December 01, 2010

Ed Whitacre and Alan Mulally: Businesspeople of the Year

As much as I respect Fortune Magazine, I confess that I was shocked to see General Motors’ Ed Whitacre left completely off its list of the top fifty businesspeople of the year.

In a single year Whitacre took an organization with $131 billion in revenues and 209,000 employees from bankruptcy to $8.5 billion EBITDA. In the process he created $50 billion in market capitalization, completing the largest IPO in history. And he restored a healthy balance sheet: GM currently has $33 billion in cash and only $9 billion in debt.

Fortune ranks NetFlix’s Reed Hastings as the #1 Businessperson of the year, probably for a 200% increase in his stock price. In contrast to Whitacre, Hastings runs an organization with $2 billion in revenues, EBITDA of $300 million, and fewer than 2,000 employees. Hastings created less than $7 billion in market capitalization in the last year – an excellent performance but not in the same league as Whitacre.

Ford’s Alan Mulally at #2 is a worthy competitor for the top ranking. Since taking over Ford’s top job in 2006, Mulally has done a spectacular job in restoring Ford to greatness, bringing fuel-efficient cars and trucks with updated designs to market, and increasing its revenues and market share.

So let’s call it a draw between Whitacre and Mulally for the #1 slot.

The two of them deserve enormous credit for restoring America’s automobile industry, just when it appeared that American-owned auto companies were a thing of the past. They are doing it “the old-fashioned way”: not with short-term moves and financial gimmicks, but by making better vehicles that American consumers are eager to buy. Small wonder that after thirty years of declining market shares, these two giants are gaining share on the Japanese, Germans, Koreans, and even the Italians (think of Fiat that owns Chrysler).

At a time when leading policy makers and economists think that American cannot compete anymore in the manufacturing business, Ford and GM are showing that it can be done – right here in our back yard, and with union labor and U.S. health care costs, no less. Who says we can’t turn around manufacturing in the U.S.?

Both Whitacre and Mulally are masters at facing reality and then organizing people to fix current problems while creating growth for the future. Whitacre inherited an organization in complete denial that it had a problem with the competitiveness of its autos, in spite of the fact that its market share slide steadily from 53 percent of the U.S. market to a paltry 19 percent. The former CEO said in October 2007 – a month before he flew to Washington on a private jet to plead for the Bush administration to bail his company out – that the only problem GM had was its mounting health care costs.

Whitacre was recruited to take over as chairman in July 2009 when GM emerged from bankruptcy. He inherited a weak executive team that wouldn’t face reality and preferred shared responsibility through committees and endless Power Point presentations, rather than to focus on car design. It didn’t take him long to remove several layers of management and build a team of people who love the car business more than finance.

Whitacre, who came into GM with an amazing reputation from his days of building AT&T, had the courage to go on television ads and challenge consumers to give GM cars a second look, putting his money on the line with a “30-day money back guarantee.” Although GM was owned by the government and the unions, he never once complained about interference from either the Obama administration or the UAW – although Obama’s pay administrator, Kenneth Feinberg, limited him to a $500,000 total compensation package in recruiting a new CFO.

For half a century GM CEOs have been backing down to the power of the UAW, in order to avoid a strike. In the process they created an impossible set of financial obligations, including 100 percent health care coverage for employees and retirees, a generous company-funded retirement plan, and a jobs bank that paid laid off employees for not working. Whitacre took a different tack: he met privately with UAW president Ron Gettelfinger and reached an agreement to work out solutions that enabled the company to compete on a global basis and the workers to keep their jobs.

Mulally, who left the top commercial aerospace job at Boeing, was equally courageous at Ford. Within ninety days he leveraged Ford’s entire balance sheet to borrow $23.5 billion to give Ford a cushion against further problems and an economic downturn. That gave him the cash position to avoid running to the government for a bailout when the auto market collapsed in the fall of 2008.

To his credit, he used his strengthened balance sheet to get his lineup of cars and trucks more competitive. When Toyota experienced quality problems in early 2010, Mulally was ready to respond with an attractive product lineup that has enabled Ford to achieve consistent U.S. sales increases, and which have exceeded 40 percent in some  months.

At a time when corporate leaders are being criticized at every turn, these are remarkable examples of what top leaders can do to turn around America’s great companies. Credit Lou Gerstner for saving IBM from break-up in the 1990s, but let’s give Whitacre and Mulally the top award for turning around an entire industry and showing Americans that authentic leadership really does matter.