1. Corporate image of General Motors in the light of Vauxhall Luton plant's closure.
2. Analysis and assessment of Perrow’s views on the agency theory in evaluating the behaviour of GM management towards Vauxhall employees.
The closure of the Vauxhall Luton plant on 21st March 2001 by General Motors’ management influenced GM’s corporate image. In our paper, we have reached the conclusion that this effect was mostly negative. Although GM offered laid-off employees compensation packages and help in getting new employment, it failed to communicate the news of the closure in a timely manner that would make Vauxhall employees feel that their interests are being considered. Besides, since the plant was not built and set into operation by GM, the closure of the plant had the effect of disrupting the well-established life of the community that had been created by the efforts of many people long before General Motors appeared on the scene.
Perrow’s views on the agency theory are consistent with the view of GM’s action as a way to exercise proprietary power that is possessed by the head company’s management due to their access to greater resources and better acquaintance with the firm’s functioning.
Recommendations concentrate on the need to show greater consideration for the interests of the employees, introducing better communication procedures that will allow all GM stakeholders to enhance their perception of the company as a partner in equal dialogue, differentiating the redundancy package depending on the employee’s need for relocation, and making an attempt to sell off the undesirable asset to save it from closure.
One thing that is certain about plant closures is that they are not enhancing the company’s corporate image. People are laid off; the economic welfare of the communities is jeopardized; corporate culture that has been in existence for centuries disappears in a heartbeat. Is it possible to conduct a “civilized” plant closure” so that the corporate image is not shattered by the decision? We will try to look at this question as we proceed to examine the effect General Motors’ behaviour towards Vauxhall employees had on their corporate image.
In the second part of the report we will look at GM’s behaviour towards Vauxhall Luton employees from a different perspective, applying Perrow’s views on the agency theory to this case study.
1) Corporate image of General Motors in the light of Vauxhall Luton plant's closure.
Closure of a manufacturing facility is in many ways different from the dissolution of, for example, a financial services unit. Employees who over the years have accumulated experience and expertise in one particular area, such as car production, will often find it difficult to find a similar job with identical specialization in the same area. That means that many of them will have to take a decline in career of relocate, often adversely affecting family relationships and other personal issues. In the case of the Vauxhall employees, part of them were helped out by the existence of the IBC plant next door, although admittedly this plant will hardly be able to absorb all the Vauxhall employees left behind.
The long-term nature of employment at manufacturing facilities due to their specific character of specialisation creates a corporate culture, parting with which is extremely painful for many employees. In this sense the plant closure is always accompanied with bitter feelings. This was evident at the Vauxhall plant whose workforce showed their best results in the final months of the facility’s operation, beating their past records.
So, the sorrow and hard feelings associated with closure are unavoidable. But General Motors did not do all it could to sugar the pill for the Vauxhall employees. They were all hurt by the top management’s style of distributing the bad news. Learning about the projected closure from news broadcasts was taken by many as a sign of neglect for their interests and feelings. Indeed, since this reaction was very predictable, GM’s management could have broken the news first to the workforce. People who had a very strong Vauxhall identity were turned off by the fact that the new management no longer believed them privy to the company’s information and excluded them from any semblance of participation in the company’s life. The distribution of the news to the employees of the plant in the first turn would have been relatively easy to realize and would have propped up GM’s image as a “caring company” that, despite taking harsh but necessary cuts, is doing all it takes to accommodate the Vauxhall workforce.
It is another question whether the action was at all necessary. After all, not all Vauxhall employees agreed that their plant was the right one to close. Some of them sensed disappointment remembering that political issues might have been involved in selection the targets for closures and resented the “finance guy” ‘s approach to business, allegedly lacking strategic perspective. Were they right and did management at all carry any responsibility for making right closure decisions to their employees? At the time of “wild” capitalism when every businessman was free to do as he pleased with the funds, any pressure on management with regard to their decisions as to plants was absurd. Now, however, more and more companies are concerned about their image as socially responsible entities and thus the public in general and workforce in particular has gained a mighty leverage tool to make the companies accountable for their decisions that appear to be purely finance-motivated.
