Do CEOs Really Matter?

There’s a BusinessWeek report that confirms two things I’ve been arguing for a while: that Bob Nardelli will be ousted no matter what happens with Chrysler in the upcoming two weeks.

Chrysler CEO Robert Nardelli confirmed in a letter to employees today that he will likely be replaced as CEO of the automaker in the coming weeks as the company faces either an alliance with Italian automaker Fiat or a bankruptcy reorganization or liquidation. The company’s board, too, would be replaced, he said.

And that one of the reasons the Obama Administration treats the Fiat deal as a viable option for Chrysler is that they hope to put Sergio Marchionne, the head of Fiat, in charge of the merged company.

In Nardelli’s letter to employees, the former Home Depot CEO said a new board of directors will have the power to appoint a new CEO. “The majority of the directors will be independent (not employees of Chrysler or Fiat),” Mr. Nardelli wrote. He added that the board “will have the responsibility to appoint a chairman and select a CEO with Fiat’s concurrence.”

Executives close to Chrysler say that it is possible that Fiat CEO Sergio Marchionne will hold the title of CEO, similarly to the way Carlos Ghosn was CEO of both Renault and Nissan for a few years after he was granted the job at Renault. Renault has a controlling interest in Nissan, and had sent Ghosn to Nissan to turnaround the then-ailing Japanese automaker.

 Now, Marchionne is a darling of the Wall Street types because he managed to turn Fiat around. 

"The turnaround he steered at Fiat was just as miraculous as what Carlos Ghosn did at Nissan," says Tony Faria, business professor at the University of Windsor. "Fiat was in big difficulty, losing a lot of money. He had them in profitability in less than two years. The turnaround he steered was just magnificent."

Fiat–one of the oldest industrial businesses in Europe–was on the brink of bankruptcy when Marchionne was appointed CEO in 2004. Less than two years later, the maker of such brands as Ferrari, Alfa Romeo and Maserati returned to profitability as a world leader in environmentally friendly vehicles.

"He takes over and suddenly starts to pull all the right levers," says Eric Mayne, editor of news operations at Detroit-based "At the same, time, miraculously, not only do they get their business model reorganized, but all this wonderful product starts bubbling to the top. I don’t think he can take credit for all of it, but certainly, his fingerprints are on the Cinquecento (Fiat 500), which is all the rage in Europe. If it comes here, it’s going to give the (BMW) Mini Cooper a run for its money."

But with its turnaround, Fiat is still plagued by some of the same problems that face Chrysler: qualify and cash flow.

Fiat cars are unreliable and unsatisfying, according to two respected independent surveys of European-market vehicles.

What’s more, parent company Fiat Group appears not to have enough money to pay debt that matures in the next 12 months, Standard & Poor’s said Tuesday as it downgraded Fiat’s ratings.

So I wonder–can Marchionne really deliver everything the Obama Administration seems to expect from him? Is the Fiat turnaround sufficiently robust to call Marchionne a miracle-worker?

Now, frankly, I do think CEOs matter–having learned that lesson will Alan Mulally, the CEO of Ford. I was consulting with Ford when he was hired and the folks I knew there grumbled openly about this high-paid outsider. But within weeks, the decisions on cut-backs–for the first time that I had seen–began to make sense (one of these decisions was to move the lucrative contract I had to a supplier in Australia, which was a bummer for me but was absolutely the right business decision). Though I wouldn’t particularly want to hang out with the guy, I’ve consistenly maintained that if it weren’t for the credit crunch, it might have been Alan Mulally and not Marchionne being declared the latest miracle-worker in the auto industry.

My concern, though, is the standards for measurement. It absolutely makes sense to replace much of Chrysler’s management, and Nardelli was never hired to "run" an auto company, he was hired to chop it up for sale. 

But the same CEO fetishism that makes Marchionne (or perhaps in the future, Mulally) into the wunderkind of the Wall Street types crafting a Chrysler reorg refuses to see that most of the CEOs that ruined our economy remain in charge, releasing one after another transparently bogus earnings statement.

So, yeah, CEOs matter. But I’m not sure we yet know how to measure them. 

13 replies
  1. dustbunny44 says:

    CEOs matter, like it matters if your child’s school bus is driven by the irresponsible doper DUI or the conscientious neighborhood mom: better care, better ideas, and capability matters.
    What is lacking across the board (so to speak) is actual oversight.
    CEOs are responsible to their board, to shareholders, to the feds, and to their employees. They lie to their shareholders, they own their employees, they pay off the feds in contributions, and their boards are made up of other CEOs on whose boards they also sit. They can do whatever they can manage to get away with. Is this the reason they can pay themselves outrageous salaries and try to convince us all that this particular executive management is irreplaceable?
    No one is irreplaceable in corporate America, no one. And you’re right, we have no process of fairly evaluating executive management and fixing it when it’s broken.

    • emptywheel says:

      And on that note, which I totally agree with, perhaps the most notable part of the Chrysler proposition is that all the directors will be independent.

