ETHICAL CULTURE AND LEGAL LIABILITY: THE GM

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ARTICLE

ETHICAL CULTURE AND LEGAL LIABILITY: THE GM

SWITCH CRISIS AND LESSONS IN GOVERNANCE

MARIANNE JENNINGS* & LAWRENCE J. TRAUTMAN**

During 2014 news stories emerged that eventually revealed and caused Gen-

eral Motors (GM) to admit that the corporation took more than ten years to recall millions of vehicles because of an elaborate cover-up related to defects in its engine ignition switches. Beyond the tragedy of at least 100 deaths attributed to the ignition switch failures, the company’s internal failure to address and timely disclose what was a material event evident in the earliest stages of the use of the switch and clear evidence of the company’s awareness of the defects is appalling. Within the past fifteen years there have been significant examples of ethical lapses, all with the common factor that the evolution of the lapses within the companies took place over a period of time with many in the organi- zation aware of the growing problems. The ignition switch problem at GM fol- lows this same pattern. The purpose of this article is to examine the GM ignition switch debacle in light of its culture and past practices and search for insights to aid other companies in how to detect these material events and decisions in their early stages. First, we discuss what went wrong at GM, including findings

from the report conducted by attorney Anton Valukas at the request of GM’s board. Second, we explore GM’s several appearances before Congress due to this ignition switch safety issue. Third, we look at what GM has done so far. Fourth, we provide thoughts about what GM needs to do in the future. Next, we discuss lessons learned from this ethical crisis. Finally, we conclude and offer

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advice. We believe this paper offers a recital of the facts surrounding an egre- gious lapse in U.S. corporate ethical conduct as it provides constructive thoughts about future prevention of the causal management conduct, failure of corporate governance and regulatory oversight. The GM experience offers many lessons about the importance of organizational integrity, “truth telling” at all levels within large corporations, and the costs and issues that result when there are failures in corporate governance.

TABLE OF CONTENTS

I. OVERVIEW ……………………………………………………………………………… 189 II. WHAT WENT WRONG AT GENERAL MOTORS? …………………………… 190

A. Historical Importance of General Motors ……………………….. 190 III. THE SAFETY HISTORY AT GM ………………………………………………… 192

A. GM’s History of Problem Cars ………………………………………. 192 1. The Corvair …………………………………………………………… 192 2. The Chevrolet Malibu …………………………………………….. 193 3. The Cobalt Ignition Switch……………………………………… 195

B. Moral Dilemma of Safety at General Motors …………………… 198 C. The “Recall” ………………………………………………………………. 199 D. Valukas Report and GM Internal Investigation ……………….. 201

IV. CONFRONTATION WITH CONGRESS ………………………………………….. 211 V. WHAT GM HAS DONE…………………………………………………………….. 212

A. The GM Code of Ethics: General Content ……………………….. 212 B. GM’s Code Addressing “Speaking Up” ………………………….. 213

VI. WHAT GM NEEDS TO DO ………………………………………………………. 217 A. Pervasive Culture of Problem Denial/Avoidance ……………… 219 B. “Don’t Take Notes” & Careful What You Write ………………. 220 C. The GM Structural Barriers ………………………………………….. 221 D. Possible Motivations for the Cobalt Behaviors ………………… 222 E. Fear and Silence: The Institutional Failure to Share

Knowledge ……………………………………………………………….. 222 F. The Information and Cultural Silo Problem …………………….. 224 G. Criminal Probe Begins …………………………………………………. 224 H. Focus on Legal Ethics ………………………………………………….. 225

1. Perjury …………………………………………………………………. 225 2. Conflict of Interest …………………………………………………. 225

I. Implied Motives: What About Compensation? ………………….. 226 J. Failure of Information Flow to the GM Board………………….. 227

VII. CRIMINAL CHARGES AND THE SETTLEMENT ……………………………. 229 VIII. LESSONS LEARNED……………………………………………………………… 231

A. Information Leaders Need to Know About Their Culture Is Not Getting to Them ………………………………………………………… 233

B. Fixing the Culture: Understanding CEO Perception, and Information Needs …………………………………………………….. 234

IX. CONCLUSION AND ADVICE …………………………………………………….. 236

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I. OVERVIEW

“There are only two types of companies. Those who have experienced an ethical lapse and those who are not aware that they are in the development

stage for one.”1

During 2014 news stories emerged that eventually revealed and caused Gen-

eral Motors (GM) to admit that the corporation took more than ten years to recall

millions of vehicles because of an elaborate cover-up related to defects in its

engine ignition switches.2 Beyond the tragedy of at least 100 deaths attributed

to the ignition switch failures,3 the company’s internal failure to address and

timely disclose what was a material event, even in the earliest stages of the use

of the switch and clear evidence of the company’s awareness of the defects be-

came clear. Within the past fifteen years there have been multiple significant

examples of corporate ethical lapses.4 All these ethical crises evolved over a

1 Marianne M. Jennings, paraphrasing FBI Director James Comey in his description of

cyber attacks, “There are two kinds of big companies in the United States. There are those

who’ve been hacked . . . and those who don’t know they’ve been hacked.” Riley Walters,

Persistent Cyberattacks of U.S. Companies on the Rise, WASHINGTON TIMES (Nov. 3, 2014),

http://www.washingtontimes.com/news/2014/nov/3/riley-walters-persistent-cyberattacks-

on-us-compan/ [https://perma.cc/9SLR-BQPK]. 2 Jeff Bennett, U.S. Fines GM for Missing Deadline, WALL ST. J., Apr. 9, 2014, at B1

(reporting that GM has failed to answer about one-third of the 107 questions asked by the

National Highway Traffic Safety Administration a month earlier). When we make reference

to GM prior to July 10, 2009, our reference is to General Motors Corporation. General Motors

Corporation filed a Chapter 11 bankruptcy petition in the United States Bankruptcy Court for

the Southern District of New York on June 1, 2009. The sale of all of the assets of General

Motors Corporation to an entity that became known as General Motors Company received

court approval on July 5, 2009, with subsequent sale closing on July 10, 2009. Accordingly,

when we reference GM from and after July 10, 2009, we are referring to the purchaser of the

assets, General Motors Company. See also General Motors Company, Filing with SEC of

Amendment No. 8 to Form S-1 Registration Statement, About this Prospectus, i (Nov. 16,

2010). 3 Christopher M. Matthews & Mike Spector, GM Likely to Face Criminal Charges, WALL

ST. J., May 26, 2015, at B1. 4 For a full discussion of the evolving issues at companies such as Enron, WorldCom, and

Adelphia and the resulting federal regulation, see Marianne M. Jennings, A Primer on Enron:

Lessons From A Perfect Storm of Financial Reporting, Corporate Governance and Ethical

Culture Failures, 39 CAL. W. L. REV. 163 (2003), and for details on WorldCom and Tyco, see

Marianne M. Jennings, Restoring Ethical Gumption in the Corporation: A Federalist Paper

on Corporate Governance – Restoration of Active Virtue in the Corporate Structure to Curb

the “Yeehaw Culture” in Organizations, 3 WYO. L. REV. 387 (2003).

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prolonged period of time, with many within the organization aware of the grow-

ing problems. The ignition switch issue at GM follows the same pattern. The

purpose of this article is to examine the GM ignition switch debacle in light of

GM’s culture and past practices and search for insights to aid other companies

in how to detect these material events and decisions in their early stages.

First, we discuss what went wrong at GM, including findings from the report

conducted by attorney Anton Valukas at the request of GM’s board. Second, we

explore GM’s several appearances before Congress due to this ignition switch

safety issue. Third, we look at what GM is reported to have done so far. Fourth,

we provide thoughts about what GM needs to do in the future. Next, we discuss

lessons learned from this ethical crisis. Finally, we conclude and offer advice.

We believe this paper offers a recital of the facts surrounding an egregious lapse

in U.S. corporate ethical conduct and provides constructive thoughts about fu-

ture prevention of the causal management conduct, failure of corporate govern-

ance and regulatory oversight. The GM experience offers many lessons about

the importance of organizational integrity, “truth telling” at all levels within

large corporations, and the costs and issues that result when there are failures in

corporate governance.

II. WHAT WENT WRONG AT GENERAL MOTORS?

By the summer of 2015, deaths attributed to GM’s faulty ignition switch prob-

lem had risen to more than 100.5 On September 17, 2015, criminal charges were

announced against GM that resulted in a deferred prosecution agreement and a

$900 million forfeiture.6 In announcing the agreement with GM, the head of the

Manhattan U.S. Attorney’s Office, Preet Bharara, explained why criminal

charges were necessary for GM and other companies: “‘The first line of defense

is self-policing within the company. The second is regulators,’ . . . ‘When all

those things have failed, prosecutors come along with the blunt hammer. That

does get some attention in the Board room.’”7 The criminal charges and deferred

prosecution for GM were a long time in coming and an examination of GM’s

history indicates why the first line of defense failed.

A. Historical Importance of General Motors

General Motors was founded in Flint, Michigan on September 16, 1908 by

William “Billy” Durant.8 GM’s worldwide sales of 9.9 million vehicles for the

5 See Matthews & Spector, supra note 3, at B1. 6 Press Release, U.S. Department of Justice, U.S. Attorney of the Southern District of

New York Announces Criminal Charges Against General Motors and Deferred Prosecution

Agreement With $900 Million Forfeiture (Sept. 17, 2015), http://www.justice.gov/opa/pr/us-

attorney-southern-district-new-york-announces-criminal-charges-against-general-motors-

and [https://perma.cc/LD95-CYGM]. 7 Matthews & Spector, supra note 3, at B5. 8 The Editors of Encyclopedia Britannica, General Motors (GM) American Company. in

ENCYCLOPEDIA BRITANNICA, http://www.britannica.com/topic/General-Motors-Corporation

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year ended December 31, 2014, mean that GM’s market share is the largest es-

timated “market share in North America and South America, the number six

market share in Europe and the number two market share in the Asia Pacific,

Middle East and Africa region.”9 During this same period, the Asia Pacific, Mid-

dle East and Africa regions accounted for 44.1% of GM’s global retail vehicle

sales.10 Because of its market presence and now worldwide brand, GM President

Charles Wilson, during his 1953 confirmation hearings to become secretary of

defense, reportedly said he believed “‘what was good for the country was good

for General Motors and vice versa.’ (Soon that would be simplified to: ‘What’s

good for General Motors is good for the country.’)”11 Mr. Wilson was prescient

and his statement has gone through iterations to a description of GM’s role in

the U.S. economy: as GM goes, so goes the nation.12 GM was suffering in 2008

when U.S. financial markets collapsed.13 Both the financial markets and GM

recovered through combinations of bankruptcy reorganization and government

assistance.

Sales of automobiles have constituted one of the historical engines powering

job creation and economic growth in the United States. Perhaps GM’s role in the

foundation of the U.S. economy and increasingly intertwined relationship with

the federal government has provided cover for an ethical culture that has grown

sloppy and dysfunctional over the years. Because the global financial melt-down

and credit crisis of 2008-09 resulted in GM’s critical shortage of operating cash,

it “received a bridge loan from the U.S. Treasury, under the conditions that the

company further accelerate a tough restructuring of its [U.S.] operations that had

been underway for several years.”14 Corporate turnaround expert Jay Alix ob-

serves, “By the time the company closed its books on 2008 it would be in the

red by a staggering $30.9 billion.”15

[https://perma.cc/EH8Q-R3QA]; General Motors Company, Company: History and Herit-

age, Creation: 1897-1909, GENERAL MOTORS, http://www.gm.com/company/his-

toryAndHeritage/creation.html [https://perma.cc/QJL3-HXGP]. 9 General Motors Company, Annual Report (Form 10-K) at 6, 10 (Feb. 4, 2015),

https://www.sec.gov/Archives/edgar/data/1467858/000146785815000036/gm201410k.htm

[https://perma.cc/M7SP-XBMZ]. See also Vivek Ghosal & Jiayao Ni, Competition and Inno-

vation in Automobile Markets (CESifo Working Paper Series No. 5504, 2015)

http://ssrn.com/abstract=2669394 [https://perma.cc/TJJ6-7573]. 10 GM Form 10-K, supra note 10. at 10. 11 TomDispatch, As GM Goes, So Goes. . ., THE NATION (Feb. 23, 2009), http://www.the-

nation.com/blog/gm-goes-so-goes [https://perma.cc/G82R-NTSY]. 12 Liz Robbins, As Warren Buffett Goes, So Goes . . ., N.Y. TIMES: THE LEDE (Feb. 28,

2009, 2:24 PM), http://thelede.blogs.nytimes.com/2009/02/28/as-warren-buffett-goes-so-

goes/?_r=0 [https://perma.cc/B9AA-UN89]. 13 Innovation and Challenges: 2000-2008, GENERAL MOTORS, (last visited Feb. 25, 2016),

http://www.gmchina.com/gm/en/aboutGM/GMGlobal/historyandheritage/innovation_chal-

lenges [https://perma.cc/N5NJ-XZUX]. 14 Id. 15 Jay Alix, How General Motors Was Really Saved: The Untold True Story of The Most

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III. THE SAFETY HISTORY AT GM

A. GM’s History of Problem Cars

1. The Corvair

The GM ignition problem is not, as the saying goes, GM’s “first rodeo” when

it comes to safety issues with its vehicle design. Ralph Nader began his career

as a consumer advocate with his book, Unsafe at Any Speed, which documented the safety and design issues with GM’s rear-engine Corvair.16 The Corvair was

first sold in 1959, with questions about the car’s stability arising almost imme-

diately as drivers lost control of their cars, spinning off roadways backwards,

crashes which often ended in rollover accidents.17 EMPI, an accessory company,

began selling stability packages for Corvairs almost immediately after the first

Corvair sales began.18 By October 1965, GM was facing over 100 lawsuits that

alleged that the instability of the Corvair had resulted in accidents.19 In that era

of cat-and-mouse discovery, GM was able to withhold the data about the car’s

testing and/or settle the cases so as to preserve the GM brand.20 GM defended

itself, claiming “it’s all about the nut behind the wheel,” and at least two juries

believed that the crashes were attributable to driver negligence and did not hold

GM liable.21 GM also had the benefit of time on its side.22 With each passing

year, there were fewer and fewer Corvairs on the road with fewer opportunities

for drivers to explore causation through litigation.23

Each year also brought more public disclosures and analysis of the car’s

safety. In 1963, sports car racer and writer, Denise McCluggage, wrote about the

“handling idiosyncrasies” of the Corvair and number of accidents.24 She also

noted that Corvairs involved in accidents were likely to have back-end damage

with no evidence of the cars traveling in reverse gear or being hit from behind.25

Also in 1963, EMPI’s stability package was praised in a Sports Illustrated article

Important Bankruptcy in U.S. History, FORBES (Oct. 30, 2013, 6:10 AM),

http://www.forbes.com/sites/danbigman/2013/10/30/how-general-motors-was-really-saved-

the-untold-true-story-of-the-most-important-bankruptcy-in-u-s-history/

[https://perma.cc/Q6K9-YZ6R]. 16 RALPH NADER, UNSAFE AT ANY SPEED: THE DESIGNED-IN DANGERS OF THE AMERICAN

AUTOMOBILE (1965). 17 Id. at 9-10. 18 Id. at 11. 19 Id. at 9. 20 See id. at 8-10. 21 Id. at 9. 22 Id. 23 Id. 24 Id. at 10. 25 Id.

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for its ability “to reduce oversteer and smooth out the unstable rear-end breaka-

way.”26 Mr. Nader concluded that the GM engineers “did not have the profes-

sional stamina to defend their engineering principles from the predatory clutches

of the cost-cutters and stylists.”27 By 1963, GM had received hundreds of com-

plaints about the Corvair and the problems from the rear-end axle swing.28 The

problem was one an engineering professor said could be solved by any engineer-

ing student, but the company, while taking action to correct the problem for its

1964-65 models, did not issue a recall, notify existing owners, or offer a disclo-

sure about the issue.29

Dr. Seymour Charles, a GM shareholder and founder of Physicians for Auto-

motive Safety, raised questions about the Corvair to both GM’s chairman and

president.30 In his pleading he urged GM to consider a recall for the Corvairs

still on the highway.31 Even Motor Trends’ technical editor had noted the num- ber of Corvairs in the wrecking yards.32 Yet, the president of GM, John F. Gor-

don, seemed to be unaware of the problem despite the litigation and despite his

presiding, since 1958, over GM’s introduction of this novel vehicle design.33

Evidently Mr. Gordon had not reviewed or followed the Corvair’s introduction,

engineering policy approval, or subsequent sales, complaints, and accidents. The

president of GM somehow remained ignorant of the ongoing objections and

analysis of the Corvair’s problems in everything from Sports Illustrated to Mo- tor Trends.34

This pattern of design issues, the failure to self-correct, the complaints, the

eventual public exposure, and resulting litigation would be repeated many times

within the GM culture. With each repeat performance the refrain was always,

“Who knew?”

