Can Jerry York Save GM?

Friday, April 06, 2007
From the archives: Feb. 12, 2006
Can Jerry York Save GM?
Ace cost-cutter ratchets up pressure for major changes
Bill Vlasic / The Detroit News







DETROIT -- In the 1980s, it was a feisty Texan named Ross Perot who rattled the board of General Motors Corp. by calling his fellow directors "pet rocks" in the pocket of management.

A decade later, retired Procter & Gamble Co. Chairman John Smale led a board-room coup that toppled a GM chairman and set a new standard for corporate governance.

But no outsider ever joined the GM board with the expectations attached to Jerry York.

The appointment to the board last week of York, the ace cost-cutter employed by billionaire investor Kirk Kerkorian, is a pivotal event in one of the most tumultuous periods in GM history.

York is the wild card as GM prepares to undergo a restructuring that will slash tens of thousands of jobs, freeze pensions and benefits and possibly determine the survival of the world's largest automaker.

"One thing about Jerry -- you have got to pay attention to him," said David Cole, director of the Center for Automotive Research in Ann Arbor.

Already, York has influenced GM to slash its dividend in half and cut the salaries of its top executives and board members. But GM insiders know there's more to come from the 67-year-old former finance chief of Chrysler Corp. and IBM Corp.

Wagoner sees positives

The question was posed to Rick Wagoner by one of 200 GM executives attending a high-level internal briefing Thursday: What impact will York have on their company?

Wagoner, GM's embattled chairman, played it low-key, saying York will "add value" because he "knows the business."

But at least one GM exec said York's arrival has clearly ratcheted up the pressure inside GM headquarters. "Inside the company, things are very tense," said the executive, who spoke on condition of anonymity. "There is a contingent that says York is a good thing if he can accelerate change. (But) there is a healthy fear."

With speculation mounting on Wall Street and in the media that GM is headed toward bankruptcy, York comes aboard with a reputation as a hard-as-nails veteran of corporate turnarounds with no ties or loyalties to GM's past.

In a symbolic changing of the guard, he took a board seat vacated by Merrill Lynch Chairman Stanley O'Neal, who worked on a GM assembly line as a teenager, launched his career in GM's treasurer's office and is married to a former GM financial analyst.

"It's as big a shock that O'Neal is out as it is that York is in," said Gerald Meyers, a management consultant and former chairman of American Motors Corp. "Jerry is a change agent in a situation where change is necessary and appropriate."

O'Neal reportedly left because of possible conflicts of interest and a lack of time.

York has defused his own potential conflict by agreeing not to disclose confidential GM information to Kerkorian, GM's fourth-largest shareholder with a 9.9 percent stake in the company.

A call for sacrifice

Moreover, York has wasted no time in making his presence felt on GM's management and its board.

His speech to auto analysts in Detroit on Jan. 10 appealed directly to the United Auto Workers, who are deep in negotiations with GM about health care, downsizing and the fate of workers at bankrupt Delphi Corp.

York predicted little progress could be made with the UAW unless GM showed a spirit of shared sacrifice, namely a dividend cut for investors and lower salaries for Wagoner and his top deputies.

"Historically, GM has been the most tone-deaf of the auto companies when it comes to labor issues," said Harley Shaiken, a labor professor at the University of California-Berkeley. "But York is speaking plainly and directly about critical issues between GM and the UAW."

Pushing GM to cut the dividend and executive pay was important in the context of pivotal contract talks between GM and the UAW in 2007, Shaiken said.

"Doing that doesn't necessarily make the 2007 negotiations easier," he said. "But not doing it would have made them far more difficult."

Plain-spoken, direct, to the point -- that's York. A former West Point cadet, he's a throwback to "bean counters" of the past -- blue blazers and white shirts, wire-rimmed glasses and a tattered briefcase, an unrepentant smoker who drives an aged Jeep bought with his Chrysler employee discount.

His intensity was legendary at Chrysler, where as a young analyst York once passed out in a meeting after working around the clock, fueled by cigarettes and coffee. At IBM, he rigged a snowplow to his Ram pickup during a blizzard to make sure he was at his desk before 8 a.m.

"I've known Jerry a long time, and he isn't a guy who sits back, or tries to 'get along' with everybody," said Meyers. "He's a pleasant enough fellow, but if he's unhappy about something he's going to blurt it out."

Wherever he has been, whether it be Chrysler, IBM or Apple Computer Inc. -- where he has been a director since 1997 -- York has helped deliver shareholder value.

The prescription he laid out for GM's turnaround on Jan. 10 was characteristically blunt.

"Time is of the essence," York said. "A 'sense of purpose' needs to be generated to galvanize the organization."

York has declined interview requests since joining the GM board last week. According to people familiar with his plans, York will spend the next four to six weeks combing through GM's operations for ways to cut costs and improve the business.

York plans deep dive

York will serve on the GM board's Public Policy Committee and Investment Funds Committee and should have wide access to internal company information.

In private comments to one acquaintance, York said he plans to "root around and find out what's not being exposed" in GM's vast North American business units.

People who know York expect him to move fast.

"We're in a time where the clock is moving much more quickly on GM," Cole said. "I think they're fortunate to have Jerry because this thing is going to be played out in the next six months, not the next five years."

York joins a GM board led by former Eastman Kodak Co. Chairman George Fisher as the "lead director" and composed of corporate executives with minimal experience in the automotive industry.

Historically insular and nonconfrontational, the GM board was shaken up in 1984 when Perot became a director after selling his company, Electronic Data Systems, to GM for $2.5 billion in stock.

A classically opinionated entrepreneur, Perot clashed early and often with GM Chairman Roger Smith. His biting assessments of GM's culture were considered heresy at the time. "If you see a snake, kill it," Perot once quipped. "Don't appoint a committee on snakes."

But after two years of verbal warfare, Smith had had enough. He bought out Perot's GM stock, and the diminutive Texan left the board.

In 1992, Smale became the next outsider to put his stamp on the board. Smale was the polar opposite of Perot -- a dyed-in-the-wool corporate executive from tradition-bound Procter & Gamble. But when GM teetered near bankruptcy, Smale marshaled other directors to oust Chairman Robert Stempel and install a new management team.

York brings a bit of both men's qualities to the GM of 2006. He combines the candor and independence of a Perot, with the Fortune 500 credentials and experience of Smale. Unlike them, York spent 30 years in the auto industry, having worked for Chrysler, GM and Ford Motor Co. at various times in his career.

"He's different than Perot and Smale because he does know the business and he's been close to it for a long, long time," Cole said. "Jerry is a disciplined guy. His intent is not to blow the place up."

Nose under the tent

But patience is hardly a quality associated with York.

He first advised Kirk Kerkorian in the mid-1990s when the casino mogul was the largest shareholder in Chrysler. In 1996, York used the threat of a proxy fight to get Chrysler management to approve a stock repurchase plan favored by Kerkorian.

When Kerkorian asked him last March to look into GM, York dug deep and produced a detailed report on the automaker's strengths and weaknesses. Last fall, with GM reeling from huge third-quarter losses, York began pressing for a board seat.

Talks broke down late last year, but York didn't back off. He went public in mid-January with his speech at the Detroit auto show, and waited for GM to respond.

It didn't take long. At their next meeting on Feb. 6, GM's directors voted to appoint York to the board. Now, the question on the minds of everyone at GM is what York does next -- and when he does it.

"York is on the inside now," said Ralph Ward, publisher of the newsletter Boardroom Insider. "Now that the camel has his nose under the tent, it's a whole new ballgame."

You can reach Bill Vlasic at (313) 222-2152 or bvlasic@detnews.com.












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