Monday, March 30, 2009

Who's In Charge of GM?

I couldn't believe what I read in this morning's Wall Street Journal about the Federal Government announcing the replacement of the GM CEO. The news was announced to Rick Wagoner by a Treasury Department official.

Unless I missed something, there is still a board of directors responsible for hiring and firing the management of the company. Wouldn't the board Chair been the one to have made the announcement personally to the CEO? Shouldn't the company's press release have been the disclosure announcing the thinking behind the decision? I've never thought well about the long-running, decades old mismanagement of GM, but have we abrogated our own laws of corporate and securities regulation?

I firmly believe that the Federal government has an obligation to act like an owner to protect taxpayer interests where it has invested TARP and other funds. However, to ride roughshod like this seems rash, inappropriate and overreaching of government power.

My legal scholar friends pointed out to me the unprecedented nature of issues raised by the Federal government being a dominant shareholder in public corporations. The concept of the Federal government having a fiduciary duty either to taxpayers or to minority shareholders was, if I understood, something outside the bounds of the legal canons.

So now, this kind of announcement should throw the investments of bond mutual funds with a high proportion of corporate bonds in their portfolios into a turmoil. How would one value their GM holdings?

Chrysler always seemed like a non-viable as a standalone auto maker, as we and many others have written about. Why was no action taken to change their management? How did the government pick and choose between the two troubled companies?

I'll be staying tuned on this one, but if there was concern about GM sales before, they should fall completely out of bed now. The Treasury Department would be honoring their new car warranties, apparently.

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