General Motors in a sense accepted responsibility for the life of the Vauxhall community when it acquired the plant that was successfully functioning making a decent place for lifetime employment. Generations lived, worked and got old at the Vauxhall plant. However, after GM made a takeover decision, carried the buying procedure through, spent money and managerial effort to upgrade the facilities and strengthen corporate culture through greater workforce participation in the company’s decision-making, it criss-crossed all its positive achievements with the news of the plant closure. Naturally, policy changes at companies are inevitable, especially in the light of management reshuffles, but the effect these changes are having on unsuspecting workforce is often negative and casts a damp over the corporate image of the company like General Motors. GM, in fact, took over the plant, ran it for a while, and then decided to dispense with it, with a ruinous effect on the community’s economic stability.
The way GM’s management handled the Vauxhall Luton’s closure vividly demonstrated the separation between the interests of the acquired plant’s workforce and the Chicago-based leadership of the company. This shows that GM’s top management considers the workforce only to the extent they believe feasible. One can argue that it is true with regard to any big company, but once we discuss the impact on GM’s corporate image, we have to note that cases like this are bound to remind other GM employees at other facilities how much they are in fact removed from decision-making process and how unstable their employment with General Motors in fact is. Even if you are an employee with a long-term record at what seems to be a successful and efficient plant, you still are under threat that the company will make you redundant on some higher, politically charged motive, a move that you can hardly predict. In this sense the harm to the corporate image wrought by Vauxhall closure may have a negative effect on the performance of other employees. Motivation levels were sinking drastically in the last months of Vauxhall’s life, a depression some of which could spill over to other GM plants.
To be objective, one needs to state that GM management did take some action to sweeten the effect of the plant’s closure for the workforce and to remedy its corporate image. As promised before, some employees were transferred to IBC plant in Luton. Others received a redundancy package and were assisted in finding a new employer. General Motors followed the accepted corporate norms in dealing with the laid-off employees.
Overall, Vauxhall Luton’s employees were hurt by the fact that General Motors took over their plant. The plant had been functioning successfully for 22 years, and GM’s acquisition was a valuable asset. A plant with distinct identity and established corporate culture is not built in a day, and the creation of such a facility requires a lot of time and effort. On the broader plane, from a societal perspective, this labour and effort has been wasted. The plant is now closed and all the complex network of ties and connections that has gone into its creation is gone. Definitely, the society is aware of this happening and realizes that GM, through about-faces in its corporate policy has wasted the resources of society.
On the other hand, however, the corporate image of General Motors is dependent on how effectively it can realize obligations to its shareholders who are seeking the best value for their funds invested in the company. Any management has in fact to balance the relationship between its stakeholders, including the investing public and the workforce. The company is however almost always inclined to put the interests of the investors, that is, the owners of the business, first, and consider them ahead of considering the interests of the workforce. This also happened in the Vauxhall case: the management deemed that investors would benefit from the plant closure more than from an upgrade or overhaul in its operations, and thus decided to forgo the interests of the shareholders. The social image of the company depends to a great extent on its ability to consider the interests of all its stakeholders, such as consumers, workforce and investors, and to promote the well-being of all of them. For several years, GM has been under pressure to thoroughly improve its performance to show better results as its financial performance has been less than stellar. Anyway, it is not always feasible to demonstrate neglect for the interests of the workforce that is to a great extent responsible for achieving higher performance.
2) Analysis and assessment of Perrow’s views on the agency theory in evaluating the behaviour of GM management towards Vauxhall employees.
Agency theory states that incentives such as carrots and sticks are vital in eliciting desirable behaviour from agents, as left on their own agents cannot be trusted to act in the best interest of the principal (McGregor 1967). This leads adherents of the agency theory to claim that there is an intrinsic conflict between the interests of the shareholders and those of the management: the management needs extra incentives in order to act in the interests of the shareholders. This has led some to conclude that the best interest of the shareholders lies in the separation of the roles of the board chairman and chief executive officer (Donaldson, Davis 1991:1).