2. The Chevrolet Malibu

On July 9, 1999, a Los Angeles jury awarded Patricia Anderson, her four chil-

dren, and her friend, Jo Tigner, $107 million in actual damages and $4.8 billion

in punitive damages in a lawsuit the six brought against GM because they were

trapped and burned in their Chevrolet Malibu when it exploded on impact fol-

lowing a rear-end collision.35 Jury foreman Coleman Thorton, in explaining the

large verdict, said, “GM has no regard for the people in their cars, and they

26 Id. at 11. 27 Id. at 28. 28 Id. at 36. 29 Id. 30 Id. at 37-38. 31 Id. 32 Id. at 38. 33 Id. at 38-39. 34 Id. at 37-39. 35 Ann W. O’Neill, Henry Weinstein & Eric Malnic, Jury Orders GM to Pay Record Sum,

ARIZ. REPUBLIC, July 10, 1999, at A1, A2.

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should be held responsible for it.”36 Richard Shapiro, an attorney for GM, said,

“‘We’re very disappointed,’ . . . ‘This was a very sympathetic case. The people

who were injured were innocent in this matter. They were the victims of a drunk

driver.’”37

The accident occurred on Christmas Eve 1993 and was the result of a drunk

driver striking the Andersons’ Malibu at 70 miles per hour.38 The driver’s blood

alcohol level was .20, but the defense lawyers noted they were not permitted to

disclose to the jury that the driver of the auto that struck the Malibu was drunk.39

The discovery process in the case uncovered a 1973 internal “value analysis”

memo on “post-collision fuel-tank fires” written by a low-level GM engineer,

Edward C. Ivey, in which he calculated the value of preventing fuel-fed fires.40

The memo stated that Mr. Ivey’s analysis must be read in the context of how “it

is really impossible to put a value on human life.”41 Mr. Ivey used a figure of

$200,000 for the cost of a fatality, noted that 500 fatalities occur per year in GM

auto-fuel fire accidents, and that the cost of these explosions to GM would be

$2.40 per car.42 After an in-house lawyer discovered the memo in 1981, he

wrote, “Obviously Ivey is not an individual whom we would ever, in any con-

ceivable situation, want identified to the plaintiffs in a post-collision fuel-fed fire

case, and the documents he generated are undoubtedly some of the potentially

most harmful and most damaging were they ever to be produced.”43

In the initial cases brought against GM, the company’s defense was that the

engineer’s thinking was his own and did not reflect company policy.44 However,

when the in-house lawyer’s commentary was revealed during discovery in a

Florida case in 1998, GM lost that line of defense.45 In the Florida case, a 13-

year-old boy was burned to death in a 1983 Oldsmobile Cutlass station wagon,

and the jury awarded his family $33 million.46

These two documents became the center of each case. Judge Ernest G. Wil-

liams of Los Angeles Superior Court, who upheld the verdict in the $4.9 billion

Los Angeles case but reduced the damages, wrote in his opinion, “The court

finds that clear and convincing evidence demonstrated that defendants’ fuel tank

was placed behind the axle of the automobiles of the make and model here in

36 Id. at A2. 37 Id. 38 Id. 39 Id. 40 Id. 41 Id. 42 Id. 43 Milo Geyelin, How an Internal Memo Written 26 Years Ago Is Costing GM Dearly,

WALL ST. J., Sept. 29, 1999, at A1, A6. 44 Id. 45 Id. 46 Id.

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order to maximize profits—to the disregard of public safety.”47 On appeal, the

Los Angeles verdict was reduced from $4.9 billion to about $1.2 billion.48

The class action lawsuits were still being resolved around the country through

2006.49 The suits centered on GM’s midsize “A-cars,” which include the Malibu,

Buick Century, Oldsmobile Cutlass, and Pontiac Grand Prix.50 Approximately

7.5 million cars were equipped with this gas-tank design.51

3. The Cobalt Ignition Switch

In 1999, as GM was developing several new smaller model cars (including

the Cobalt and Impala), its test drivers reported problems with the ignition on

the cars.52 If the keys were bumped, the cars experienced a sudden shut down.53

The shut down not only resulted in the car stopping from full speed to zero speed,

thus making it difficult to control, it also caused the airbags to fail, thus making

any crashes that resulted more likely to be fatal.54 GM took no action to change

the ignition switch, and in 2002 test drivers reported the same problems.55 In

2004, two years before GM would finish its litigation over the Malibu, GM re-

ceived the first reports from customers about engines shutting down in Chevrolet

Cobalts.56 By 2005, GM received its first reports of an ignition failure and the

failure of the airbag to deploy, events that resulted in the death of Amber Marie

Rose, age 16.57 During 2005, a GM engineer proposed redesigning the key head

on the ignition, but management rejected his proposal.58 Also in 2005, a GM

employee who drove one of the Cobalt-like models, sent the following e-mail to

several engineers and managers in the company:

“I think this is a serious safety problem . . . .” . . . “I’m thinking big recall.

I was driving 45 mph when I hit the pothole and the car shut off, and I had

a car driving behind me that swerved around me. I don’t like to imagine a

customer driving their kids in the back seat, on I-75, and hitting a pothole

47 Id. 48 Margaret A. Jacobs, BMW Decision Used to Whittle Punitive Awards, WALL ST. J.,

Sept. 13, 1999, at B2. 49 See, e.g., Harsh v. Petroli, 840 A.2d 404 (Com. Ct. 2003); General Motors Corp. v.

McGee, 837 So. 2d 1010 (Fla. App. 2002). 50 Geyelin, supra note 43, at A6. 51 Id. 52 Jeff Bennett & Siobhan Hughes, GM Officials Ignored Alert on Car Stalling, WALL ST.

J., June 19, 2014, at B1. 53 Id. 54 Id. 55 Id. 56 Christopher Jensen, In G.M. Recalls, Inaction and a Trail of Fatal Crashes, N.Y. TIMES,

Mar. 3, 2014, at B1. 57 Id. 58 Bill Vlasic, A Fatally Flawed Switch, and a Burdened Engineer, N.Y. TIMES, Nov. 14,

2014, at B1, B2 (hereinafter Fatally Flawed Switch).

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in rush hour traffic.”59

Raymond DiGiorgio, then a senior engineer at GM, began to refer to the ig-

nition switch on the cars as “the switch from hell.”60 At the end of 2005, GM

issued a service bulletin to its dealers that alerted them to the ignition problem,

but GM did not issue a recall.61 During this time period, as the ignition issues

continued to evolve, GM was experiencing financial pressures. In fact, GM’s

financial problems continued to mount during all of the periods that involved

these safety issues. In 1991, GM closed 25 plants and laid off 74,000 workers.62

In 2006, GM shed 47,600 GM and Delphi workers through early retirement or

buyout offers.63 By 2008, the financial market collapse took its toll on GM in

the form of Chapter 11 bankruptcy.64

The accidents and notifications related to ignition failures continued through

2006.65 GM took no further action except to switch out the part for the ignition.66

The part number was not changed as required by federal regulations.67 If a part

number is not changed, there is no requirement that the National Highway Traf-

fic Safety Administration (NHTSA) be notified.68 In a series of e-mails, GM’s

supplier, Delphi, pushed back on the failure to change the part number, but pro-

ceeded with the change and the resulting sales.69 One Delphi employee had ob-

served earlier in a June 2005 e-mail, “Cobalt is blowing up in their faces.”70 But

GM engineers observed at the time, “What we are dealing with here is an issue

59 Bennett & Hughes, supra note 52, at B1. 60 Vlasic, supra note 58. 61 See ANTON R. VALUKAS, REPORT TO BOARD OF DIRECTORS OF GENERAL MOTORS

COMPANY REGARDING IGNITION SWITCH RECALLS 5 (Jenner & Block, May 29, 2014),

http://www.nytimes.com/interactive/2014/06/05/business/06gm-report-doc.html

[http://perma.cc/Z7BH-8CZJ] [hereinafter VALUKAS REPORT]. 62 William McWhirter, Major Overhaul, TIME, Dec. 30, 1991, at 56. 63 As one analyst phrased it, “This is a big, big hunk of ballast over the side.” James P.

Womack, The Chatter, N.Y. TIMES, July 2, 2006, at B2. 64 See generally A. Joseph Warburton, Understanding the Bankruptcies of Chrysler and

General Motors: A Primer, 60 SYRACUSE L. REV. 531 (2010); Edward R. Morrison, Chrysler,

GM and the Future of Chapter 11, Columbia Law and Economics Research Paper No. 365

(2009); Ralph Brubaker & Charles Jordan Tabb, Bankruptcy Reorganizations and the Trou-

bling Legacy of Chrysler and GM, U. ILL. L. REV. 1375 (2010). For more details on the eco-

nomic conditions at the time of the switch issues see Robbins, supra note 12; see also Law-

rence J. Trautman, Personal Ethics and the U.S. Financial Collapse of 2007-08, (pre-

publication draft) (on file with author). 65 Vlasic, supra note 58. 66 Id. 67 49 U.S.C. § 30118(c)(1) (2012). 68 Id. 69 Id. 70 Id.

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of ‘customer convenience,’ not safety.”71

On the regulatory end, NHTSA did not inform GM of the Rose accident until

2007, and NHTSA did not open an investigation.72 GM did, however, in re-

sponse to the NHTSA disclosure, begin to follow the ignition accidents in

2007.73 Despite the notification, awareness, and increasing reports, GM did not

take any further public steps on the ignition issue until 2010.74 There was, how-

ever, below-the-radar litigation related to the switches, including suits by the

family members of those who died in ignition failure cases.75

By the summer of 2010, GM halted production of the Cobalt, and by Decem-

ber 2013, GM determined that there had been 31 accidents caused by ignition

failure and that 13 of those crashes had resulted in deaths.76 The Freidman Re-

search Corporation determined that the problem crossed models and classified

303 deaths as related to the ignition switch problem.77 In February 2014, GM

recalled 619,000 vehicles,78 a recall that would slowly be expanded as problems

across models emerged to 16.5 million vehicles, including the 2005-07 Chevro-

let Cobalts, the 2003-07 Saturn Ions, the 2006-07 Chevrolet HHR, the 2007 Sat-

urn Sky, and the 2006-07 Pontiac Solstice.79 The recall included a warning for

owners not to drive with any objects on the key chain because the weight of the

key chain seemed to be a factor in causing the switch failure.80

Unfortunately, the recall was not done quickly enough to prevent additional

deaths. Lara Gass, a third-year law student, received an e-mail from her father

that her car, a 2006 Saturn ION, was just issued another recall and that GM

71 VALUKAS REPORT, supra note 61, at 2. 72 Christopher Jensen, In General Motors Recalls, Inaction and Trail of Fatal Crashes,

N.Y. TIMES, Mar. 2, 2014, http://www.nytimes.com/2014/03/03/business/in-general-motors-

recalls-inaction-and-trail-of-fatal-crashes.html?_r=0 [https://perma.cc/8DNS-FV6T]. 73 Id. 74 VALUKAS REPORT, supra note 61, at 139. 75 Id. at 103-199. 76 Danielle Ivory, Rebecca R. Ruiz & Bill Vlasic, Sending Alerts, G.M. Delayed Recall of

Cars, N.Y. TIMES, Apr. 20, 2014, at A1. 77 Danielle Ivory & Hilary Stout, 303 Deaths Seen in G.M. Cars With Failed Air Bags,

N.Y. TIMES, Mar. 14, 2014, at B1. 78 Christopher Jensen, General Motors Recalls 778,000 Small Cars for Ignition Switch

Problem, N.Y. TIMES, Feb. 14, 2014, http://www.nytimes.com/2014/02/14/automobiles/gen-

eral-motors-recalls-778000-small-cars-for-ignition-switch-problem.html?_r=0

[https://perma.cc/MCD8-5TNB]. 79 See id.; Hilary Stout, Danielle Ivory & Rebecca R. Ruiz, Regulator Slow to Respond to

Deadly Vehicle Defects, N.Y. TIMES, Sept. 15, 2014, at A1; Memorandum from The Comm.

on Energy and Commerce to the Subcomm.on Oversight and Investigations (June 16, 2014),

http://docs.house.gov/meetings/IF/IF02/20140618/102345/HHRG-113-IF02-20140618-

SD002.pdf [https://perma.cc/87WB-3HFK]. 80 Hilary Stout, After a Recall, A Fiery Crash and a Payout, N.Y. TIMES, Sept. 26, 2014,

at A1.

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would be sending her a letter.81 Her father signed the e-mail, “FYI Love, Dad.”82

Ms. Gass responded, “Oh, great, one thing after another with that car. Thanks

for the heads up! See you in a couple of days! Love you, Lara.”83 Unfortunately,

her ignition turned off when she was on the way to her internship for a federal

judge and she was killed when the car hit a tractor-trailer in front of her and the

air bag did not deploy.84 It is unclear if she had followed her father’s warning

about taking all the other keys off of her keychain and using her ignition key

separately.85

Reflecting on the common factors in these three GM situations, spread over a

period of nearly 50 years, patterns emerge. When the design issues with the cars

first came to light, the response within GM was not one of immediate concern

and action. In all three situations, the safety issue was researched, revisited, and

suppressed. In all three safety and design issues, the outcomes were costly, in

both actual dollar amounts as well as in reputation. The way these moral dilem-

mas were processed at GM was an inherent part of GM’s culture.

B. Moral Dilemma of Safety at General Motors

Early on, the Committee on Energy and Commerce of the U.S. House of Rep-

resentatives reported that senior GM executives were aware of defective ignition

switches for at least three years before starting the limited recalls.86 By 2014,

GM was admitting that it had actually known of stalling and power loss prob-

lems for almost a decade before ordering the February 2014 faulty ignition

switch recall.87 As noted earlier, the issue arose for the first time in 1999 with

test drivers. As the rest of the story began to percolate into the media, GM an-

nounced the departure of its global head of engineering.88

Surprisingly, sales did not appear to decline in the face of growing negative

publicity.89 GM still appeared to operate and handle public relations issues as if

the ignition problem was the work of a single engineer and perhaps some staff

81 Id. 82 Id. 83 Id. 84 Id. 85 Id. 86 Joseph B. White & Jeff Bennett, GM Brass Told of Cobalt Ills, WALL ST. J., Apr. 12-

13, 2014, at B1. 87 Jeff Bennett, GM Chief Can’t Shake Recall Furor, WALL ST. J., Apr. 16, 2014, at B3

(observing that the company had known of problems with many of its smaller car brands for

many years before ordering a recall). 88 Jeff Bennett & Katy Stech, Top GM Engineer Out After Recalls, WALL ST. J., Apr. 23,

2014, at B1. 89 Jeff Bennett, GM Customers Shrug Off Car Recalls, WALL ST. J., Apr. 25, 2014, at B1;

Jeff Bennett & Michael Calia, Sales Spring Ahead for Car Makers, WALL ST. J., May 2, 2014,

at B2; Jeff Bennett, GM Recall Spurs Discount, WALL ST. J., May 7, 2014, at B4 (observing

that discounts are being offered to stimulate sales while recalls are in the news).

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members but assured that there were not cultural issues at the company.90 GM’s

early story was that “work on defective ignition switches was limited to a hand-

ful of midlevel employees.”91 However, New York Times reporter Bill Vlasic notes “a review of internal documents, emails and interviews paint a different

picture, showing that high-ranking officials, particularly in GM’s legal depart-

ment, led by general counsel Michael P. Millikin, acted with increasing urgency

in the last 12 months to grapple with the spreading impact of the ignition prob-

lem.”92

By mid-2014, because all of the facts surrounding the GM recall were not

known it was still too early in the saga to have clarity as to the extent of damages.

