Today, once again, Mary Barra will be back on the hill. This time, her presence is likely to be a side show, with the main attraction being Michael Millikin, the General Counsel of General Motors (GM). The issues surrounding the ignition switch problem and the failure to recall the affected vehicles are serious. People died, quite possibly as a result of the inaction, and Senators will be looking for any evidence that GM’s legal department was aware of or participated in a cover up. As for Barra’s presence, it is most likely that the company’s CEO will once again be used as a prop as various Senators attempt to get re-elected.
Her performance so far when questioned by congress has been admirable. She has managed to stay calm as various politicians said what they think their constituents want to hear, and to gently point out that the cover up, if that’s what it was, happened before her tenure as CEO began. I know that Barra herself is a long term GM employee and manager, so was in a position of power as the scandal unfolded, but it is hard to watch her calmly absorb criticism without seeing it as justification for the work of Michelle Ryan and Alex Haslam.
Ryan and Haslam are the professors at Exeter University in England who first coined the phrase “The Glass Cliff.” The term is used to describe the situation whereby female CEOs often find themselves in precarious situations once the previously observed “glass ceiling” is broken through. The reasons for this could be many and varied. True conspiracy theorists maintain that male dominated boards elect a female CEO when they know trouble is looming, and then when that trouble comes are able to say “See, we tried a woman and she failed” before going back to male leaders. A somewhat less cynical view would be that electing a woman as CEO makes the company look more progressive as its reputation comes under fire, and deflects some of the criticism.
Whatever the reason, it does seem that female senior executives are often dealt a poor hand and given a struggling company or division to run. High profile examples often cited are Jill Abramson’s tenure at The New York Times as the print industry dies, and Marrissa Mayer being given the reins at Yahoo (YHOO) after the company loses out to Google (GOOG) in the search space.
Wall Street has its own examples following the financial crisis, including the short rein of Sallie Krawcheck as head of Wealth Management at Bank of America (BAC). The timing of Krawcheck’s two year tenure, immediately following the controversial buyout of Merrill Lynch by the bank in 2009, certainly lends credence to the theory that prominent female executives are often set up to fail or appointed to serve a short term purpose, as does the fact that she was let go after turning Merrill around and running the most profitable division of the bank.
Whether you believe that the “glass cliff” is fact, fiction or coincidence, however, it is hard to deny that Barra in particular inherited a dangerous and difficult situation at GM. She was appointed on December 10th 2013, and then issued the recall notice that brought the problem to the public’s attention on February 7th 2014. Multiple recalls since then suggest a change in corporate culture and a more accountable GM, but some decisions, most notably Barra’s refusal to meet with victims’ families this time around, might suggest otherwise.
Throughout all of this the actual business of GM, which should be and is my main concern on these pages, is doing well. Yesterday the company revealed that global sales for the second quarter of this year were the best since 2005. There are legitimate concerns about a long term change in the demographics of car buyers in the US and overcapacity in Europe, but growing demand in China, India and other emerging markets are more than offsetting those potential problems.
In short, as I have said before, GM looks remarkably cheap in a market where value is in short supply. A forward P/E of around 8 and a PEG ratio of 0.56 would certainly indicate that, and a 3.3% dividend yield will pay you while you wait. You may have to wait as the fallout from the scandal persists, but current pricing suggests that the problems will never go away; something history tells us is unlikely at best. From a value perspective, GM looks hard to beat, glass cliff or not.