GM, Its Shareholders, and Slower Rusting

Phil Windley // Thu Jun 4 09:46:00 2009 // governance investing politics

As we all know, the US government is now GM's largest shareholder. As someone who has served on the boards of several companies, this gives me great pause. It's unlikely that GM is going to choose me to be on it's board, but if they did, I'm not sure I'd understand what I was meant to do.

When you serve on the board of a for-profit company, your fiduciary duty is clear: increase shareholder value. Boards work for the shareholders and shareholders invest in companies to make money. Sure, the law imposes other duties on boards towards employees and customers, and most boards have legal counsel to help them sort those out; but the overall driving motivations are pretty simple.

Now take GM. (Please.) When your largest shareholder is the government, it's not clear what their expectations of directors should be. Clearly they're not interested in increasing their investment or they would have put their money in a different company. Of course, I'm being a little flip--taxpayers would like their money back.

Still, that isn't why the US government put the money in. Should directors focus on saving jobs? Increasing fuel economy and going green? Saving the supply chain? The areas for potential conflicts of interest are huge.

The reason the government provided what amounts to DIP funding the GM is that no one else would. Smart people obviously thought the risks were too great. But not for the US taxpayer. Sure, saving GM would be nice, but only if we really save GM. I think the chances of GM being a major player on the world stage in the future to be slim. Perhaps we've provided a soft landing for someone. Like most government programs the ROI is going to be very hard to find.

I think we'd have been better off in the long term if we'd taken the $50 billion and put it in a fund of funds for investing in new companies. We could put limits on it so that it promotes certain technologies and certain geographies. In the end we'd have jobs and a better way forward. As it is, the most we're going to get a longer, slower decline of the rust belt.