However, by mid-2014, twenty-nine separate recalls had been announced, cov-

ering almost 15.4 million vehicles globally between January 1 and May 21,

2014.93 By June 2014, GM’s exposure for the Cobalt ignition switch crisis in-

volved independent estimates “to compensate victims, legal fees and any settle-

ments or judgments rang[ed] from less than $5 billion to as much as $7 bil-

lion.”94

C. The “Recall”

The GM recall involves a pattern of numerous expansions of scope and activ-

ities. To begin, GM informed the NHTSA of the defective ignition switch in the

2005-2007 model year Chevrolet Cobalt and 2007 Pontiac G5 automobiles on

February 7, 2014.95 GM’s explanation to the NHTSA at the time was that:

The “ignition switch torque performance” may not meet GM’s speci-

fications. If the torque performance is not to specification, and the key ring

is carrying added weight or the vehicle goes off road or experiences some

90 See Examining the GM Recall and NHTSA’s Defect Investigation Process: Hearing

Before the S. Subcomm. On Consumer Protection, Product Safety, and Insurance, Comm. on

Commerce, Science, and Transportation, 113th Cong. (2014) (statement of Hon. Claire

McCaskill) (discussing GM’s “culture that chose to conceal rather than disclose”). 91 Bill Vlasic, Inquiry by G.M. Is Said to Focus on Its Lawyers, N.Y. TIMES, May 18,

2014, at A1. 92 Id. 93 Jeff Bennett, GM Recall Costs Rise to $1.7 Billion, WALL ST. J., May 21, 2014, at B1;

Neal E. Boudette & Jeff Bennett, Malibu Tops List of Most Recalled GM Cars, WALL ST. J.,

May 23, 2014, at B1. 94 Jeff Bennett, GM to Offer Estimate Of Recall Costs Soon, WALL ST. J., June 11, 2014,

at B5 (observing that “[i]t is unclear if GM will immediately share that figure or wait until its

second-quarter results are released July 24 [,2014]. The company will begin accepting claims

from victims on Aug. 1[, 2014].”). See also Jeff Bennett, GM Holders Question Recall Costs,

WALL ST. J., June 10, 2014, at B2. 95 Memorandum from The Comm. on Energy and Commerce to the Subcomm.on Over-

sight and Investigations (June 16, 2014), http://docs.house.gov/meet-

ings/IF/IF02/20140618/102345/HHRG-113-IF02-20140618-SD002.pdf (hereinafter “GM

February 7, 2014, Letter to NHTSA”).

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other jarring event, the ignition switch may inadvertently be moved out of

the run position.

GM explained that, depending on the time the ignition moved out of

the “Run” position, the airbags of the affected vehicles would not de-

ploy. . . . In its recall notices, GM stated that it is “very important that cus- tomers remove all items from their key rings, leaving only the vehicle key.

The key fob . . . should also be removed from the key ring.” In a March 17,

2014, notice to GM dealers, GM stated that they expected the initial supply

of new ignition switch parts would be available on April 7, 2014.

On March 28, 2014, GM again expanded the ignition switch recall. . . .

GM state[d] that its reason for expanding the recall was that faulty switches

may have been used as service parts in these later models. GM stated that

it [was] “unaware of any reports of fatalities with this group of vehicles

where a frontal impact occurred, the front air bags did not deploy and the

ignition is in the ‘accessory’ or ‘off’ position.” The second expansion of

the ignition switch recall cover[ed] an additional 823,788 vehicles in the

U.S., bringing the number of recalled vehicles to 2,191,934.

In addition, with regard to questions about whether removing the key

fob and other items from the key ring would prevent the key from moving

out of the “Run” position until the recall could be performed, Secretary of

Transportation Anthony R. Foxx declined to advise owners of the recalled

GM vehicles to cease driving their cars until the ignition switch was re-

placed, stating that such a warning was “not necessary.” In reaching this

conclusion, Secretary Foxx stated that NHTSA had “thoroughly evaluated”

GM’s interim guidance and testing and NHTSA’s own engineers had ex-

amined the “geometry and physics” of the ignition key, switch, and steering

column in the recalled vehicles.

NHTSA opened a “Timeliness Query” on March 4, 2014, “to evaluate

the timing of GM’s defect decision-making and reporting of the safety de-

fect to NHTSA.” On May 16, 2014, NHTSA announced a settlement of the

Timeliness Query, stating that GM had “agreed to pay a record $35 million

civil penalty and to take part in unprecedented oversight requirements as a

result of findings from NHTSA’s timeliness investigation regarding the

Chevrolet Cobalt and the automaker’s failure to report a safety defect in

the vehicle to the federal government in a timely manner.” GM admitted in

the Consent Order that it had failed to notify NHTSA of a safety-related

defect within five working days as required by the Safety Act. Pursuant to

the Consent Order, GM agreed to have monthly meetings with NHTSA for

one year following the date of the Consent Order to discuss its implemen-

tation of recommendations resulting from the GM internal investigation

conducted by Mr. Valukas. GM also agreed to establish improved internal

reporting procedures for safety-related defects; improve employee training;

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and strengthen processes for identifying safety defects.96

D. Valukas Report and GM Internal Investigation

Prompted by the identification of at least fifty-four frontal-impact crashes,97

involving more than a dozen fatalities, the GM board of directors hired law firm

Jenner & Block on March 10, 2014 to discover why the Cobalt recall took so

long to accomplish.98 Written by former United States Attorney Anton R. Valu-

kas, The Valukas Report, dated May 29, 2014, states, in relevant part, that:

GM personnel’s inability to address the ignition switch problem for over

11 years is a history of failures. While GM heard over and over from vari-

ous quarters – including customers, dealers, the press, and their own em-

ployees – that the car’s ignition switch led to moving stalls, group after

group and committee after committee within GM that reviewed the issue

failed to take action or acted too slowly. Although everyone had responsi-

bility to fix the problem, nobody took responsibility.99

The Valukas Report includes several prominent and recurring themes regard-

ing GM’s failure in leadership and culture. The first such failure was the appar-

ent tone deafness at the top of GM regarding the continuous tension between the

two goals of safety and cost containment. However, the Report focuses on a

more pervasive problem in GM’s culture – that of nurturing a reluctance among

employees to speak, disclose, and/or tell the truth when it comes to issues that

involved issues of cost vs. safety.100 The GM “tone at the top regarding safety,”

according to the Valukas Report, as is true in most company cultures, did not

consist of a specific management directive that could be tied to the decisions

made related to the ignition switch.101 Rather, the report concluded that there

was a general atmosphere that affected the decision process when cost-contain-

ment goals were in conflict with correct, but expensive, fixes in vehicles:

It is impossible to catalog all possible directives and management actions

that might generally have influenced how GM employees viewed their

roles and responsibilities. It is even more difficult to ascertain how the gen-

eral tone set by senior leadership affected specific decisions made by indi-

viduals. Where individuals referenced specific management directives as

the cause of their actions, we have identified them. In most circumstances,

however, we could not ascribe a particular management action or policy

96 Id. at 1-3 (internal citations omitted). 97 VALUKAS REPORT, supra note 61at 1. 98 Id. at 5; see also Jeff Bennett, GM Report To Address Missteps, WALL ST. J., June 2,

2014, at B1; Bill Vlasic, G.M. Inquiry Cites Years of Neglect Over Fatal Defect, N.Y. TIMES

(June 5, 2014), http://www.nytimes.com/2014/06/06/business/gm-ignition-switch-internal-

recall-investigation-report.html?_r=0 [http://perma.cc/SA5H-5WQC]. 99 VALUKAS REPORT, supra note 61at 2. 100 Id. at 252. 101 Id. at 248-49.

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directive from a senior executive as the reason for any specific action.102

However, the employees did repeat mantras during the course of the Valukas

investigation that seem contradictory: “Repeated throughout the interview pro-

cess we heard from GM personnel two somewhat different directives – ‘when

safety is at issue, cost is irrelevant’ and ‘cost is everything.’ It is worth examin-

ing how those two messages collided.”103

Prior to the release of the report, GM CEO Mary Barra had acknowledged

that there was a cultural problem at GM.104 Ms. Barra, at the time of the recalls,

issued a statement that included, “Something went very wrong in our processes

in this instance, and terrible things happened.”105 In her congressional testimony,

Ms. Barra said that GM had been operating under a “cost culture,” but that it

was now changing to a “customer culture.”106 The Valukas report documents

both a safety culture and a cost culture:

GM personnel were quite consistent in saying that they understood that

safety was a critical priority and that, if they identified a safety problem,

cost should not be a factor in deciding whether and how to address the

safety problem. For example, a senior manager in Accessories Engineering

said that safety is the top pillar at GM. Training material and directives that

have been located for FPE process for reviewing safety issues, make no

references to cost-benefit analyses.107

Despite the seeming on paper clarity on the concepts of safety controls, the

actions GM actually took on safety were counterintuitive. The key to under-

standing the duplicity in the culture was another aspect of GM operations: a

longstanding inability to have safety and design issues raised from lower levels

in the organization when there was concern or a dispute in order to obtain proper

resolution.108 At the time of the recalls, Ms. Barra set up an internal probe into

how the company failed to issue a recall until 10 years after the first e-mail in-

dicated a problem with the ignition.109 “I asked our team to redouble efforts on

102 Id. 103 Id. at 249. 104 See Examining the GM Recall and NHTSA’S Defect Investigation Process: Hearing

Before the Subcomm. On Consumer Protection, Product Safety, and Insurance of the S.

Comm. on Commerce, Science, and Transportation, 113th Cong. (2014) (statement of Mary

Barra, Chief Executive Officer, General Motors) (observing that “we have done several things

since the bankruptcy to create a new culture at General Motors). 105 See Bill Vlasic & Christopher Jensen, Something Went ‘Very Wrong’ at G.M., Chief

Says, N.Y. TIMES, Mar. 17, 2014, at B1. 106 Id. 107 VALUKAS REPORT, supra note 61, at 249. 108 Id. at 252. 109 James R. Healy, GM CEO Admits Recall Tardy, USA TODAY (Mar. 19, 2014, 9:20

PM), http://usatoday30.usatoday.com/MONEY/usaedition/2014-03-19-GM-CEO-Admits-

recall-tardy-wont-promise-liability_ST_U.htm [http://perma.cc/XPE2-V2BJ].

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pending product reviews, bring them forward, and resolve them quickly.”110 In

a press conference she added, “‘Clearly this took too long.’ . . . ‘We will fix our

process.’”111 However, the fix had eluded the auto giant for decades. Even 25

years ago when Ross Perot served on the GM board, he observed,

If you see a snake, you kill it. At GM, if you see a snake, the first thing you

do is go hire a consultant on snakes. Then you get a committee on snakes,

and then you discuss it for a couple of years. The most likely course of

action is—nothing. You figure, the snake hasn’t bitten anybody yet, so you

just let him crawl around on the factory floor. We need to build an envi-

ronment where the first guy who sees the snake kills it.112

The Valukas Report even documents the desperate pleas of those within GM

to get employees to raise issues. In a May 2004 ‘FPE Sensitivity and TREAD

Training’ presentation by Kevin Williams, GM North America Vice President

of Quality, employees were told:

The harsh reality is – we are competing in a new world, one that demands

a culture where there is no tolerance for defects at any point during in [sic]

the vehicle development and manufacturing process. Because the market-

place has zero tolerance for defects, this organization will have no tolerance

for defects. If I sound alarmed, I am . . . . You must also become gatekeep-

ers of quality. Consider every issue a potential defect and risk to the cus-

tomer. I like to say “stand in front of the train”. Stop the problems from

flowing downstream! If, despite your best efforts, you cannot stop a prob-

lem, your next action is to . . . escalate the issue up to someone who can.

We have escalation systems in place for this very reason so don’t hesitate

to use them.113

The ignition switch was an illustration that the efforts to get information from

employees who were aware of problems to those who could and would do some-

thing were not taking hold. Ms. Barra has been with GM since she was 18 (1979)

and climbed the ranks to the CEO position.114 She has consistently maintained

that she knew nothing about the switch problem until December 2013 or January

2014 and took swift action once she was aware of the issue.115 Yet the issue was

writhing and percolating in the lower ranks of the company. Following an inter-

nal investigation, Ray DiGiorgio, the engineer who approved the parts switch

without changes and notification, was placed on unpaid leave and was ultimately

110 Vlasic & Jensen, supra note 105, at B1, B2. 111 Healy, supra note 109. 112 Thomas Moore, The GM System is Like a Blanket of Fog, FORTUNE (Feb. 15, 1988),

http://money.cnn.com/magazines/fortune/fortune_archive/1988/02/15/70199/

[http://perma.cc/QZ8B-JAT2]. 113 VALUKAS REPORT, supra note 61, at 249. 114 Cong. Hearings, supra note 104. 115 Jeff Bennett, GM Executive Who Was Involved in Recall Exits, WALL ST. J., May 6,

2014, at B3.

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fired in June 2014.116 An anonymous executive described DiGiorgio as a “tiny

cog in a massive machine,”117 further describing the cog-culture as one where

“You stay in your box and you do your job. And you don’t let anyone else into

your box.”118 Likewise, following the Valukas investigation, other engineers

were terminated because of awareness of the problem: Jim Federico, chief engi-

neer for small cars and electric vehicles, retired after thirty-six years at GM, and

John Calabrese, head of the product development division, retired after thirty-

three years at the company.119

The top executive team has been referred to as “insulated from many of the

company’s inner workings, including active safety reviews.”120 The report also

indicates that this insular atmosphere was possible because of the creation of so

many committees within the company.121 There was a recall committee, a safety

committee, a design committee, and a host of other groups that dealt with inter-

division issues after divisions had dealt with them.122 The end result was a slow-

moving culture caught up in processes. GM’s internal report indicated that GM

knew enough about the switches to issue a recall years before one was actually

issued.123 Ironically, however, the perspective of the employees was that by

withholding information they were doing their jobs.124 In one of his post-em-

ployment interviews, Mr. DiGiorgio justified his actions in a way that reflects

the appropriateness of his decisions, “All I can say is that I did my job. I didn’t

lie, cheat, or steal. I did my job the best I could.”125

Financial Times reporter Gillian Tett contends that “Many large organizations are divided, and then subdivided into numerous different departments, which

often fail to talk to each other – let alone collaborate. People often live in sepa-

rate mental and social ‘ghettos’ talking and coexisting only with [highly similar]

people.”126 Tett describes this widely observed organizational fragmentation by

using a “silo” metaphor by observing that “Silos breed tribalism. But they can

116 Vlasic, supra note 58. 117 Id. at B2. 118 Id. at B1. 119 Bennett, supra note 115, at B3. 120 Bill Vlasic, G.M. Recall, and a Decade of Inaction, Present an Early Trial for Its New

Chief, N.Y. TIMES, Mar. 8, 2014, B1, B2. 121 Id. 122 See generally VALUKAS REPORT, supra note 61. 123 See Geoff Colvin, Mary Barra’s (Unexpected) Opportunity, FORTUNE (Sept. 18. ,

2014), http://fortune.com/2014/09/18/mary-barra-general-motors/ [https://perma.cc/6ME8-

F3GE]. 124 See Vlasic, supra note 58. 125 Id. (Mr. DiGiorgio denied in a 2013 deposition that he authorized the 2006 switch

change. E-mails contradict that assertion. He had, however, asked the GM safety committee

in 2005 to change the switch, but the request was denied). 126 GILLIAN TETT, THE SILO EFFECT: THE PERIL OF EXPERTISE AND THE PROMISE OF

BREAKING DOWN BARRIERS 13 (2015).

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also go hand and hand with tunnel vision.”127

In addition to the cultural practice of keeping information within “your box,”

there was, at the time of the evolving ignition switch issues, a culture of cost-

cutting.128 The Valukas report describes the cost culture in detail:

. . . [T]he 2000s was a time of extraordinary cost-cutting at GM. The mes-

sages from top leadership at GM – both to employees and to the outside

world – as well as their actions were focused on the need to control costs.

We heard repeatedly from GM personnel about the focus on cost-cutting

and the problems it caused. For example, an engineer stated that an empha-

sis on cost control at GM “permeates the fabric of the whole culture.”

Cost-cutting impacted all aspects of the business. Keeping projects on

time – because of the impact on cost – became a paramount concern. One

witness expressed concern that the cost- and time-cutting principles known

as the ‘Big Four’ emphasized timing over quality. Those principles were

introduced to GM in the early 2000s.

