Roger Bonham Smith Totally Explained

Everything about Roger B Smith totally explained

Roger Bonham Smith (July 12, 1925 – November 29, 2007) was the Chairman and CEO of General Motors from 1981 to 1990. Born in Columbus, Ohio, USA, Smith earned his bachelor degree in business administration at University of Michigan in 1947, and his MBA at the University of Michigan Business School in 1953. He served in the United States Navy from 1944 to 1946.
Smith worked his way up the GM financial management team to become corporate treasurer in 1970, vice president of finance in 1971, executive vice president for finance and public relations, and a member of the board of directors in 1974.

Overview

Smith seemed to be the last of the old-line GM Chairmen, a conservative, anonymous bureaucrat, resisting change. However, propelled by industry and market conditions, Smith oversaw some of the most fundamental changes in GM's history, although his tenure is commonly viewed as a failure.
In 1982 Smith negotiated contract concessions with the United Auto Workers and cut planned raises for white-collar workers. After unveiling a more generous bonus program for top executives that provoked an angry response from the union, Smith was forced to back-pedal. Relations with the UAW, management, and stockholders remained strained. Profits improved in 1983 and Smith began unveiling his vision for reorganization, diversification, and "reindustrialization."

The 1984 Reorganization

Smith took on the massive GM bureaucracy with disastrous results. A sea change in how GM would market and build cars in the future, the 1984 reorganization was intended to streamline the process and create greater efficiencies; the reverse actually occurred. Combining the nameplate divisions, Fisher Body, and GM Assembly into two groups, C-P-C (Chevrolet, Pontiac, Canada) to build small cars and B-O-C (Buick, Oldsmobile, Cadillac) to build large cars, the effort was subsequently criticized for creating chaos within the company. Longstanding informal relationships that greased the wheels of GM were severed, seemingly overnight, leading to confusion and slipping new product programs. The reorganization virtually stopped GM in its tracks for 18 months, and never really worked as intended, with the CPC division building Cadillacs and BOC building Pontiacs. The reorganization added costs and created more layers of bureaucracy when the new Groups added management, marketing and engineering staff, duplicating existing staff at both the corporate and division levels. Almost ten years elapsed before the 1984 reorganization was unwound and all car groups were combined into one division., including a 1981 joint venture with the Japanese robot manufacturer, Fujitsu-Fanuc. With the resulting venture, GMF Robotics, GM became the largest manufacturer of robots in the world. Unfortunately, the experience failed to meet the vision, with the new robots famously painting each other instead of the cars, or robots welding doors shut. Ultimately, some robotic systems and automation installed in several plants were removed shortly after their installation because the technology hadn't fully matured to the point of reliability. The astonishing sums expended were widely viewed as money wasted. Responding to a 1986 report on 3 year capital expenditures projected at almost $35 billion, VP of finance F. Alan Smith (no relation) opined that the sum could be spent on purchasing both Toyota and Nissan resulting in a bump in market share overnight and openly questioned whether the proposed capital expenditures would pay the same dividends; they did not. By the time Smith retired, GM had evolved from the lowest cost producer in Detroit to its highest cost producer, due in part to the drive to acquire advanced technology that never paid dividends in efficiency.

