Senate Commerce Committee hearing in which Senators lambasted Chrysler and GM for closing dealerships. Sen. Rockefeller explained, “I honestly don’t believe that companies should be allowed to take taxpayer funds for a bailout and then leave it to local dealers and their customers to fend for themselves with no real plan, with no real notice, with no real help.”

* Texas Senator Kay Bailey Hutchison threatened to hold up a war-funding bill because of the dealer closings. “It’s a huge burden,” she said. “We’re talking about 40,000 families” of workers affected by the closings. “We’re talking about communities.”

* Michigan Senator Carl Levin said he and his office will do “everything we can” to persuade GM that a Michigan plant scheduled to be idled should be reopened later. Mr. Levin told reporters, “We’re going to do what every other representative and member of the Senate will do from these states and districts.” He added, “There’ll be plenty of jawboning, persuasion.”

* House Majority Leader Steny Hoyer insisted that at least five House committees may have jurisdiction over the GM and Chrysler bailouts, and he assured reporters that “[w]e will certainly be exercising oversight.”

(Articles detailing these events here and here.)

Is anybody surprised that Congress insists in having some say over GM’s business decisions? Will anybody be surprised when the Obama administration itself exerts control over a run-of-the-mill business decision that adversely affects one of the President’s favored groups (e.g., organized labor)? Does anybody really expect success from a company with so many popularity-seeking chiefs who are beholden to so many constituents and who have no real need to earn a profit on their “investment” of other people’s money? If so, shoot me an email — I’d like to talk to you about a real estate investment opportunity in suburban Phoenix.

Full post as published by Truth on the Market on June 04, 2009 (boomark / email).