Those responsible for a vehicle were responsible for its cost, but if

they wanted to make a change that incurred cost and affected other vehi-

cles, they also became responsible for the costs incurred in the other vehi-

cles.

Reductions in staff, especially in Engineering, meant that employees

were forced to do more with less. In the time leading up to the bankruptcy,

one cost-cutting measure was to decrease the Engineering headcount by

adding to the responsibilities of the Design Release Engineer . . . . Wit-

nesses stated that the reduction in force created a difficult environment in

which people were overworked and the quality of work suffered.

The cost-cutting naturally flowed through to suppliers. One cost-cut-

ting measure in the time leading up to GM’s bankruptcy was to source parts

routinely to the lowest bidder, even if they were not the highest quality

parts.129

As is the case in most culture reports by attorneys, the conclusion reached is

one of ‘no direct evidence.’ Both management and the board tend to relax when

such reports come in, ignoring the findings and the need to address the cultural

issues that are uncovered that do not result in legal liability. With class-action

liability issues pending, the conclusions of the report are not surprising, but they

are also not instructive. Legal investigations commissioned by companies do not

reach conclusions as explicit as “employees made an explicit trade-off between

safety and cost.” However, what legal reports miss in their zeal to reach the “no

intentional misconduct here” conclusion is the impact of cost pressures and low-

level silence on issues arising or being debated. The result of the cost and silence

127 Id. 128 VALUKAS REPORT, supra note 61, at 249-51. 129 Id.

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pressures within any organization is not an intentional choice between cost and

safety.130 Rather, the effect is based in psychological tendencies.131 There is an

introduction of error into the decision process that may be unwitting, but is real.

Pressures such as cost and silence result in a diagnosis bias.132 Diagnosis bias is

an unintentional psychological force that causes engineers and others to mini-

mize situational risk.133 For example, the Valukas report includes the following

observation:

To be sure, the Cobalt engineers working in the 2004-2006 time frame

rejected various fixes to the moving stall issue because there was “no ac-

ceptable business case,” but those engineers’ error was that they failed to

understand the connection to airbags and the safety issue that they were

facing. Having wrongly identified the issue as a customer convenience is-

sue, cost considerations that would otherwise have been immaterial became

part of their calculus.

That noted, we cannot conclude that the atmosphere of cost-cutting

had no impact on the failure of GM to resolve these issues earlier . . . GM

was under tremendous cost pressure . . . . Engineers did not believe that

they had extra funds to spend on product improvements. Staff was cut dra-

matically. . . .

When belts are tightened, most functions are impacted in some way,

and we cannot assume that safety was immune.134

The GM switch issue is not the first time diagnosis bias has impacted the

ability of those within an organization to see the risks and impact of their deci-

sions. For example, in 2007, Toyota did an internal presentation in which it an-

nounced that it had saved $100 million by negotiating an equipment recall of

floor mats with its regulator, the NHTSA, as a solution for what was causing

what customers were describing as a “sudden acceleration” problem.135 The in-

formation was presented as “Wins for Toyota.”136 Four days later, there was an-

other accident and the floor mats had been recently removed from the car.137

Toyota’s goal was to ‘solve’ the problem, even if the root cause had not truly

been identified. The zeal to put the issue behind induces diagnosis bias, a false

feeling of euphoria characterized by statements such as, I think we have this

130 David M. Messick & Max H. Bazerman, Ethical Leadership and the Psychology of

Decision Making, 37 SLOAN MGMT. REV. 9 (1996). 131 Id. 132 See id. 133 For a discussion of diagnosis bias, see Messick & Bazerman, supra note 130, at 9. 134 VALUKAS REPORT, supra note 61, at 251-2. 135 Kate Linebaugh, Dionne Searcey & Norihiko Shirouzu, Secretive Culture Led Toyota

Astray, WALL ST. J., Feb. 10, 2010, at A1, A6. 136 See Neil Kink & Josh Mitchell, Toyota Document Hails Limited Recalls, WALL ST. J.,

Feb. 20, 2010, at B1. 137 Id.

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solved now. The operative word is think because the desire is to have it solved. The character of the internal Toyota document illustrates how diagnosis bias

controls in cost and pressure cultures: “The document cites millions of dollars

in other savings by delaying safety regulations, avoiding defect investigations

and slowing down other industry requirements.”138

Legal analyses of cultures touch briefly on the decision-making process, but

fail to recognize the impact of the cultural forces on the efficacy of that process.

For example, those involved in these decisions ignore or discount the possibility

that the public will find out. The question that is not asked is, What would the reaction be if this decision and the reasons for it were made public?139 The his- tory of business in the United States is full of examples of companies in which

the analysis of risk was skewed because of the simple failure to ask this question.

For example, Johns Manville made the decision to quietly settle asbestos-related

claims by those who were experiencing health issues rather than recall the prod-

uct, provide warnings on the product, or disclose the risks.140

Also, in these decision-processes in cultures of pressure, diagnosis bias does

not allow for accurate assessment of costs and collective outcomes. When E.F.

Hutton managers made the decision to engage in check-kiting in order to in-

crease the amount of funds under management they were thinking of incentives,

goals, and performance.141 They were not thinking of the non-Excel spread-sheet

types of costs such as the loss of reputation.

Psychologically, humans respond to the pressures and pain in the present, not

the future and non-quantifiable costs that accompany poor risk decisions.142

When Volkswagen engineers made the decision to install emissions test defeat-

ing software in the company’s diesel vehicles, they were responding to several

pressures. The overarching pressure was the goal of the then-CEO to be the num-

ber one car company in the world.143 When you are an also-ran at the time the

138 Toyota Boasted of Saving $100 Million on Recall, TAMPA BAY TIMES, Feb. 21, 2010,

http://www.tampabay.com/incoming/documents-toyota-boasted-of-saving-100-million-on-

recall/1074908 [https://perma.cc/SG7D-CZ78]. 139 Messick & Bazerman, supra note 130, at 10. 140 See Marianna S. Smith, Resolving Asbestos Claims: The Manville Personal Injury Set-

tlement Trust, 53 LAW & CONTEMP. PROBS. 27, 29 (1990); see also Lester Brickman, Ethical

Issues in Asbestos Litigation, 33 HOFSTRA L. REV. 833 (2005); David Partlett, Asbestos Wars:

In Three Parts, 71 WASH. & LEE L. REV. 759 (2014); Bill Sells, What Asbestos Taught Me

About Managing Risk, HARV. BUS. REV. (Mar.-Apr. 1994); Jane Stapleton, Factual Causation

and Asbestos Cancers, 126 L. Q. REV. 351 (2010). 141 Alex Beam & Richard Fly, Why the E.F. Hutton Scandal May Be Far From Over, BUS.

WEEK, Feb. 24, 1986, at 96-97. 142 Messick & Bazerman, supra note 132, at 11. 143 See Joann Muller, How Volkswagen Will Rule the World, FORBES (April 17, 2013, 9:00

AM), http://www.forbes.com/sites/joannmuller/2013/04/17/volkswagens-mission-to-domi-

nate-global-auto-industry-gets-noticeably-harder/ [https://perma.cc/Q2CS-WUC5]; see also

Eugenio J. Miravete, Maria J. Moral, & Jeff Thurk, Innovation, Emissions Policy, and Com-

petitive Advantage in the Diffusion of European Diesel Automobiles, (unpublished paper) (on

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goal is set, the pressure to produce and sell cars sets in and affects judgment. In

making the decision to simply get the fuel-efficient and “clean” diesel cars out

there, the engineers missed the non-quantifiable costs not as obvious to those

responding to pressure. For Volkswagen, the discovery of the emissions defeat-

ing devices has resulted in the following costs: 1) VW having to offer significant

discounts and incentives to entice buyers post-emissions scandal;144 2) a drop of

34% in the share price;145 and 3) a set-aside of over $7 billion to cover the ex-

pected cost of bringing current vehicles into compliance.146

In addition to the impact of diagnosis bias in cultures affected by pressure and

silence, there is the additional issue of self-deception caused by the way issues

are framed. If an issue is framed in terms of shutting down plants and losing

jobs, those involved are likely to undertake more risks.147 In this case, remaining

silent seems to be the correct decision, or at least the palatable one at that pres-

sure point.148 The logic we can survive a delay in a new design does not percolate into the thought processes. Nor does the reality but we can’t survive the recall of millions of vehicles, multi-billion dollar penalties for EPA violations, and loss of sales creep into the picture. Those under organizational pressure underesti- mate negative outcomes and they self-assure, It will be fine in the name of serv- ing the organization, to wit, “I did my job.”

The GM congressional hearings revealed problems with both the framing of

issues as well as diagnosis bias in the ignition switch issues. Those problems in

analysis along with the box atmosphere meant that full understanding of the

scope of the ignition problems and their potential costs were not present at GM.

Fred Upton, Chairman of the House Committee on Energy and Commerce noted

during the GM switch hearings:

Our investigation tracks with the findings of the report: a maddening and

deadly breakdown over a decade plagued by missed opportunities and dis-

connects. Engineers didn’t comprehend how their cars operated or how ve-

hicle systems were linked together. The company believed a car that stalled

file with authors). 144 See David Welch, VW Discounts Almost Double U.S. Average After Cheating Scandal,

BLOOMBERG (Oct. 21, 2015, 1:40 PM), http://www.bloomberg.com/news/articles/2015-10-

21/vw-offers-deals-to-prop-up-u-s-sales-after-emissions-scandal [https://perma.cc/AA2R-

3LZG]. 145 Danny Hakim, Aaron M. Kessler & Jack Ewing, As Volkswagen Pushed to Be No. 1,

Ambitions Fueled a Scandal, N.Y. TIMES (Sept. 26, 2015), http://www.ny-

times.com/2015/09/27/business/as-vw-pushed-to-be-no-1-ambitions-fueled-a-scandal.html

[https://perma.cc/3BBE-EK4Q]. 146 Karl Russell, Guilbert Gates, Josh Keller & Derek Watkins, How Volkswagen Got

Away With Diesel Deception, N.Y. TIMES (Nov. 25, 2015), http://www.nytimes.com/interac-

tive/2015/business/international/vw-diesel-emissions-scandal-explained.html

[https://perma.cc/W5GD-KXQK]. 147 See Messick & Bazerman, supra note 132, at 13-14. 148 Id.

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while driving wasn’t necessarily a safety concern. Investigators let investi-

gations drift for years despite having proof right before their eyes that an

airbag system wasn’t deploying when it should have. And all of this existed

in a bureaucratic culture where employees avoided taking responsibility

with a nod of the head.149

In cultures such as GM, intellectual curiosity departs with pressure, and the

search for facts, the questioning attitude, and communication suffer because

keeping the issue below the radar is the goal and perceived desire of the culture.

In business ethics, the saying, “The first whale to the surface always gets har-

pooned” is a summary of a culture such as GM’s. Employees never want to be

the bearers of bad news. For example, the congressional hearings served to con-

nect the dots of failures of curiosity and questioning attitude. Despite customer

complaints and reports from GM’s own engineers, it took GM until 2009 to re-

alize that the airbags had any connection to the power mode status of the car.150

The company would take yet another four years to link that finding to the igni-

tion switch, one of the components that determines the power mode.151 The

source of this discovery was not internal.152 Rather, the information came to light

during the course of a lawsuit brought by the family of a young woman who died

because of an ignition failure in her Cobalt.153 “An investigator for the family

simply took two ignition switches apart and compared them – something that

GM failed to do during the over seven years of investigations into the mystery

of Cobalt airbag non-deployments.”154

In these cultures, the decision-making process simply does not see the poten-

tial costs of the risks that are being discounted, ignored, or postponed through a

non-questioning attitude. GM is not the first company to experience the conse-

quences of cultural context resulting in poor decisions that are made by employ-

ees who believe that they are making good ones. For example, BP is still grap-

pling with the costs and clean-up from the explosion of its Deepwater Horizon

149 The GM Ignition Switch Recall: Investigation Update: Hearing Before the Subcom-

mittee on Oversight and Investigations, 113th Cong. (2014) (Opening Statement of the Hon-

orable Fred Upton, Chairman, Committee on Energy and Commerce), http://ener-

gycommerce.house.gov/hearing/the-gm-ignition-switch-recall-investigation-update

[https://perma.cc/MZ2K-FBQJ]. 150 The GM Ignition Switch Recall: Investigation Update: Hearing Before the Subcom-

mittee on Oversight and Investigations, 113th Cong. (2014) (statement of the Hon. Tim Mur-

phy, Chairman, Subcommittee on Oversight and Investigations), http://ener-

gycommerce.house.gov/sites/republicans.energycommerce.house.gov/files/Hearings/OI/201

40618/HHRG-113-IF02-MState-M001151-20140618.pdf [https://perma.cc/483P-QN24]. 151 Id. 152 Id. 153 Id. 154 Id.

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rig in the Gulf of Mexico. Who would have made the decision to undertake bil-

lions in cost and years of clean-up?155 Given BP’s culture at the time, that deci-

sion is not surprising.

There were critical points in BP’s construction of Deepwater Horizon where

decisions were made on the basis of quicker, faster, and cheaper rather than on

the basis of safety, long-term production, and industry standards.156 For exam-

ple, BP chose the far riskier single line for Deepwater Horizon, a decision that

others in the industry have testified was not appropriate for a well that deep.157

The risk was far too great in terms of its failure rate as well as the accumulation

of gas around such a single line.158 The design posed a safety risk for those who

worked on the rig.159 E-mails uncovered for BP’s congressional hearings reveal

that engineers who requested 10 additional critical path hours to install 21 cen-

tralizers instead of just six were dismissed by the lead engineer with “I do not

like this.”160 Once the well was in operation, the decisions workers made exac-

erbated the design problems. For example, on the day of the explosion the em-

ployees focused on keeping the well going, not on the risk that continued oper-

ations posed.161 BP employees framed the issue in the context of the importance

of keeping the well going.162

GM followed a similar process in a living-in-denial mode despite increasing

evidence of problems. As the earlier history recounted, evidence continued to

mount that there were problems with the ignition. Yet, decisions were made to

continue production, substitute switches, and keep it all silent. By late May 2014,

GM knew of a certainty that there were at least 13 who had died as a result of an

155 See Lawrence J. Trautman, The Board’s Responsibility for Crisis Governance (2015)

(unpublished manuscript), http://ssrn.com/abstract=2623219 [https://perma.cc/5GVG-

4ZAN]. See also Press Release, U.S. Department of Justice, Attorney General Loretta E.

Lynch Delivers Remarks at Press Conference Announcing Settlement with BP to Resolve

Civil Claims Over Deepwater Horizon Oil Spill (Oct. 5, 2015), http://www.jus-

tice.gov/opa/speech/attorney-general-loretta-e-lynch-delivers-remarks-press-conference-an-

nouncing-settlement [https://perma.cc/WMY2-EXZZ]; Press Release, U.S. Department of

Justice, U.S. and Five Gulf States Reach Historic Settlement with BP to Resolve Civil Lawsuit

Over Deepwater Horizon Oil Spill (Oct. 5, 2015), http://www.justice.gov/opa/pr/us-and-five-

gulf-states-reach-historic-settlement-bp-resolve-civil-lawsuit-over-deepwater

[https://perma.cc/5FHU-XA5L]. 156 See Ben Casselman & Russell Gold, Unusual Decisions Set Stage for BP Disaster,

WALL ST. J., May 27, 2010 at A1, A6 (telling the story of the practices and decisions at BP

that lead to the Deepwater Horizon crisis). 157 Id. 158 Id. 159 Id. 160 See Neil King Jr. & Russell Gold, BP Crew Focused on Costs: Congress, WALL ST.

J., June 15, 2010, at A1, A5. 161 Russell Gold & Neil King, Jr., Rig Ignored Red Flags, WALL ST. J., May 13, 2010, at

A1, A6. 162 Id.

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apparent cover-up of a defect, known to exist for over a decade.163 What was not

realized, as yet, by leadership at GM, was who knew what, when, and the extent

to which management and the board of a great American enterprise may have

been complicit. Who makes a decision to risk 80 civil lawsuits related to GM’s

ignition switch failure that seek alleged “economic damages, such as repair costs

and declines in resale value on about 2.6 million cars recalled since February”

2014?164 These decisions were made at GM and BP (and other companies) be-

cause of employee perceptions about priorities in their leadership teams.