Perrow in contrast to many researchers of this issue believes that “economic models of organizations overlook altruism and power and exaggerate the importance of self-interest and efficiency in the evolution of organizations” (Nilakant 1994). Perrow is critical on the studies that narrow their focus to the “implicit assumption of competitive self-interest of actors”, “their general indifference to the positive aspects of human behaviour” (Polyto, Watson). Perrow criticizes the “set of assumptions about human nature” suggested by the agency theory that focuses primarily on its negative side (Roberts 2004).
Perrow believes that power is “the ability of persons or groups to extract for themselves valued outputs from a system in which other persons or groups either seek the same outputs for themselves or would prefer to expend their effort toward other outputs” (Zhou).
Thus, Perrow would regard the behaviour of General Motors’ management as encompassing aspects other than self-interest.
The interest of the company’s shareholders would consist in the closure of the Vauxhall plant with minimum damage to GM’s corporate image. The damage any closure wreaks on the corporate image downgrading the public perception of the company’s social responsibility can adversely affect its long-term prospects. Customers may be reluctant to buy the products of the company if they believe that it is acting immorally towards its employees or other stakeholders such as the community in which it operates.
However, the GM shareholders are interested in the managerial actions that generate the greatest possible value for the firm. If the plant was indeed inefficient, the closure was performed in their best interest. However, it happened years after General Motors invested in upgrading the plant, installing new equipment. This shows that the management’s actions were not ultimately in the shareholders’ interest.
The discrepancy between the managerial interests and those of the shareholders lies in the fact that managers are more interested in the short-term prospects of the company. Managerial reshuffles are frequent and the person in a leading position may be tempted to reap the benefits of the post here and now boosting current profits and sacrificing strategic outlook. According to the plant’s employees, this might have been the case with the Vauxhall plant as “the finance guy” abandoned the future prospects to get rid of the plant that did not show stellar results at the time being.
If we in line with Perrow regard the behaviour of GM’s management as conditioned by power, we will see that power is derived from the management’s access to the sizable resources of the giant auto manufacturing company and their better acquaintance with the firm’s situation. Thus they are able to generate benefits for themselves that exceed those available to the Vauxhall employees and dictate their will.
There was some potential for developing the cooperative side of agency, in which Perrow was interested, in the Vauxhall-GM case. If the GM management did not repel the loyalty of Vauxhall’s employees through its clumsy actions, both could have worked together to make the plant’s final days more tolerable. In the situation as it happened the employees showed splendid performance merely to spite the GM management.
The cooperative potential of the situation was mitigated by the alleged separation of interests between the Vauxhall employees and the GM management. The separation of interests in this case was inevitable as the management had to act in the interest of the shareholders while the employees had their own interests. However, GM’s actions made this conflict very vivid and destroyed the possibility of interest coordination.
The effect the closure of the Vauxhall Luton plant had on the corporate image of General Motors was negative. Although the business community is aware that plant closures are in most cases an unavoidable misfortune that accompanies the production process, it is still damaging for the company’s image of contributor to the welfare of the society. General Motors did not wholly live up to the employees’ expectations and exhibited lack of sensitivity on the matter.
In line with Perrow’s views, agency, despite holding a potential for the conflict of interests due to the self-interest of the agents, this situation held potential for the realization of the positive motives of its participants, such as desire for cooperation and altruism. However, this potential was not realized through the failure of GM’s management to persuade Vauxhall employees that their interests are similar.
The management of any large company, when making a decision about the closure of a facility, needs to take into consideration. First, if it is committed to promoting the corporate image of a responsible company, the decision to make a change that disrupts the life of a community that was revolving around the facility is not to be taken lightly. This care and concern are by all means to be communicated to the unit’s stakeholders and the local population. It is essential the top management does its best to make people feel that they are considered in the decision, for example, by making them the first to learn the sad news of the shutdown.
Second, if the plant is indeed a bad asset to hold for the management’s shareholders, the company can try to sell this asset off, with a possibility that the branch will end up in the possession of a company that will take the trouble to develop the resource.
The case study mentions that the former plant employees were given redundancy packages and some were assisted in finding new employment. The company could have differentiated between the two categories, those who stay at the old place and those who have to relocate, offering extra packages to the relocating ex-employees.
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