Acquisitions and Divestitures

In 1984 Smith oversaw General Motors' acquisition of Electronic Data Systems from its founder Ross Perot for $2.55 billion, serving two purposes. First was the opportunity to modernize and automate GM to fulfill Smith's goals; second, it was an effort to broaden out of its manufacturing base and into technology and services. As a result of the EDS acquisition, Perot became GM's largest single shareholder, joined its board of directors, and immediately became a source of friction to Smith and a vocal and public critic of Smith and GM's management. In 1986 Smith and the board orchestrated a $743 million buyout of Perot's GM stock at a substantial premium over the market value of the shares. Perot accepted the buyout, but publicly denounced the expenditure as outrageous at a time GM was closing plants and laying off workers. He announced that he'd put the money in escrow to give the automaker a chance to reconsider, but never actually sequestered the funds.
This merger is described in detail in the book "Call Me Roger" by Albert Lee, a former GM speechwriter, 1988, ISBN 0809246309. The structure of the deal was unusual in that EDS would be owned by GM, but Smith promised it would allow Perot autonomy to run the company. In addition, the stock of EDS became a special 'Class E' GM stock, which was separate from normal GM stock, an arrangement which almost got GM kicked off the NYSE. Perot eventually agreed to the deal, because, as Lee puts it, he was sold on the idea of saving millions of American jobs by helping GM fight off Japanese competition.
   As Lee describes, the merger created problems from the start. First, EDS was a 'commando-like' operation, with many military vets, a distaste for bureaucracy, a strict dress and "moral code" (ie, employees couldn't cohabit), and a somewhat egalitarian ethic between managers and workers. GM was the polar opposite, being the model of the large bureaucratic corporation that strongly resisted changes in the status quo. Second, only a small number of EDS employees were sent to Detroit, because EDS needed to hire new staff to provide the level of services GM would require. Although several thousand people would be 'EDS' employees in Detroit, only a few hundred would have been brought up in the EDS culture, with the majority of others being new hires dropped into it without warning. Additionally, the majority of GM's thousands of I.T. employees were transferred to EDS, many losing benefits or pensions, creating clashes with the EDS culture, and resulting in lawsuits, bad morale, and chaos.
   The problems with the merger were not only about culture clashes. Although EDS had experience with automatic paper shuffling, it had no experience with engineering control systems, CAD, and other manufacturing uses of computers. Since EDS had its own stock, there was an inherent conflict of interest between the companies- an EDS employee working in Detroit at a GM plant wasn't primarily concerned about GM's performance, but about EDS performance, so they'd a blank check to throw money at problems, bill GM, and watch their EDS stock go up. Finally, as Lee quotes Perot - "GM doesn't honor its contracts" - Smith had said he wouldn't interfere with Perot, but the relationship fractured from the start, with conflicts over promised compensation to EDS executives being rejected by Smith, who also sent auditors to EDS to irritate Perot. GM also refused to give EDS the fixed-price long term contracts it had been promised.
The relationship between Smith, Perot, and the EDS executives ruptured openly in September of 1985, during a meeting in Dallas that brought the EDS executive compensation issue to a head. Smith was reluctant to accept the EDS plan, substituting a plan of his own. Described in Irreconcilable Differences by Doron Levin, EDS' CFO was explaining to Smith how they felt GM's plan was inferior, when Smith lost his temper. "People in the room later would remember Smith's angry explosion as being wondrous and terrifying at the same time: wondrous for the extreme colors and sounds it brought to the room, terrifying because none of them had ever seen someone lose his temper so completely in a business meeting. The EDS officers stared in disbelief as the chairman of the world's biggest and most powerful company lost it."
   What ensued was one of the most vitriolic corporate battles of the 1980's, with Perot and Smith publicly exchanging barbs using the media, which delightedly splashed the story over every business publication in the U.S.. Perot notoriously lashed out at Smith in a 1988 exclusive to Fortune Magazine, saying: "My question is: Why haven't we unleashed their potential? The answer is: the General Motors system. It's like a blanket of fog that keeps these people from doing what they know needs to be done. I come from an environment where, 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 environment where the first guy who sees the snake kills it." Perot went on to needle Smith regarding the opulent 25th floor GM offices in New York, "An entire teak forest must have been decimated for that floor". Smith, who had obviously ignored the irony of the CEO of the largest public corporation in the world complaining about the opulence of the private office (which Perot had personally paid for its furnishing) of a rival, had responded to Perot's frequent criticism of GM's executive perks a year earlier, "Perot's office (in Dallas) 'makes mine look like a shanty-town. He has Remingtons; he's a Gilbert Stuart painting hanging on the wall. Nobody runs around saying 'Get rid of Ross's office''".
   A second large acquisition outside of the automobile industry followed in 1985, when Smith announced the purchase of Hughes Aircraft Company from the Howard Hughes Medical Institute for $5.2 billion. The company was merged with GM's Delco Electronics to form Hughes Electronics.
   Smith's purchases of EDS and Hughes were criticized as unwise diversions of resources at a time when GM could have invested more in its core automotive divisions. GM spun EDS off as an independent company in 1996. After some major acquisitions in the mid-1990s by Hughes Electronics (Magnavox Electronic Systems and PanAmSat), GM divested most of Hughes assets from 1997-2003, including sale of defense operations to Raytheon in 1997, the spinoff of Delphi Automotive Systems in 1999, the divestiture of Hughes Space and Communications to Boeing in 2000, and acquisition of the remaining communications and satellite operations (mostly DirecTV) by NewsCorp in 2003.

Poletown Plant

In 1981, Mayor Coleman Young and the City of Detroit won a notorious landmark decision in the Michigan Supreme Court, Poletown Neighborhood Council v. City of Detroit that allowed the city to use its eminent domain power to raze an existing immigrant neighborhood in neighboring Hamtramck, MI. It resulted in the condemnation of the homes of over 4,200 residents, along with numerous businesses, churches and schools so that the land could be transferred to GM for the construction of a new factory. Although the deal predated Smith's tenure as Chairman, he subsequently used the construction of the new Poletown factory, along with plants on a greenfield site in Lake Orion Michigan, and one in Wentzville, MO (an identical twin to Orion) to showcase the technology he felt would lead GM into a new era. Unfortunately, the factories failed to live up to their promised employment goals or their status as a technology showcase, and since they were duplicates of existing GM factories, unable to flexibly produce different models, were ultimately panned by critics as obsolete on the day they opened.

Roger Smith in popular culture

Smith is widely known as the main subject of Michael Moore's 1989 documentary film Roger & Me, which was highly critical of General Motors and the effects of plant closures in Flint, Michigan. At each screening of the film, theaters were required to reserve a seat for Roger Smith. He became so identified with the documentary that it was referenced in the lead paragraph of the Smith obituary released by the Associated Press.

Roger Smith plays an important role in the 1985 NFB documentary film Final Offer by Sturla Gunnarsson & Robert Collison. It shows GM's 1984 contract negotiations with the Canadian section of the UAW, which became the Canadian Auto Workers shortly after.Further Information

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