IV. CONFRONTATION WITH CONGRESS

As observed previously, the automotive industry and highway safety has been

the subject of various legislation and numerous Congressional hearings over the

years.165 On April 1, 2014, the U.S. House Energy & Commerce Committee

heard GM’s Mary Barra and David Friedman, Acting Administrator of the

NHTSA, testify on the subject “The GM Ignition Switch Recall: Why Did It

Take So Long?”166 Mary Barra appeared again, this time with Attorney Anton

Valukas, before the U.S. House Energy & Commerce Committee’s hearings ti-

tled “The GM Ignition Switch Recall: Investigation Update” on June 18,

2014.167 During 2014, the Senate Committee on Commerce, Science, and Trans-

portation “held two hearings to examine the GM ignition switch recalls (on April

163 Mike Ramsey & Jeff Bennett, GM Death Toll Likely to Rise, WALL ST. J., May 28,

2014, at B2. 164 Ashby Jones, Plaintiffs’ Lawyers Take Aim at GM for Recall, WALL ST. J., June 9,

2014, at A1. See also Jeff Bennett, New Set of GM Recalls Involves Pickups, SUVs, WALL ST.

J., June 9, 2014, at B3; Jeff Bennett, Lawyers Plot Attack Against GM, WALL ST. J., May 29,

2014, at B1; Mike Spector & Vanessa O’Connell, Lawyers Race GM to Find Black Boxes,

WALL ST. J., June 12, 2014 at A1. 165 Congress Studies Automotive Industry, Related Issues, 24 CONG. Q. ALMANAC 681

(1968), https://library.cqpress.com/cqalmanac/document.php?id=cqal68-1282094

[https://perma.cc/T8UH-KGKT] (listing Congressional actions around automotive and high-

way safety). See generally Air Bags, Car Seats and Child Safety: Hearing Before the House

Subcomm on Telecommunications, Trade, and Consumer Protection of the Comm. on Com-

merce, 105th Cong. (1997); The Recent Firestone Recall Action, Focusing on the Action As

It Pertains To Relevant Ford Vehicles: Hearing Before the H. Subcomm. on Telecommunica-

tions, Trade and Consumer Protection, and the H. Subcomm. on Oversight and Investigations

of the Comm. on Commerce, 106th Cong. (2000). 166 See Staff Report on the GM Ignition Switch Recall: Review of NHTSA, H. Comm. on

Energy & Commerce, 113th Cong. 1, 6 (2014), http://energycommerce.house.gov/sites/repub-

licans.energycommerce.house.gov/files/Hear-

ings/OI/20140915GMFootnotes/NHTSAreportfinal.pdf [https://perma.cc/8RFD-9LFG]. See

also Press Release, General Motors, CEO Mary Barra’s Written Congressional Testimony

Now Available (Mar. 31, 2014), http://media.gm.com/media/us/en/gm/news.detail.html/con-

tent/Pages/news/us/en/2014/mar/0331-barra-written-testimony.html [https://perma.cc/FP92-

VVVG]. 167 The GM Ignition Switch Recall: Investigation Update: Hearing Before H. Energy &

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2, 2014 and July 17, 2014) and one hearing on general NHTSA oversight on

September 16, 2014.”168 On January 29, 2015, during the 114th Congress,

“Chairman Thune reintroduced S. 304, the Motor Vehicle Safety Whistleblower

Act, which was referred to the Committee on Commerce, Science, and Trans-

portation.169 By the time GM got to Congress during 2014, the cultural issues at

GM had become clear.170 Chairman Upton noted that “A culture that allowed

safety problems to fester for years will be hard to change, but if GM is going to

recover and regain the public’s trust, it has to learn from this report and break

the patterns that led to this unimaginable systemic breakdown.”171

V. WHAT GM HAS DONE

A. The GM Code of Ethics: General Content

GM epitomizes what is known as a dashboard company. Every best-practice-

shoe-box governance tool is present, including a code of ethics. Recall from our

previous discussion that the Valukas Report found a prominent and recurring

theme of GM’s failure of leadership and culture.172 GM’s most recent proxy

statement details that the Company has “adopted a code of ethics that applies to

[its] directors, officers, and employees, including the CEO, the Executive Vice

President and Chief Financial Officer, the Vice President, Controller and Chief

Accounting Officer, and any other persons performing similar functions.”173

While the seventeen page booklet, Winning with Integrity: Our Values and

Commerce Comm., 113th Cong. (2014), http://energycommerce.house.gov/hearing/the-gm-

ignition-switch-recall-investigation-update [https://perma.cc/D5CS-7PGV]. See also Jeff Gil-

bert, Congress Schedules a Return Appearance for GM CEO Mary Barra, CBS DETROIT (June

11, 2014), http://detroit.cbslocal.com/2014/06/11/congress-schedules-a-return-appearance-

for-gm-ceo-mary-barra/ [https://perma.cc/XDJ5-5GRW]. 168 See S. REP. NO. 114-13, at 3 (2015). See also Hilary Stout & Aaron M. Kessler, Sena-

tors Take Auto Agency to Task Over G.M. Recall, N.Y. TIMES (Sept. 16, 2014),

[https://perma.cc/B2BQ-DDZ7] (giving an overview of the tone and happenings at the hear-

ing). 169 See S. REP. NO. 114-13, at 3 (2015). 170 See The GM Ignition Switch Recall: Investigation Update: Hearing Before the Sub-

committee on Oversight and Investigations, 113th Cong. (2014) (statement of the Hon. Fred

Upton, Chairman, Committee on Energy and Commerce, Subcommittee on Oversight and

Investigations), https://energycommerce.house.gov/hearings-and-votes/hearings/gm-igni-

tion-switch-recall-investigation-update [https://perma.cc/2ZTH-2HED]. 171 Id. 172 See generally VALUKAS REPORT, supra note 61. 173 General Motors Company, Proxy Statement (Form 14A) at 21 (Apr. 25, 2014),

https://www.sec.gov/Archives/ed-

gar/data/1467858/000146785814000130/gm_2014xdef14a.htm [https://perma.cc/3JL8-

8CA7].

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Guidelines for Employee Conduct (Code of Ethics), does not lend itself to repro- duction in full, here is an account of major issues addressed. Following a trans-

mittal letter from CEO Mary Barra, Winning with Integrity notes that this code of conduct “applies to all staffs, divisions, and subsidiaries of GM . . . in which

GM, directly or indirectly, owns more than 50 percent of the equity interest or

which GM otherwise controls . . . [and] applies to consultants, agents, sales rep-

resentatives, distributors, independent contractors, and contract workers . . .

when they act on behalf of GM.”174 The GM Code of Ethics emphasizes key

concepts such as “Personal Integrity,” by stating, “[n]othing is more fundamen-

tal to Winning with Integrity than taking personal responsibility for our actions.

It is imperative that we all comply with the legal obligations and policies de-

scribed in GM’s Code of Conduct.”175

The code makes the mistakes of a novice. The code is labeled a “code of eth-

ics” and then switches to the term “integrity” and all without definitions to ex-

plain the difference. In addition, the quote from the previous paragraph indicates

the intent to “comply . . . with legal obligations and policies . . . in [the] Code.”

Given that this is a company that has just been through a national shock wave

and paid a $900 million criminal fine, some introductory words about intent and

purpose might be helpful.176 Peter Drucker’s classic, primum non nocere (roughly translated as, don’t hurt anybody) would be a good starting point before diving into the legal compliance.177

B. GM’s Code Addressing “Speaking Up”

One of GM’s goals in its code is to emphasize the importance of employees

speaking up when they see misconduct, ironically expanding on the general no-

tion of integrity:

174 GENERAL MOTORS COMPANY, WINNING WITH INTEGRITY: OUR VALUES AND

GUIDELINES FOR EMPLOYEE CONDUCT, GUIDELINES FOR EMPLOYEE CONDUCT 4 (2015),

http://www.gm.com/con-

tent/dam/gmcom/COMPANY/Investors/Corporate_Governance/PDFs/WWI.pdf

[https://perma.cc/B7ET-HZLZ]. See also Reyes Calderón, Ignacio Ferrero & Dulce Redin,

Ethical Codes and Corporate Responsibility of the Most Admired Companies of the World:

Toward a Third Generation Ethics?, 14 BERKLEY BUS. & POL. 1 (2012) (suggesting that the

codes of ethics of the 2009 Most Admired Companies of the World are still governed by

traditional norms related to immediate economic success, normative compliance, internal

management and the pressing effects of their sector and that the philosophy of corporate re-

sponsibility, CSR, is scarcely found in the codes of those companies thought to be most rep-

utable). 175 See WINNING WITH INTEGRITY, supra note 174, at 5. 176 See id. 177 See MARIANNE JENNINGS, BUSINESS ETHICS: CASE STUDIES AND SELECTED READINGS

29 (7th ed. 2012); see also Drucker Institute, Above All, Do No Harm, DRUCKER INSTITUTE

(Oct. 31, 2010), http://www.druckerinstitute.com/link/above-all-do-no-harm/

[https://perma.cc/TP2J-WN2Y].

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It is also important to voice concerns when we believe the law, or GM pol-

icies, are not being observed. General Motors is committed to maintaining

a culture that promotes the prevention, detection and resolution of miscon-

duct. Each employee has an obligation to report potential misconduct. Ex-

amples of misconduct may include fraud, theft, workplace violence, dis-

crimination, harassment, misuse of company resources, conflicts of

interest, information breaches, improper accounting controls or purchasing

arrangements, and other unethical behaviors. In cases where an individual

is uncomfortable reporting through established internal channels, reports

can be made using the Awareline.178

One of the important things to note about the content of GM’s language regard-

ing speaking up is that the focus is on employee conduct, not employee decisions

or safety processes. Would the addition of “safety” have helped to emphasize

that decisions that affected safety mattered as much to GM as its focus on har-

assment or discrimination? Ironically, GM had specific policies on speaking up

– explicit protections for those who raise issues.179 The problem is that it was

not clear from either the list of misconduct or the following non-retaliation pol-

icy that employees were protected when they raised questions about products

and product designs and safety.

Speak Up!, GM’s Non-Retaliation Policy, is intended to protect GM em-

ployees from retaliation as a result of raising concerns in good faith. If you

believe that you have been retaliated against or witnessed retaliation

against another in violation of this policy, you should immediately report

such concerns to your supervisor, HR contact, Legal Staff contact, or local

leadership.180

The GM Code of Ethics addressed the types of generic ethical issues that can

occur in all companies, a state-of-the-art inclusiveness in covering all possibili-

ties of misconduct, save one; process and product decisions were not taking

safety and customer harm into account. The segments of the code on safety are

divided. There is a small segment of the code that provides, “Always observe

safety protocols.”181 There is then this more detailed portion of the code on

safety, included in the code after the recalls, penalties, and investigations:

Speak Up for Safety

At General Motors, we have an obligation to provide a safe work en-

vironment for every employee, contractor and visitor at every GM location.

We live values that are designed to return people home safely—every per-

son, every site, every day. Each day thousands of men and women leave

178 See WINNING WITH INTEGRITY, supra note 174, at 5. 179 Id. 180 Id. 181 Id. at 6.

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their families to do their best work for GM, and to create vehicles that peo-

ple love.

Additionally, all over the world, millions of people drive or ride in our

vehicles and they deserve the highest quality and safety when doing so.

No one function within GM owns safety – rather, safety is the respon-

sibility of every one of us.

. . .

Vehicle Safety

In addition to workplace safety, it is our job, every day, to produce

high-quality, safe vehicles for our customers. We all must be personally

responsible for safety and integrity in all that we do.

GM is rapidly strengthening its approach to vehicle safety, such as an

increased focus on system interactions and improvements in our analysis

and decision making processes. But process and analytics are not enough

– producing the safest cars for our customers requires active dialogue

within GM, with our suppliers, our dealers, our employees and manage-

ment. Identification, communication and escalation of potential safety is-

sues are required. Safety matters most. Always.182

The language in this new code indicates that GM has attempted to emphasize

process safety. But the language used is the same language that appeared previ-

ously that the investigations found in spades, but does not combine this emphasis

with a discussion of the reality of the costs pressures that employees reported.

The platitudes of vehicle safety in isolation do not address the reality of a culture

that has, since 1958, allowed cost pressures to prevent fixes and avoid public

disclosure. What GM faces at this point with this newly detailed section of its

code of ethics is a credibility crisis. Many have said similar things at the com-

pany for decades, but still the Corvair, the Malibu, and the Cobalt happened.

Neither the code nor its non-retaliation policy address consequences or what

failures in process safety looks like. In addition, the code does not address the

impact of poor decisions in terms of costs, recalls, possible criminal charges,

and reputation damage. Those who had the power to influence the outcome

would have been protected had they protested or voiced concern. However, they

failed to take action for over a decade. The following sections of the code are

indicative of a written philosophy committed to getting employees to speak up,

ask questions, and seek guidance:

Understanding the Rules

Because laws are complex and changing, good intentions are not always

enough to assure compliance. Every employee whose work is directly af-

fected by particular laws must understand the legal rules well enough to

spot problems and know when to get advice. Contact GM Legal with any

182 Id. at 6-7.

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questions about legal obligations that may affect your role.

Acting With Integrity When the Rules Seem Unclear

Not all situations are clear-cut, so good judgment is essential. Be alert to

warning signs: if a questionable proposal is defended as “doing whatever

it takes” or because “our competition does it” or “no one will ever know,”

chances are it needs to be reconsidered.

When in doubt about the right choice, ask yourself:

 Is it legal?

 Is it consistent with our values and policies?

 Would you be willing to be accountable for your actions?

DO

 Take personal responsibility for performing assignments consist- ently with GM policies and all applicable laws and regulations.

 Know the rules. Seek guidance from the Legal Staff or other sub- ject matter experts about laws and regulations relating to your

work.

 Notify your leadership or the Legal Staff if you have any doubts about whether an action is legal or violates GM policies.

DON’T

 Assume it’s acceptable to follow instructions that violate the law or GM policy.

 Assume someone else will correct a problem.

 Assume a questionable practice is legal just because it has been done by someone else.183

If you place these code sections in juxtaposition with the timeline of events

in the switch case, you can understand how employees at GM were perhaps af-

fected with a cynicism about the company’s devotion to ethics as they were wit-

nessing a failure of response, action, or report on all of the events leading to the

recalls and suits. The simple exercise of putting yourself in the shoes of the early

test drivers offers some feeling of how employees perceived the disconnect.

While the GM efforts on its code of ethics are necessary and admirable, codes

of ethics do not change culture. Codes of ethics are necessary, but they must be

read in the context of actual behavior. Drawing on BP once again, the company

had a culture in which on-the-surface observations presented a puzzling scenario

of ubiquitous safety messages surrounded by contradictory behaviors. All BP

facilities had reminders for employees to hold the banister whilst using stairs,

walk only in marked areas, and never walk with hot coffee.184 Employees who

183 Id. at 5. 184 Sarah Lyall, Clifford Kraus & Jad Mouawad, In BP’s Record, A History of Boldness

and Blunders, N.Y. TIMES, July 13, 2010, at A1, A14.

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drove on the job had to take defensive driving courses.185 Further, all employees

were reminded of their CEO’s singular message, “Safety is our first priority.”186

Indeed, at the time of the Deepwater Horizon explosion, BP was receiving safety

awards.187

BP developed a blind adherence to the standard type of industrial and occu-

pational safety programs. BP had bench-marked its safety program, right down

to the banisters and hot-coffee precautions. BP not only implemented the safety

program, but it was also measuring the impact of its safety program with the

usual forms of data tracking; reportable injuries, missed-work-day injuries,

etc.188 BP’s data on these factors marked them as a stellar performer.189 In fact,

Deepwater Horizon had been presented with an award by the U.S. government

for its safety record.190 BP was entitled to recognition for meeting their safety

goals, but there are problems with blind adherence to these dashboard types of

programs and measures of safety. These forms of safety programs and monitor-

ing do not provide managers with the information about far more risky safety

issues. BP was not measuring risk accurately. It was only measuring safety

events.