      Of course, given the way things are going, they’ll probably be Wall Street flunkies who ruined our economy. But independence would help.

  2. CTMET says:

    Well measurement is important because as they say, “What gets measured gets done.”

    I’m not sure how to reconcile this:

    his fingerprints are on the Cinquecento (Fiat 500), which is all the rage in Europe. If it comes here, it’s going to give the (BMW) Mini Cooper a run for its money.”

    with this:

    Fiat cars are unreliable and unsatisfying, according to two respected independent surveys of European-market vehicles.

    I’d say that CEOs matter because people matter in general. One of my smarter B-School professors said if you want to pick stocks, look at who is running the companies.

  3. PJEvans says:

    It was … interesting … to read that Fiat wants the Chrysler unions to make [more] concessions. Do they really want to have no production line left (or at least no experienced people on it)?

  4. JEP07 says:

    The money line?

    “returned to profitability as a world leader in environmentally friendly vehicles.”

    Supplying REAL demand always leads to fiscal success. Supply siders concocted oversized and overpriced gas guzzling products. At the same time, their Madison Avenue minions mounted an assault to perpetuate a “keep up with the Joneses” demand for those big rigs.

    If Detroit had made even feeble attempts to provide “green” alternatives beginning in the 80’s, instead of perniciously providing testosterone-laden SOB’s with their SUV’s, they might not be facing bankruptcy.

    Supply side economics was the systemic factor that crippled our auto industry. One more note of thanks we owe to the era of their supply-side idol, Ronald Reagan. Voodoo economics have finally caught up with them.

    • emptywheel says:

      Um, JEP?

      You perhaps have missed the fact that there is NOWHERE near the demand for small vehicles in the US as there is in Europe. Nowhere close. ANd there’s a good reason for that–our gas is a fraction of the cost of gas in Europe.

      You see, contrary to what you believe, big cars sell well and profitably in this country.

      So while I’m all in favor of small cars, until ignorant people come to grips with the fact that ALL car companies push big cars in this country because they are far more profitable (and hopefully do something to change that, like impose a gas tax), then we’re still going to have a big car problem.

  5. Rayne says:

    Nardelli’s toast, yes, but not even an issue as far as some suppliers are concerned. They think the whole deal will still be tanked because of JP Morgan Chase, and are prepared to operate as if this is the case.


  6. rosalind says:

    ot: interesting update on the anthony pellicano case (the h’wood P-I who specialized in wiretapping):

    Especially considering he’s [director John McTiernan] just finished financing, directing and narrating a documentary that accuses Karl Rove of using the Pellicano case to dig up dirt on Hillary Clinton in advance of what was expected to be her 2004 presidential campaign up against Dubya’s re-election run.


    from an earlier story:

    On the eve of his surrender, Pellicano himself griped to the Los Angeles Times that “The search warrants in my case were overly broad.”…His main complaint is that the warrants “opened up all of my confidential files to the scrutiny of people who have no right to review them.”


  7. earlofhuntingdon says:

    As you point out, FIAT’s turnaround was not as stellar as its CEO and the business press made out, though it may have been one of few bright spots in the auto industry to write about and so it was over-hyped in typical fashion.

    Nardelli’s tenure at Home Depot ought to have demonstrated his unfitness to be CEO anywhere. He’s a predatory capitalist intent on wringing blood from stones in order to grab the brass ring of a fat bonus. He’s a transplant surgeon whose skill is in slicing organs out. He isn’t interested or capable of putting them into recipients and nursing them back to health. The shareholders ought to be glad of an excuse to send him out to his gold-plated pasture.

  8. earlofhuntingdon says:

    I should add what may be obvious: I fundamentally disagree with bringing in a CEO “fixer” who is rewarded for taking “hard decisions” and then promptly leaves with his thirty pieces of silver without ever having to manage the consequences of his decisions and the follow-on decisions after that.

    I think that role itself is an expression of predatory capitalism, as well as of weak boards of directors who want the status and income of being board members, but not the responsibility.

  9. bobschacht says:

    Thanks for this analysis, EW!
    Typo alert:

    the same problems that face Chrysler: qualify and cash flow.

    I think you mean “quality”.

    Bob in HI

  10. pseudonymousinnc says:

    There’s a genuine question of whether “if you build it, they will come” applies to small cars in the US. There’s a subsequent question of whether the leading Euro superminis can be built and sold in North America to the same standard and market position, and the 2010 Fiesta will provide a preliminary answer.

    If you took Chrysler and FIAT’s current output and applied the blue pencil, you’d end up with a decent lineup that you could likely sell around the world. That doesn’t mean it’ll happen, or that Marchionne has a clue about the kind car-making segments where Chrysler-Dodge-Jeep isn’t an also-ran.

    I’m still wondering about the impact on existing platform and rebadge deals: would the T&C cross the Atlantic, given that the VW Routan is basically the same car sold to Americans? The 500 is built on the same platform as the Ford Ka: is that deal affected by a merger?

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