A report on the internal investigation into the recent General Motors recall was made public last Thursday. The recall, which is also being investigated separately by the U.S. attorney’s office in New York, states’ attorneys general and the Securities and Exchange Commission, was determined not to be the result of a cover-up but due to dysfunctional corporate culture and lack of communication among key employees. The automaker faces large changes and must next determine how to proceed with compensation for the victims.
Report blames culture, clears chief executives
GM has recalled a record 2.6 million vehicles, including Chevrolet Cobalts and other models, due to an ignition switch with two design problems. The faulty switch can cause the engine to turn off while driving and disable the airbags, meaning they will not deploy in case of an accident. At least 13 deaths and 54 accidents have been directly linked to the defect; those numbers are expected to rise in the following months.
In March, the company paid a $35 million fine – the maximum allowed by law – after signing an agreement with the U.S. Department of Transportation admitting it had concealed information and did not take swift action to disclose known defects. Also in March, GM hired former U.S. Attorney Anton R. Valukas of law firm Jenner & Block to conduct an internal investigation. The investigation lasted three months and involved interviews with hundreds of people and the review of millions of pages of documents.
The report, dated May 29, concludes that there was no conspiracy to cover up information. Instead, GM had a culture in which employees failed to take responsibility for changes despite knowing about problems for a long time. The actions of engineer Raymond DeGiorgio in particular compromised the safety of the vehicles, as he did not disclose a change to the switch’s design that may have alerted others to a problem.
CEO Mary T. Barra also points to what she calls the company’s “silo” culture, where managers in one department do not communicate with managers in other departments, and where there is little interaction between managers and senior level executives.
Barra, who became CEO in January, was cleared of wrongdoing in the report along with other top members of the company.
15 fired in report’s aftermath
As a direct result of the report, 15 employees have been fired, including a vice president, lawyers, safety executives and engineers. Five others have been disciplined. The company is now facing the long road of changing its culture to improve communication in order to prevent something like this from occurring again.
The report’s contents may allow lawyers of victims and their families to reopen suits that had been settled before the defect was disclosed.
After appointing a new vehicle safety chief to improve its oversight of vehicle safety, GM had previously announced its intent to reorganize engineering operations. The company has also set aside $1.7 billion to pay for the recalls.
Barra appeared before Congress in April but declined to answer several questions, citing ongoing internal investigations. Now that the report is out, she has been called to speak before Congress again. She and Valukas will answer questions from the House Energy and Commerce Committee’s oversight subcommittee next Wednesday.
Awaiting new report on compensation for victims
GM’s next step is to figure out how to compensate victims and their families. In April, it hired Kenneth R. Feinberg, a compensation expert who was a special master of the September 11th Victim Compensation Fund, to handle compensation programs. It is up to Feinberg to determine how many fatalities and injuries can be linked to the cars’ defects and to ascertain who is eligible to apply for compensation and what that compensation should be.
Due to the agreement GM struck during its 2009 bankruptcy and bailout, it is not legally obligated to pay victims with claims before that time; however, GM has said it intends to compensate them anyway.
Feinberg says that there will be a limited window of time, likely to start in early August, during which victims can file claims. His report is expected in a few weeks.