VI. WHAT GM NEEDS TO DO

Culture controls ethics. GM still faces the monumental task of having its com-

munication (through incentives, evaluations, bonuses, and promotions) become

consistent with the values stated in its code of ethics. Regardless of what happens

with the criminal investigation in the ignition switch matter, withholding infor-

mation about defects in your cars and products from regulators and customers is

not a close ethical call. Yet, as the facts emerge, we know now that many at GM,

including engineers, lawyers, and suppliers, agreed to remain silent about the

problem. How did so many people all willingly go along with something that we

look at today and wonder, What were they thinking? A company can have em- ployees with strong ethical principles and unassailable integrity, but put them in

a culture of costs or numbers, and we lose them, and, along with them, the com-

pany.191

185 Id. 186 Id. 187 See Mary Lide Parker, Out of Sight, Out of Mind, ENDEAVORS (July 8, 2013), http://en-

deavors.unc.edu/out_of_sight_out_of_mind [https://perma.cc/FD54-PT92]. 188 See Guy Chazen, Benoit Faucon, & Ben Casselman, Safety and Cost Drives Clashed

as CEO Hayward Remade BP, WALL ST. J., June 30, 2010, at A1. 189 See Mike Soraghan, Interior Rewrites History, Erases BP From List of Finalists for

Safety Award, N.Y. TIMES (July 7, 2010), http://www.ny-

times.com/gwire/2010/07/07/07greenwire-bp-was-finalist-for-federal-safety-award-at-ti-

72712.html [https://perma.cc/SNQ8-TZXG]. 190 Id. 191 See generally Michael C. Jensen, Paying People to Lie: The Truth About the Budgeting

Process, 9 EUR. FIN. MGMT. 379 (2003).

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The House Committee on Energy and Commerce, Subcommittee on Over-

sight and Investigation’s majority memorandum preceding its meeting of June

18, 2014 noted that one of the primary issues to be examined at the hearing is

“How did the culture and systemic problems that are identified in the Valukas

report develop at GM? What must be done to address these problems and when

will GM know if they have been successfully fixed?”192 Congressman Tim Mur-

phy expounded on the GM culture as a necessary area of focus going forward:

Even when a good law . . . is in place it requires people to use common

sense, value a moral code, and have a motivation driven by compassion for

it to be effective. Here the key people at GM seemed to lack all of these in

a way that underscores that we cannot legislate common sense, mandate

morality, nor litigate compassion. At some point, it’s up to the culture of

the company that has to go beyond paperwork and rules.

The failures at GM were ones of accountability and culture. If employ-

ees do not have the moral fiber to do the right thing, and do not have the

awareness to recognize when mistakes are being made, then the answer

must be to change the people or change the culture.193

Press reports point to the potential for rapid change in management culture at

GM, brought on by Congressional inquiry, lawsuits and substantial recall and

litigation expenses.194 The crisis seems to have allowed CEO Barra to “quickly

put her own stamp on management” by “naming new executives for engineering,

safety and communications.”195 Professors Erika Hayes James and Lynn Perry

Wooten warn that

[m]any organizational leaders have a laissez faire attitude toward the pos-

sibility of a crisis happening in their firm, despite the high probability that

every business leader and every organization will experience a crisis of

some significance. Consequently, leaders are underprepared not only for

“managing” crisis situations when they occur, but also – and more im-

portant – for leading organizations in turbulent times with a vision or ex-

pectation that they and their organizations can be positively transformed by

the experience.196

It appears that a new approach at GM of addressing issues in a straightforward

manner (if this proves to be the case) “represents a change at the top of GM – a

192 Memorandum from the U.S. House Committee on Energy and Commerce Majority

Staff to the Members of the Subcommittee on Oversight and Investigations (June 16, 2014),

http://docs.house.gov/meetings/IF/IF02/20140618/102345/HHRG-113-IF02-20140618-

SD002.pdf [https://perma.cc/2NZV-5HAU]. 193 Statement of Hon. Tim Murphy, supra note 150. 194 Jeff Bennett, At GM, Recall Is Catalyst for CEO, WALL ST. J., May 3, 2014, at B1. 195 Id. 196 Erika H. James & Lynn P. Wooten, Leadership in Turbulent Times: Competencies for

Thriving Amidst Crisis 2 (Darden Graduate Sch. Bus. Admin., Working Paper No. 04-04,

2004), http://ssrn.com/abstract=555966 [https://perma.cc/6TV2-U7SM].

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company that for years minimized the depth of its troubles. In 2008, then-CEO

Rick Wagoner repeatedly said a bankruptcy wouldn’t happen, up until he was

ousted and GM was ushered into a restructuring by the federal government.”197

CEO Barra has indicated that her intent is to recast GM’s corporate culture, one

that she characterizes as responsible for “a ‘pattern of incompetence and neglect’

in the auto maker’s 11-year failure to recall cars equipped with a defective igni-

tion switch.”198

Norman Bishara and Cindy Schipani observe that “[c]orruption, by its nature,

is secretive and, the costs of corruption are often hidden from plain view and

difficult to measure.199 While we can hope that the press adulations are accurate,

culture change is neither as easy nor as rapid as the press would lead us to be-

lieve. There are three simple facts about CEOs and senior leadership in their

companies: (1) the perception they have of their culture is usually not accurate;

(2) the information that they need to know about culture is not getting to them;

and (3) they could fix the culture if they realized both (1) and (2).

A. Pervasive Culture of Problem Denial/Avoidance

GM begins with deficits in Fact #2 (the information that CEOs and boards

need to know about culture is not getting to them). Unlike a cultural environment

that encourages and rewards employees for identifying problems and bringing

them to the attention of management quickly, the GM work environment appar-

ently offers “resistance or reluctance to raise issues or concerns.”200

The Valukas Report notes “if an employee tried to raise a safety issue five

years ago, the employee would get pushback. Mary Barra explained that prob-

lems occurred during a prior vehicle launch as a result of engineers being un-

willing to identify issues out of concern that it would delay the launch.”201 GM

employee concerns about “speaking up” and “fear of retaliation” are revealed by

a survey administered during 2013.202 The Valukas Report mentions that

While the survey comments were unconnected to safety questions, is-

sues of culture cannot be easily confined. Some witnesses provided exam-

ples where culture, atmosphere, and the response of supervisors may have

discouraged individuals from raising safety concerns, including, in a dif-

ferent context than the Cobalt, supervisors warning employees to “never

put anything above the company” and “never put the company at risk.” The

197 Bennett, supra note 194, at B1. 198 Jeff Bennett & Mike Ramsey, GM Takes Blame, Vows Culture Shift, WALL ST. J., June

6, 2014, at A1. 199 Norman D. Bishara & Cindy A. Schipani, Strengthening the Ties that Bind: Preventing

Corruption in the Executive Suite 8 (Ross Sch. Bus., Working Paper No. 1130, 2009),

http://ssrn.com/abstract=1444817 [https://perma.cc/CB6S-X959]. 200 VALUKAS REPORT, supra note 61, at 252. 201 Id. 202 Id.

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former Cobalt Brand Quality Manager said that he felt that GM “pushed

back” on describing something as a safety issue during a relevant time pe-

riod.

Whether general “cultural” issues are to blame is difficult to ascertain,

but the story of the Cobalt is one in which GM personnel failed to raise

significant issues to key decision-makers. Senior attorneys did not elevate

the issue within the Legal chain of command to the General Counsel – even

after receiving the [] evaluation in the summer of 2013 that warned of the

risk of punitive damages because of a “compelling[]” argument that GM

had “essentially . . . done nothing to correct the problem for the last nine

years.” Engineers, too, failed to elevate the issue. Starting in mid-2012,

there were three high-level managers brought in as “champions” . . . . The

very reason they were brought in was to help resolve an unexplained pat-

tern of airbag non-deployments in an expeditious manner. But they did not

elevate the issue to their superiors, and the common thread was to hold

more meetings and refer the matter to additional groups or committees.203

B. “Don’t Take Notes” & Careful What You Write

The Valukas Report documents not only a culture of silence, but also a culture

of concealment. The report reveals that “a number of GM employees reported

that they did not take notes at all at critical safety meetings because they believed

GM lawyers did not want such notes taken.”204 The tendency was documented

above in the discussion of the Malibu design, but also emerged in the Jenner &

Block investigation:

No witness was able to identify a lawyer who gave such an instruction, no

lawyer reported having given such an instruction, and we have found no

documents or e-mails reflecting such an instruction. The no-notes direc-

tion, however reached the status of an urban myth that was followed, an

instruction passed from GM employee to GM employee over the years.

Thus, as we learned in our investigation, for many meetings ̶ of GM’s

many committees ̶ there are no clear records of attendance or of what was

discussed or decided.205

The dangerous aversion to creating discoverable notes was exacerbated by a

practice of “GM employees receiv[ing] formal training as to how to write about

safety issues.”206 During 2008, GM employees were warned “to ‘write smart,’

and not to use ‘judgmental adjectives and speculation.’”207

Employees were given a number of words to avoid, with suggested replace-

ments:

203 Id. at 252-53 (internal citations omitted). 204 Id. at 254. 205 Id. at 254-55. 206 Id. at 253. 207 Id. at 253-54.

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 “Problem = Issue, Condition, Matter”

 “Safety = Has Potential Safety Implications”

 “Defect = Does not perform to design”

Employees were also given examples of sentences not to use, including

“Dangerous . . . almost caused accident” and “This is a safety and security

issue . . . .” And they were told, in what the author described as an attempt

at humor, not to use phrases such as “Kevorkianesque,” “tomblike,” or

“maniacal,” or “rolling sarcophagus.” The “actual examples” provided in

the presentation described how a plaintiff’s lawyer had used a memo from

a senior manager at another automaker warning that a risk of conducting a

survey about a problem was that it could provide “product liability cre-

dence to a hypothesis we have long ignored.”208

C. The GM Structural Barriers

The Valukas Report documents “[a] cultural issue repeatedly described to us

and borne out by the evidence is a proliferation of committees and a lack of

accountability.”209 These structural barriers were astonishing in the Cobalt his-

tory:

The Cobalt Ignition Switch issue passed through an astonishing num-

ber of committees. We repeatedly heard from witness that they flagged the

issue, proposed a solution, and the solution died in a committee or with

some other ad hoc group exploring the issue. But determining the identity of any actual decision-maker was impenetrable. No single person owned

any decision. Indeed, it was often difficult to determine who sat on the

committees or what they considered, as there are rarely minutes of meet-

ings.

One witness described the GM phenomenon of avoiding responsibility

as the “GM salute,” a crossing of the arms and pointing outwards toward

others, indicating that the responsibility belongs to someone else, not me.

It is this same cabining of responsibility, the sense that someone else is

responsible, that permeated the Cobalt investigation for years.

Similarly, Mary Barra described a phenomenon known as the “GM

nod.” The GM nod, Barra described, is when everyone nods in agreement

to a proposed plan of action, but then leaves the room with no intention to

follow through, and the nod is an empty gesture. It is an idiomatic recogni-

tion of a culture . . . that does not move issues forward quickly, as the story

of the Cobalt demonstrates.210

208 Id. at 254 (internal citations omitted). 209 Id. at 255. 210 Id. (internal citations omitted); see also Jeff Bennett, GM Report to Cite Cultural Fail-

ings, WALL ST. J., June 5, 2014, at B1, B7; Gretchen Morgenson, A Vow to End Hollow Nods

and Salutes, N.Y. TIMES, June 8, 2014, at BU1, BU7N.

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D. Possible Motivations for the Cobalt Behaviors

Cultural reforms cannot be done in isolation. HR issues such as compensation,

bonuses, incentives, and discipline are part and parcel of the culture and are a

means of communication. No one may have ever said, Keep costs down, Safety be damned, but if employees witnessed managers and engineers being rewarded for doing so, their assumptions create a culture of complicity. For example, Wall

Street Journal columnist Holman W. Jenkins, Jr. faults the Valukas Report, con-

tending that Mr. Valukas “chooses to explain only the part of the Cobalt story

that it suits GM, its regulators and its political overseers to explain.”211 Jenkins

contends that cultural signal motivated the behavior:

Engineer Ray DeGiorgio, after struggling to design an ignition switch that

met complicated requirements, ended up with a switch that performed the

necessary functions but didn’t meet GM’s torque spec. He waived it

through. Why? One plausible answer (Mr. Valukas offers none) is that he

was under pressure to deliver the part as cheaply as possible since every

additional dollar, even a dollar spent increasing customer satisfaction,

would add to the losses GM had to bear on a car built to meet fuel-economy

mandates.212

The examination of other factors is also critical at all levels of the organiza-

tion. Did executive compensation contribute to the diagnosis bias and issue

framing that clouds risk judgment during decision processes? With executive

compensation tied to reported profitability, the pressures may have influenced

the decision not to take prompt action once the switch malfunction problem was

known. What has become clear is that there was no rogue engineer acting alone

on the switch. The problems could not have lingered for as long as they did and

as extensively as they did without more than one person involved.

E. Fear and Silence: The Institutional Failure to Share Knowledge

One of the major lessons to be learned from the GM crisis is that the organi-

zational dysfunction may have caused or may have been the result of organiza-

tional communication failures and insufficient knowledge at the levels of the

organization where change could have been implemented. The Valukas Report

observes, “Repeatedly, over a decade, GM personnel failed to search for, share

or gather knowledge, and that failure had serious consequences. There are mul-

tiple components to these failures, involving individual mistakes, organizational

dysfunction, and systems inaccessible to some and impenetrable to many.”213

The report continues:

In 2004 and 2005, when complaints of moving stalls came in, the engineers

211 Holman W. Jenkins, Jr., Opinion, GM’s Report Ignores Incentives, WALL ST. J., June

11, 2014, at A13. 212 Id. 213 VALUKAS REPORT, supra note 61, at 256.

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who considered the issue did not know that the vehicle was designed so

that the airbags would not deploy when the ignition switch was in Acces-

sory. As a consequence, the engineers failed to recognize the stalls as a

safety issue and resolve the problem quickly. Even the committees . . . that

were designed to have cross-disciplinary members did not connect the

dots.214

The discussion of the timeline earlier indicates that as various facts were un-

covered in different areas that they were not shared. The change of the faulty

part by Mr. DiGiorgio and his failure to disclose the change resulted in engineers

investigating the matter being misled about the role of the Ignition Switch in the

airbag non-deployments. The following additional events illustrate how much

the right hand and the left hand were completely separate within the GM organ-

ization:

 In 2007, when Sprague was directed to start tracking airbag non- deployments, no one shared with him (and he did not find) all of

GM’s prior work on the Cobalt moving stall issue . . . As a conse-

quence, he did not have an opportunity to connect the non-deploy-

ments with the problem of low torque in the Ignition Switch.

 From 2007 on, GM employees failed to find publicly available materials. This included the Indiana University study, which a

plaintiff’s expert reportedly found on the NHTSA website. It also

included GM’s own TSBs [Technical Service Bulletins], which

were available both internally and publicly.

 In 2011, Stouffer failed to check the TREAD [“Transportation Recall Enhancement, Accountability and Documentation” Act]

database correctly, and thus did not obtain all of the information

available on it. As a consequence, he missed the Ion and HHR fa-

talities, which were not discovered until February 2014 – after

the first recall.

 From 2011 on, the fact that the Cobalt accidents led to fatalities was not shared with all relevant decision-makers. These individu-

als say that, as a consequence, they lacked a sense of urgency.215

It appears that even GM’s legal counsel, as in the Malibu case, often got in

the way of resolving the Cobalt issue properly.216 Plaintiffs in an amended class

action allege “it is ‘inconceivable’ that individuals in General Motors Co.’s gen-

eral counsel’s office didn’t know about the now-infamous ignition switch defect

214 Id. 215 Id. (internal citation omitted). 216 Kira Lerner, GM Counsel Knew About Defect Before Bankruptcy, Suit Says, LAW360

(May 23, 2014, 3:06 PM), http://www.law360.com/articles/541106/gm-counsel-knew-about-

defect-before-bankruptcy-suit-says [https://perma.cc/5Z59-ACD6].

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when the company filed for bankruptcy in 2009.”217 Kira Lerner writes that the

complaint alleges that the acting director of NHTSA has stated that “GM exec-

utives ‘all the way up’ the company’s reporting structure knew of the defect

earlier than this year, despite testimony made by GM’s chief . . . and general

counsel . . . that they only learned of the defect this year.”218

As GM works to revise its culture, it must do so on a company-wide basis –

no employee is immune. There are cultural issues in the way legal counsel han-

dles litigation and any other matters for the company. The response of corporate

counsel who has knowledge of a violation of law sends a message to the com-

pany’s employees. The employees’ perception would be that if the lawyer is

comfortable with the violation, then what they are doing must be okay. The cul-

tural change must encompass compliance with all legal and professional rules

so that those who work with employees throughout the company (legal counsel,

auditors) must also follow their own profession’s code of ethics as well as any

statutory requirements.

