Here’s Who Is Really to Blame for the Epic GM Scandal

It’s a revelation that has people’s hair standing on end. In yesterday’s Congressional testimony on the GM ignition switch scandal, it was revealed in a 2005 email that a decision had been made not to replace the switch (which was known to have problems) because it would cost the company 90 cents per switch to do so. No wonder CEO Mary Barra, who very likely had nothing to do with any of this but is still left holding the bag, has called in Kenneth Feinberg, the lawyer who handled the victim’s funds for 9/11 and the Gulf of Mexico oil spill, to deal with the potential payouts to victims of accidents caused by the faulty switches.

The fact that the bean-counters seem to have won out over the quality control and design factions at GM puts me in mind of a book review I did in 2011 on former GM vice-chair Bob Lutz’s Car Guys Versus Bean Counters: The Battle for the Soul of American Business. In it, Lutz wisecracks his way through the 1960s design- and technology-led glory days at GM to the late-1970s takeover by gangs of MBA’s. Executives, once largely developed from engineering, began emerging from finance. The results ranged from the sobering (managers signing off on inferior products because customers “had no choice”) to the hilarious (Cadillac ashtrays that wouldn’t open because of corporate mandates that they be designed to function at -40°F). It’s pretty easy to imagine Car Guy Lutz removing his mirrored shades and shouting to the cowering line manager, “Well, customers in North Dakota will be happy. Too bad nobody else will!”

GM’s problems today, of course, aren’t funny. And neither is the history of the triumph of bean counters over car guys in the auto industry. It’s a history that has deep roots that go all the way back to the 19th century, to the invention of the numerical religion known as “efficiency theory” by Frederick Winslow Taylor. Its core concept—the notion that anything which can be measured can be managed—was picked up and re-popularized by Henry Ford but also one-time Ford CEO and former Secretary of Defense Robert McNamara.

The last several decades of economic and business history might have been quite different if not for McNamara, who, under President John F. Kennedy and later Lyndon Johnson, was largely responsible for the failure of U.S. strategy in Vietnam. His obsession with systems analysis—in which data about every aspect of the war effort, from bombs to defoliants to fatalities to the number of enemy vehicles disabled per airstrike megaton was collected in order to maximize efficiency—blinded leaders to the overall strategic failures of the war effort. Since it was impossible to argue with numbers, it was difficult to question McNamara’s thinking, a topic well described in books like The Best and the Brightest.

But a less well-known aspect of McNamara’s legacy was how he brought financial efficiency theory to corporate America, introducing a culture of management by numbers that eventually undercut productivity in some of America’s top corporations. Long before his ideas shaped the war effort in Vietnam, McNamara launched an attack on Ford, where he developed a mania for squeezing fractions of pennies out of the cost of a set of front-wheel lug bolts, while ignoring the creative side of the company, a strategy which eventually led the automaker to lose its global dominance. It’s a legacy that’s being felt within the industry even today—in fact, I’d say that GM’s current recall scandal, in which a decision to save 90 cents on an ignition switch led to numerous deaths and a Congressional investigation, can be traced all the way back to the ideas that McNamara popularized in the industry.

The streamlining of Ford was orchestrated by the “Whiz Kids” who came out of the Pentagon’s statistical analysis department, of whom McNamara was the best known. Hired by Henry Ford II himself, the Whiz Kids cut costs and bolstered the company’s stock price, but also undercut investment in product development, which resulted in a decline in overall productivity at the company from 1965 onwards. Managing by numbers became endemic in corporate America as the Whiz Kids went on to run many more Fortune 500 firms.

The result was a loss in international competitiveness on the part of American firms as a whole as Whiz Kid notions of quantitative, cost-driven management came to dominate business education in America. (Harvard Business School in particular built its curriculum around these ideas.) Yet as the number of MBAs and management consultants in corporate American rose (“if you can measure it you can manage it” actually became known as the McKinsey Maxim), U.S. business actually lost much of its innovation mojo.

As the GM scandal shows, we are all living in the green eyeshade-tinted world of Robert McNamara today, a world in which numbers all too often get in the way of really good ideas – or even the value of a human life.