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Six Hard Steps To Fix GM's Culture

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In 2009, General Motors -- I have no financial interest in its stock -- went bankrupt after 101 years. After a $49.5 billion government bailout, GM has a better balance sheet but a busted culture. Its willingness to keep selling Chevy Cobalts with flawed ignition switches is just one piece of evidence to support that contention.

Since January, GM has been run by a Stanford MBA, Mary Barra. And if she's as smart as her accomplishments suggest, she could accelerate a transformation in GM's culture that would make it a better company from which to buy and a more attractive stock in which to invest.

Cleaning up GM's balance sheet did not refresh a culture that had built up over 101 years. As I wrote in May 2009, GM's bankruptcy was a result of three flaws in its business:

Of these three, managing in the bubble gets to the heart of why since February, GM "has recalled 2.6 million Chevrolet Cobalts and other small cars to fix the defect, which the company so far links to 13 deaths and 54 accidents," according to the New York Times.

At the core of GM's culture is what the Times reported was the "GM salute — arms crossed and pointing fingers at others" -- that signals that GM had the wrong values.

My guess is that the GM Salute means that the company did not want its employees to discuss problems -- or if they had to be discussed, make sure that there was no written or recorded evidence of those discussions.

Perhaps GM did this because a lack of evidence that employees knew about a problem or declined to fix it would make it harder to prove that it had violated the law -- thus minimizing its legal exposure.

Barra has started off on the right path to fix GM's culture but she needs to do more. Here are the six hard steps to fix GM's culture.

1. Admit GM erred

Through her public testimony, listening to the families of those who were killed in the GM vehicles in question, firing 15 GM employees, publishing the Valukas report, and hiring Kenneth Feinberg to figure out how to divide up the $1.7 billion it has set aside for damages, Barra is off to a good start in admitting that GM erred.

2. Define new values

Admitting that GM messed up is a good start, but she must define how GM should behave in the future so it does not keep burying problems and hoping they will go away. To do that, she must articulate different values to create a culture of safety.

She must place urgent emphasis on the safety of GM's products and on safety for employees who identify and report problems in those products that could endanger customers.

3. Dramatize the new values

With 219,000 employees, Barra can't just send a memo to everyone and tell them that GM has new values. She could start by doing what Jim McNerney did, as I wrote in You Can't Order Change, after he took over at Boeing as CEO in the midst of a defense procurement scandal.

To stage this drama, McNerney used the forum of a January 2006 leadership retreat. He asked Boeing’s General Counsel Doug Bain to deliver a devastating worst-case assessment of the potential damage that still loomed from Boeing’s then-recent ethics scandals.

In particular his speech at the Orlando, Fla. retreat with Boeing's top 260 executives offered insight into how Boeing hoped to recover from scandal, retrieve its reputation and ensure ethical behavior in future.

In so doing, Bain highlighted the penalties that Boeing had paid for the scandal, the 15 company vice presidents that had been pushed out in its wake, and much more. And this set the stage for McNerney to create a culture of ethics and compliance at Boeing.

Barra ought to investigate what GM can learn from how McNerney handled this situation.

4. Create new processes

The next step for Barra would be to create new processes that would encourage her to learn about how GM is doing in creating a safety culture.

For that, she could look to Alan Mulally at Ford. After all, when he became CEO, he created a process to ensure he would learn about problems.

The easy part was designing the new system -- which would color code reports on what was happening at Ford. According to HBR Blog Network, "Understanding how difficult it is for bad news to make it up the corporate hierarchy, he asked managers to color code their reports: Green for good, yellow for caution, red for problems."

5. Reward those who follow the new process

Not surprisingly, such systems don't work the first time. After all, if Barra were to put in place a similar system, everyone would be afraid to admit problems in their reports. They would ask themselves: Will I get to keep my job if I admit I am responsible for causing a problem?

This is what happened to Mulally. But he used his power to make people realize that he would reward those who followed the new process. Noted HBR Blog Review, "He was frustrated when, during the first couple of meetings, all he saw was green. It took considerable prodding before someone spoke up, tentatively offering the first yellow report. After a moment of shocked silence in the group, Mulally applauded, and the tension was broken. After that, yellow and red reports came in regularly."

6. Listen to the workers

If Barra can get this far, she must make sure that workers and the managers between them and her know that she will get at the truth.

For that she could follow McNerney's example. In addition to creating an internal audit department that would look for ethical problems, McNerney created an environment that would encourage people to talk about difficult ethics-related issues.

He did this himself when meeting with groups of 50 to 75 employees around Boeing. As he said, “I make ethics and compliance a regular topic of conversation. If they don’t bring it up, I do. We talk about it. The dialogue is rich, and openness and candor are a big part of it.”

Barra ought to do something like this as well.

Taking these six steps will not be easy. Nor would creating a safety culture at GM help fix all of its problems. But if it worked, it would convince me that GM could fix other problems it faces and lead me to boost my assessment of the value of its stock.