F. The Information and Cultural Silo Problem

GM’s organizational information silo problem is certainly a major contrib-

uting factor to the ignition switch crisis. Gillian Tett observes that “[a]bove all

else, silos can create tunnel vision, or mental blindness, which causes people to

do stupid things.”219 In describing what may be termed the kindest possible ex-

planation for GM’s ignition switch conduct, Tett contends that the defective

switch information “sat in one tiny, bureaucratic silo. Worse still, the engineers

who handled the switches had minimal contact with the legal team that was wor-

rying about reputational risk. General Motors . . . was riddled with silos – . . .

where staff had little internal incentive to collaborate in a proactive way.”220

G. Criminal Probe Begins

Professor Rena Steinzor argues that auto producers like GM “have grown so

complacent that they view billions of dollars in civil penalties and tort damages

as unfortunate but routine costs of doing business . . . . [T]he legal system fails

to instill the wariness in top executives that is essential if senior and mid-level

managers are to make consumer safety their top priority.”221 Federal and state

prosecutors have started investigations into the faulty GM ignition switches.222

217 Id. 218 Id. 219 See TETT, supra note 126 at 14. 220 Id. at 15. 221 Rena Steinzor, (Still) “Unsafe at Any Speed”: Why Not Jail for Auto Executives?, 9

HARV. L. & POL’Y REV. 443, 446 (2015). 222 Charles Levinson, GM Staffers Questioned on Recall, WALL ST. J., June 14-15, 2014,

at B4.

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News reports cite that “GM has turned over reams of documents to the govern-

ment including thousands of emails between company officials relating to the

ignition switch defect.”223 In separate probes, “a group of state attorneys general,

including New York Attorney General Eric Schneiderman and Florida Attorney

General Pam Bondi, is investigating the delayed GM recalls . . . .” 224 Legal ex-

perts believe that Anton R. Valukas,

himself a former federal prosecutor, has given prosecutors a substantial

head start in their investigation, identifying key GM decision makers at

critical points in the saga, providing thoroughly footnoted accounts by

some of those decision makers, and laying out a general framework of what

transpired inside the company since the faulty ignition switch first came to

light.225

H. Focus on Legal Ethics

While noting “[t]he actions of GM’s lawyers clearly raise significant legal

ethics ramifications,” Professor Michele Benedeto Neitz says, “[t]he Michigan

State Bar, legal ethicists, and in-house counsel should take note of potential vi-

olations” of ethics rules.226 Professor Neitz writes that these potential rules vio-

lations include:

1. Perjury

. . . During his deposition testimony in the Melton case, GM engineer Ray-

mond DeGiorgio testified that he had never approved any modifications to

the design switch. Documents later revealed that Mr. DeGiorgio had in fact

personally signed off on the changes to the switch in 2006. . . .

2. Conflict of Interest

As the cover-up scandal reached a crescendo, GM hired Anton Valukas to

co-direct an internal investigation with GM Michael Milliken. . . .

the existing relationship between the [law] firms and GM raised questions

about whether this internal investigation was credibly independent. . . . The

report cleared the top officers, including the CEO and General Counsel, of

any wrongdoing. Senator Richard Blumenthal called the report “the best

money can buy,” noting that it “absolves upper management, denies delib-

erate wrongdoing, and dismisses corporate responsibility.” Whether an ac-

tual conflict exists, the appearance of a conflict is overwhelming and

caused more bad press for General Motors.

223 Id. 224 Id. 225 Id. 226 Michele Benedetto Neitz, Shades of Enron: the Legal Ethics Implications of the Gen-

eral Motors Scandal, LEGAL ETHICS FORUM (June 9, 2014), http://digitalcom-

mons.law.ggu.edu/pubs/640 [https://perma.cc/3XCR-GBLE].

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The parallels to the Enron case are obvious: Corporate officials are lying

about the company’s actions. In-house attorneys are staying mute about

corporate wrongdoing. A law firm with a potential conflict of interest is

conducting an internal investigation. With these resemblances, General

Motors’ shareholders should hope the end result is not an Enron-style col-

lapse.227

I. Implied Motives: What About Compensation?

So, what possible motivation could there be for failing to promptly issue a

recall for the approximately 2.6 million vehicles so far recalled for this ignition

switch problem?228 Why does it appear that bad news does not quickly percolate

to the top and become urgently reported? Could it be that a hit to reported cor-

porate earnings threatens the compensation of key managerial decision makers?

Norman Bishara and Cindy Schipani, building off the work of Dunfee and others

about corruption, observe that “[a] corporate culture that facilitates an execu-

tive’s unethical impulse to put personal interests ahead of the interests of the

firm may be as corrupt as one that promotes the payment of bribes to government

officials.”229 Bishara and Schipani contend that “[i]n both instances, the offend-

ing parties are acting without integrity and attempting to secure private gain at

the expense of the trust placed in them by their constituents.”230 James Brickley

and Clifford W. Smith contend “[i]f the compensation plan sometimes rewards

unethical behavior then unethical behavior is what the company will get. . . .

Corporations develop ethics programs in an effort to persuade employees to put

227 Id.; See also Keith Leavitt & David M. Sluss, Lying for Who We Are: An Identity-

Based Model of Workplace Dishonesty, 40 ACAD. MGMT. REV. 587 (2015) (observing that

“[s]ome have argued that organizational members rely on accurate and timely information not

only to make effective decisions but to effectively coordinate and implement those decisions

such that when information is incorrect, inaccurate, or timed inappropriately because of lying,

the organization and its members will suffer.”); see generally SISSELA BOK, LYING: MORAL

CHOICE IN PUBLIC AND PRIVATE LIFE (2d ed. 1999); STUART P. GREENE, LYING, CHEATING,

AND STEALING: A MORAL THEORY OF WHITE COLLAR CRIME (2006); Blake E. Ashforth & Vi-

kas Anand, The Normalization of Corruption in Organizations, 25 RESEARCH ORG. BEHAV. 1

(2003); Scott J. Reynolds, The Non-Conscious Aspects of Ethical Behavior: Not Everything

in the “Good” Organization is Deliberate and Intentional, 51 AM. CRIM. L. REV. 245 (2014);

Ann E. Tenbrunsel, Misrepresentation and Expectations of Misrepresentation in an Ethical

Dilemma: The Role of Incentives and Temptation, 41 ACAD. MGMT. J. 330 (1998); Linda K.

Treviño et. al, (Un)ethical Behavior in Organizations, 65 ANN. REV. PSYCHOL. 635 (2014);

Linda K. Treviño et. al, Behavioral Ethics in Organizations: A Review, 32 J. MGMT. 951

(2006). 228 See Mike Spector & Christopher M. Matthews, GM Admits to Criminal Wrongdoing,

WALL ST. J., Sept. 18, 2015, at B1. 229 See Bishara & Schipani, supra note 199, at 4. 230 Id.

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the interests of the organization or its customers ahead of their own.”231

On July 1, 2015 the Securities and Exchange Commission proposed rules re-

quiring companies listed on national securities exchanges, “to develop and en-

force recovery policies that in the event of an accounting restatement, ‘claw

back’ from current and former executive officers incentive-based compensation

they would not have received based on the restatement. Recovery would be re-

quired without regard for fault.”232 The proposed rules, among other require-

ments, will “apply to incentive-based compensation that is tied to accounting-

related metrics, stock price or total shareholder return. Recovery would apply to

excess incentive-based compensation received by executive officers in the three

fiscal years preceding the date a listed company is required to prepare an ac-

counting restatement.”233 Such rules can be adapted and expanded to apply to

production and manufacturing companies in a way that allows clawbacks in the

events of safety recalls of cars from which sales and earnings were obtained.

J. Failure of Information Flow to the GM Board

The Valukas report indicated that the GM board did not receive information

regarding the faulty ignition switch.234 As a result, the Board hired the New York

law firm of Wachtell, Lipton, Rosen & Katz to conduct an independent investi-

gation of facts surrounding the failure of corporate governance.235 Before

Wachtel Lipton’s report became available, the Valukas Report had the following

observations regarding the GM board’s serving during the relevant periods.

The Audit Committee, in addition to its core function overseeing

GM’s financial reporting process and systems of disclosure and internal

controls, was also responsible for oversight of GM’s external and internal

auditors, and its risk management process. . . .

. . . [T]he Audit Committee oversaw GM’s risk management process,

including reviewing the ‘risk factors’ described in GM’s public disclosures,

and meeting regularly with the Chief Risk Officer in the years his work

was overseen by the Committee . . . .

Before 2014, none of the written reports to the Board included any

information concerning the Ignition Switch.236

A director’s duty of care encompasses the responsibility to inquire and to be

231 James A. Brickley, Clifford W. Smith & Jerold L. Zimmerman, Corporate Govern-

ance, Ethics, and Organizational Architecture, 15 J. APPLIED CORP. FIN. 34, 45 (2003). 232 SEC Proposes Rules Requiring Companies to Adopt Clawback Policies on Executive

Compensation (July 1, 2015), http://www.sec.gov/news/pressrelease/2015-136.html

[https://perma.cc/T8VF-43LW]. 233 Id. 234 VALUKAS REPORT, supra note 61, at 244. 235 See Joann S. Lubin & Jeff Bennett, GM Board Probing Information Gap, WALL ST. J.,

May 15, 2014, at B1. 236 See VALUKAS REPORT, supra note 61, at 242-44.

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informed.237 Willful or contrived ignorance is no defense.238 Observing that

“[t]he most obvious motivation for unethical decision making in the executive

suite, is simply, greed[,]” Bishara and Schipani suggest that, “it may be useful

for firms to envision the board and particularly the board’s ethics committee, as

an active gatekeeper, rather than as a passive panel which only addresses issues

brought to its attention.”239 Moreover,

[e]xamples of traditional gatekeepers include lawyers and accountants who

are needed to certify accounts and who would not permit falsification by a

corrupt executive . . . .

. . . [A] corporation’s ethics committee could be tasked with a new

level of proactive oversight by initiating inquiries into the executive com-

pensation structure as a check on the activities of the firm’s compensation

committee. In this way the ethics committee could also employ outside ex-

pertise to remain informed of potential ways in which executive corruption

is arising at other firms . . . .

The goal is to have an ethics committee that is designed to anticipate

ethical pitfalls and loopholes that are ripe for exploitation by corrupt exec-

utives . . . .240

237 See generally Stephen M. Bainbridge, The Business Judgment Rule as Abstention Doc-

trine (UCLA Sch. L., Working Paper No. 03-18), http://ssrn.com/abstract=429260

[https://perma.cc/EB79-GZJM] (citing e.g., Shlensky v. Wrigley, 237 N.E.2d 776 (Ill. App.

1868) (operational decision)); Stephen M. Bainbridge, Why a Board? Group Decisionmaking

in Corporate Governance, 55 VAND. L. REV. 1 (2002); Douglas M. Branson, The Rule that

Isn’t a Rule – The Business Judgment Rule, 36 VAL. U. L. REV. 631 (2002); Lyman Johnson,

Corporate Officers and the Business Judgment Rule, 60 BUS. LAW. 439 (2005); Robert J.

Rhee, The Tort Foundation of Duty of Care and Business Judgment, 88 NOTRE DAME L. REV.

1139 (2013); Robert Sprague & Aaron J. Lyttle, Shareholder Primacy and the Business Judg-

ment Rule: Arguments for Expanded Corporate Democracy, 16 STAN. J. L. BUS. & FIN. 1

(2010); Lynn A. Stout, In Praise of Procedure: An Economic and Behavioral Defense of

Smith v. Van Gorkom and the Business Judgment Rule, 96 NW U. L. REV.675 (2002); Law-

rence J. Trautman & Kara Altenbaumer-Price, The Board’s Responsibility for Information

Technology Governance, 28 J. MARSHALL J. COMPUTER & INFO. L. 313 (2011); DEL. CODE

ANN. tit. 8, § 141(a) (2011) (“The business and affairs of a corporation organized under this

chapter shall be managed by or under the direction of a board of directors, except as may be

otherwise provided in this chapter or in its certificate of incorporation.”). More than half of

all publicly owned United States corporations are chartered under the laws of the state of

Delaware. Lewis S. Black Jr., Why Corporations Choose Delaware, DELAWARE DEPARTMENT

OF STATE (2007), https://corp.delaware.gov/pdfs/whycorporations_english.pdf

[https://perma.cc/5Z37-N8D2]. 238 See David Luban, Contrived Ignorance, 87 GEO. L.J. 957, 959 (1999). 239 See Bishara & Schipani, supra note 199, at 21-22. See also Lawrence J. Trautman, The

Matrix: The Board’s Responsibility for Director Selection and Recruitment, 11 FLA. ST. U.

BUS. REV. 75 (2012) (discussing how boards work within a committee structure). 240 Bishara & Schipani, supra note 199, at 22.

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VII. CRIMINAL CHARGES AND THE SETTLEMENT

On September 17, 2015 the Department of Justice announced charges against

GM of “concealing a potentially deadly safety defect from its U.S. regulator,

NHTSA, from the spring of 2012 through February 2014, and, in the process,

misleading consumers concerning the safety of certain of GM’s cars.”241 The

DOJ announcement states:

Rather than move swiftly and efficiently toward recall of at least the popu-

lation of cars known to be affected by the safety defect . . . GM personnel

took affirmative steps to keep the company’s internal investigation into air-

bag non-deployment caused by the defective switch . . . outside of GM’s

regular recall process.242

U.S. Department of Transportation Secretary Anthony Foxx observed that

GM “not only failed to disclose this deadly defect, but as the Department of

Justice investigation shows, it actively concealed the truth from NHTSA and the

public.”243 According to U.S. Attorney Preet Bharara of the Southern District of

New York, “[b]y doing so, GM put its customers and the driving public at seri-

ous risk. Justice requires the filing of criminal charges, detailed admissions, a

significant penalty, and the appointment of a federal monitor. These measures

are designed to make sure that this never happens again.”244 Goldsmith Romero,

Special Inspector General, observes, “[t]he worst part about this tragedy is that

it was entirely avoidable. GM could have significantly reduced the risk of this

deadly defect by improving the key design for less than one dollar per vehicle

but GM chose not to because of the cost.”245 Historically, this type of cost-based

decision was a part of GM’s culture. For example, with the Corvair, one of the

fixes that was added too late were instructions inserted in the owner’s manual

on the importance of proper rear-end tire inflation as well as guidance on steer-

ing in the event the rear wheels of the Corvair happened to turn under due to

under-inflation of those tires.246 U.S. Attorney Preet Bharara announced that GM

had entered into a deferred prosecution agreement “under which the company

admits that it failed to disclose a safety defect to NHTSA and misled U.S. con-

241 Press Release, U.S. Department of Justice, U.S. Attorney of the Southern District of

New York Announces Criminal Charges Against General Motors and Deferred Prosecution

Agreement With $900 Million Forfeiture (Sept. 17, 2015), http://www.justice.gov/opa/pr/us-

attorney-southern-district-new-york-announces-criminal-charges-against-general-motors-

and [https://perma.cc/7KDP-DBNC]. 242 Id. 243 Id. 244 Id. 245 Id. 246 NADER, supra note 16, at 23.

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sumers . . . . The admissions are contained in a detailed statement of facts at-

tached to the agreement.”247 The terms of the agreement require GM to “coop-

erate with the federal government and establish an independent monitor to re-

view and assess the company’s policies and procedures in certain discrete areas

relating to safety issues and recalls.”248 GM’s announcement also states:

[T]he government’s decision to defer prosecution was based on the actions

GM has taken to “demonstrate acceptance and acknowledgement of re-

sponsibility for its conduct,” including:

 Conducting a swift and robust internal investigation

 Furnishing investigators with information and a continuous flow of unvarnished facts

 Providing timely and meaningful cooperation more generally in the government’s investigation

 Terminating wrongdoers

 Establishing a full and independent victim compensation program that is expected to pay out more than $600 million in awards249

On the same date, GM announced resolution of certain civil actions brought

against the company: a shareholder class action (Eastern District of Michigan);

and the reaching of a memorandum of understanding “potentially covering ap-

proximately 1,380 individual death and personal injury claimants.”250 Because

of these settlements, GM “will record a charge of $575 million in the third quar-

ter [2015].”251

Following announcement of GM’s deferred prosecution agreement, law Pro-

fessor David Uhlmann observes, “[a]ll charges against GM will be dropped if it

complies with the deferred prosecution agreement, and no company officials

have been charged with crimes based on GM’s deadly concealment scheme. . . .

underscore[ing] how badly the federal government has lost its way in the prose-

cution of corporate crime.”252 Professor Uhlmann writes

“G.M. will not be required to plead guilty to any criminal charges for misleading

safety regulators and the American public. . . . But lower fines and perhaps re-

duced charges are the right way to credit cooperation, not the dismissal of all

247 See DOJ Press release, supra note 241. 248 Press Release, General Motors Co., GM Reaches Agreement With U.S. Attorney’s

Office (Sept. 17, 2015), http://media.gm.com/media/us/en/gm/news.detail.html/con-

tent/Pages/news/us/en/2015/sep/0917-doj.html [https://perma.cc/DLD5-HBKE]. 249 Id. 250 Press Release, General Motors Co., GM Announces Resolution of Certain Civil Liti-

gation (Sept. 17, 2015) http://media.gm.com/media/us/en/gm/news.detail.html/con-

tent/Pages/news/us/en/2015/sep/0917-civil-litigation.html [https://perma.cc/T3UF-NYHG]. 251 Id. 252 David M. Uhlmann, Justice Falls Short in G.M. Case, N.Y. TIMES, Sept. 20, 2015, at

SR5.

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charges when corporate deception claimed so many lives.”253

Uhlmann contends:

The best way to combat corporate crime is to bring criminal charges

against corporations and culpable individuals within those companies – and

to insist that defendants plead guilty or go to trial. Charging and convicting

corporations addresses the flawed corporate cultures and misplaced priori-

ties that encourage criminal behavior; holding individuals accountable is

the best way to deter future wrongdoing and promote law-abiding behavior.

Instead, in case after case over the last decade, the Justice Department

has treated the worst corporate criminals like first-time drug offenders,

agreeing to dismiss or not bring charges if the companies clean up their

acts. G.M. is just the latest example. The department also agreed to a de-

ferred prosecution for similar misconduct by Toyota, in the huge money-

laundering case involving HSBC, and with JPMorgan Chase after the Ber-

nard Madoff scandal. In an overwhelming majority of these cases, no cor-

porate officials were charged.

A glaring oversight in the Justice Department’s new policies on cor-

porate crime is the lack of any limits on the use of deferred prosecution and

nonprosecution agreements. It is long past time for the department to

amend its policies to make clear that criminal convictions must be sought

in egregious instances of corporate crime like the G.M. case. If the depart-

ment is serious about corporate crime, it needs to stop sending the mixed

message that corporations can avoid criminal liability by admitting they

were wrong and promising not to do it again. . . .

[W]e need to do a better job of holding [corporations] responsible for their

crimes.254

VIII. LESSONS LEARNED

Both those with practical experience (including CEOs and consultants) and

academics agree on this proposition: Negative information struggles to find its

way to the top of a large organization.255 It is a tall order to ask employees to

raise issues that will cause a halt in production for products or will result in a

recall. Some simple questions leaders could ask to determine whether they are

getting accurate information: When was the last time someone told you, No, that can’t be done? When was the last time someone told you that a project or product

253 Id. 254 Id. See also Holman W. Jenkins, Did GM Get a Pass From Federal Prosecutors?,

WALL ST. J., Oct. 17-18, 2015, at A11; Elizabeth E. Joh & Thomas Wuil Joo, The Corporation

as Snitch: The New DOJ Guidelines on Prosecuting White Collar Crime, 101 VA. L. REV.

ONLINE 51 (2015). 255 Adam Auriemma, Chiefs at Big Firms Often Last to Know, WALL ST. J., Apr. 3, 2014,

at B1, B2; James R. Detert and Linda K. Treviño, Speaking Up to Higher-Ups: How Super-

visors and Skip-Level Leaders Influence Employee Voice, 21 ORG. SCI. 249 (2010).

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was not going well? When was the last time you learned about a mistake some-

one in the organization made? Bad news coming to senior leaders early means

that there is a better chance issues can be fixed before you reach a GM-level

public relations nightmare.

Professors James and Wooten report on the findings of Max Bazerman and

Michael D. Watkins, who contend that organizations fail to learn in four basic

ways:

 Scanning failures: as a result of arrogance, a lack of resources, or simple inattention, leadership fails to pay attention to internal or

external warning signs that a potential problem is imminent.

 Integration failures: failure to understand how seemingly disparate pieces of information (e.g. data, evidence) fit together to provide

lessons for crisis avoidance.

 Incentive failures: failure to provide adequate rewards or rein- forcement for people who bring potential problems to the attention

of others. Likewise, punishing people for surfacing such infor-

mation is also a form of incentive failure.

 Learning failures: failure to draw the appropriate lessons from prior crises and to preserve those lessons in the organization’s

memory.256

Mary Barra is not the only CEO to be “shocked, shocked” that bad things are

going on in a company. When news of Duke Energy’s ash spill into a North

Carolina river got to CEO Lynn Good, she explained, “[t]his is not who we

are.”257 Well, yes, for now, this is who Duke is, and the job of the CEO becomes

one of finding out not just how it happened, but why. The questions most CEOs

try to answer in situations in which they are blind-sided by actions of employees

are, Who did this? and Who needs to go? Future problems cannot be prevented unless and until this question is answered, Why would employees think this be- havior is acceptable in this company? Often, terminating those whose hands are on the debacle makes matters worse. Employees understand why those termi-

nated did what they did, and the culture is not changed. Only those who left their

fingerprints on the events are gone. Those who sent the unwitting signals are

assigning blame without wondering, Is there something I did or said, directly or indirectly, that contributed to these events?

Every leader wants to believe that their organizations are ethical. They spend

the money needed for compliance, audits, and codes of ethics. However, those

are the dashboard kinds of measures and actions that may not be able to coun-

256 ERIKA HAYES JAMES & LYNN PERRY WOOTEN, ORIENTATIONS OF POSITIVE LEADERSHIP

IN TIMES OF CRISIS, HANDBOOK ON POSITIVE ORGANIZATIONAL SCHOLARSHIP 9 (Kim Cam-

eron, Gretchen Spreitzer, eds., 2010). 257 Valerie Bauerlein, Duke’s New Chief Emerges from the Ashes, WALL ST. J., May 7,

2014, at B1, B2.

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termand the signals that are given to employees about acceptable behavior, re-

sults, and getting rewarded for keeping things quiet as much as you can for as

long as you can. These behaviors lead us to the second issue.

A. Information Leaders Need to Know About Their Culture Is Not Getting to

Them

The lack of communication from the bottom up may be the result of the com-

munication flowing down from the top. Communications and miscommunica-

tions issues run both ways. Those at the top of the organization often fail to

recognize the messages they send by indirect communication. Indirect commu-

nication can result from emphasis. If your focus, discussions, and interactions

with employees emphasize schedules, results, and performance, then you will

find employees focused on those issues and not on the code of ethics or even the

wisdom of their cost-saving decisions.258 Employees aim to please their leader-

ship.

Lack of communication from the bottom up may also be the result of indirect

communication. Indirect communication is information leaders cannot control,

in terms of its disbursement through the organization or its perception by em-

ployees. These are the stories about the senior management, which can include

everything from how a CEO took an employee to task in public for a mistake to

discussions about executives’ affairs. These stories, however exaggerated or, in

some cases false, formulate employee perceptions of CEOs and other senior

leaders. If employees hear the urban legends about CEOs aggressive behavior

with managers not meeting goals or making mistakes, then the lines of commu-

nication will be shut down.

There are also the unknowns – the communication that gets out there without

awareness on the part of the CEO and senior management. Employees take sig-

nals from every word, sign, or deed. For example, John Rowe, the former CEO

of Exelon, said that in his first CEO job, a young woman who worked for him

told him, “Do you know that the gossip in the office is that the way for a woman

to get ahead is to wear frilly spring dresses?”259 When he asked where that in-

formation had come from she explained, “Well, you said, ‘pretty dress’ to four

women who happened to be dressed that way. And so now it’s considered pol-

icy.”260 Mr. Rowe explained, “Well, it’s the furthest thing in the world from

policy. I was just trying to be pleasant in the elevator.”261 Correcting those indi-

rect disbursements of company folklore requires something more than quarterly

meetings and e-mails.

258 See Marianne M. Jennings, This Is Not Our Culture: OH, But It Is, and Has Been For

Some Time, 19 CORP. FIN. REV. 37 (2014). 259 Adam Bryant, The Corner Office: A Sitting Duck Can Never Catch A Moving Turkey,

N.Y. TIMES, June 25, 2011, at BU N2. 260 Id. 261 Id.

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Sometimes employees receive indirect communication by choices their lead-

ers make about which supervisors and employees stay in place. A failure to root

out the employees who make decisions to say nothing is a powerful signal to

their direct reports and many others down the chain to also say nothing. For

example, when Barclays acquired Lehman Brothers, it also acquired a tough-as-

nails culture, the culture that took risk to new levels in the lead-up to Lehman’s

bankruptcy and subsequent acquisition by Barclays.262 Barclays’ CEO under-

stood that by allowing the Lehman troops to remain that he was sending a signal,

however unwitting, that their approach to banking was acceptable at Barclays.263

So, the CEO recently showed many Lehman leaders the door in order to estab-

lish a culture that he wanted of less risk and less debt.264

If leaders communicate, however unwittingly or indirectly, that they want

good news, they will get good news. Good news is not omnipresent in most

organizations. Bad news comes from competition, mistakes, and other human

events that abound when humans are at work. If leaders have not heard bad news

in a while, they have their signal that something is amiss. For example, at Gen-

eral Motors, the fact that the company went for over a decade with a slew of new

models being introduced without recalls and issues should have been a dire

warning. Senior GM leaders should have known that the flow of information

was not getting to them.

B. Fixing the Culture: Understanding CEO Perception, and Information Needs

If employees are unwilling to communicate bad news, then leaders need to

make a point of requesting bad news. Here are a list of questions that could be

asked in meetings in order to encourage front-line managers and employees to

raise those points of contention, bad news, or just concern.

1. Is there anything about this project/product/assignment that I have not heard?

2. Is there anything we have not covered about this project/product assignment that I need to know?

3. Is there anything about this project/product/assignment that keeps you up at night?

4. Is there any bad news about this project/product/assignment that I don’t know about?

5. If you could change one thing about this project/product/assign- ment what would it be?

And if stories communicate the attitudes and receptiveness of senior leaders,

then the CEO and senior managers need to let the stories fly. Alan Mulally, the

262 Francesco Guererra, Lehman’s Legacy Fades at Barclays, WALL ST. J., May 6, 2014,

at C2. 263 Id. 264 Id.

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recently retired CEO of Ford Motor Company, turned around a culture (and, as

a result, a company) in which no one ever passed along negative information

about their projects.265 He did so by asking his direct reports to always talk about

their problems in meetings.266 He then took a team approach to helping them

solve those problems.267 He also sent a powerful message through the culture by

rewarding those who brought problems forward to him and punishing those who

hid their problems.268 The first time one of Mr. Mulally’s senior leaders brought

negative information to a meeting, the room became silent until Mr. Mulally

broke that silence by clapping, signaling such news, even though it wasn’t

“warm and fuzzy”, was welcome.269 Also, the first man who broke the silence

was promoted shortly thereafter.270 That man, Mark Fields, recently assumed the

CEO position at Ford, following Mr. Mulally’s retirement.271

The goal needs to be changed from all is well in reporting to we don’t want any minefields and no one should be blind-sided. Some industries, such as the nuclear industry hold challenge meetings, where anyone involved in a project

has the right to disagree with the project, plan, process, or progress and have that

concern be heard by senior leaders and other involved. The formal process for

airing concerns takes the painful sting out of being the first whale to the surface

that gets harpooned. All the whales are protected, especially when they come to

the surface first.

A final fix is for senior leaders to be out and about in organizations. Following

a crisis, CEOs tend to travel around and interact with employees informally in

order to be sure that they have received the message about the changed culture.

Again, research shows that leaders who are out, about, and accessible to em-

ployees because they are interacting with the front line are less likely to be blind-

sided.272 The things employees might not speak up about may become obvious

as leaders travel the company, visit production lines, and interact with designers

and engineers because they are witnessing the front line at work. Regular inter-

action with the front-line employees will give leaders the real story they may not

be getting from their direct reports and other managers and leaders. Professors

James and Wooten contend that “leaders who have a mindset for 1) learning and

adapting to rapidly changing circumstances; 2) seeing possibilities amid the

tragic circumstances of a crisis; and 3) expecting trust and trustworthiness will

265 Chris Woodyard & James R. Healy, Mulally Flew in from Boeing and Ford Took Off,

USA TODAY (Apr. 21, 2014, 8:32 PM) http://www.usato-

day.com/story/money/cars/2014/04/21/ford-alan-mulally/4008171/ [https://perma.cc/5779-

BPPS]. 266 Id. 267 Id. 268 Id. 269 Auriemma, supra note 255, at B1. 270 Id. 271 Id. 272 Detert & Treviño, supra note 255, Table 4 at 260.

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be more inclined to identify positive outcomes in crisis situations.”273

IX. CONCLUSION AND ADVICE

Jamie Dimon, the head of Chase, famously discussed how often he spoke to

employees and leaders in his bank and emphasized doing the right thing and the

importance of the bank’s reputation.274 “‘I sat in those meetings myself and said:

Believe that the Pope is over here and the chairman of the securities commission

is over here, what is the right thing to do? And that’s what we are going to do.’

And no, ‘There was no hiding, there was no lying, there’s no bull—–ing period,

okay?’”275

Still, Chase’s London Whale problem arose, along with $6 billion in losses

and more in fines for all the subsequent problems uncovered and investigations

that resulted.276 Mr. Dimon seems puzzled, This is not the Chase I told them to be. But there was a real Chase and his assumed Chase. The real Chase got him into what he has described as the worst year of his professional life as he worked

to navigate the regulatory maze that Chase found itself in, all from one whale.277

Mr. Dimon will continue to be perplexed because he has not yet asked the ques-

tion that all CEOs who believe that what happened is not their culture must ask

and answer, Why would they think this kind of behavior is acceptable in this organization?

The introspection of unwitting communication, through stories, statements,

emphasis, incentives, rewards, promotions, and a host of other factors are nec-

essary in order to solve the culture problem. Just one last warning and lesson.

Mr. Dimon acknowledged that there was an e-mail from a trader who indicated

that there may be a problem with the London trading desk.278 That e-mail was

not taken seriously because, as Mr. Dimon noted, “it was a $300 million prob-

lem, okay, not a $6 billion problem.”279 But, it was a problem, and large enough

for a trader to muster the courage to offer the tiniest bit of bad news. There was

an opportunity to seize the moment. When the culture speaks, listen and act. And

ask, “Why would they think a $300 million problem in trading is okay?” The

amount is not the issue initially. At first, GM had thirteen fatalities, a number

273 JAMES & WOOTEN, supra note 256, at 2. 274 See Bethany McLean, Jamie Dimon on the Line, VANITY FAIR (Nov. 2012),

http://www.vanityfair.com/news/business/2012/11/jamie-dimon-tom-brady-hang-in-there

[https://perma.cc/4QFJ-SDB6]. 275 Matthias Rieker, What Not To Ask Jamie Dimon, WALL ST. J. (June 11, 2013, 4:00

PM) http://blogs.wsj.com/moneybeat/2013/06/11/what-not-to-ask-jamie-dimon/

[https://perma.cc/7XQY-7RRX]. 276 See Jill E. Fisch, The Mess at Morgan: Risk, Incentives and Shareholder Empower-

ment, 83 U. CIN. L. REV. 651 (2015). 277 Id. 278 Id. 279 Id.

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that has now grown to at least 124.280 But, behind those thirteen fatalities were

ten years of employees and managers suppressing of bad news. Finding what’s

hidden means understanding the patterns of history and thereby learning and

understanding what an organization’s culture really looks like.

280 Spector & Matthews, supra note 228, at B1.