What to do with GM and Ford?  It sort of sounds like "what do we do about our miscreant son ______?"  The reality is that both companies are on the brink of failure – and no one believes they can survive without some sort of government bailout.  The national news is now active in the debate about whether to bailout or not – and how to bailout – from Nancy Pelosi in the U.S. House of Representatives to MSNBC pundits Keith Oberman and Chris Mathews to CNBC stock maven Jim Cramer.  But plenty of people are angry.  They were first angered by the bank bailout – and now this potential auto industry bailout makes them angrier.  Cries of "socialism" are not hard to find.

Not many Americans want GM and Ford to disappear.  The loss of millions of jobs, havoc on the unemployment, insurance and pension systems and the disappearance of thousands of dealerships along with the subsequent short-term shortage of product would be a tornado of problems making the banking crisis look like a west Texas dust devil.  But simultaneously, almost everyone is angry about bailing out the companies.  So where should this anger be directed, and can it be used constructively?

We must hold management accountable for the terrible state of these companies.  Even if you want to blame the union leaders, no labor contracts could have been created without acceptance by company management.  Under every bad decision rock will be the fingerprints of someone in management at the company.  It is management's responsibility to look out for the fiduciary well being of debtors and investors – as well as the long-term interests of customers who want service and replacement product, and employees who want to keep working, and suppliers who want to support the business.  All of these groups have suffered badly due to bad management decisions.

So, are these managers all a bunch of dopes?  That would be a radically over-simplified conclusion.  These managers are well educated, many from the top schools.  They are experienced.  They have more vested in the success of their companies than almost anyone.  Most have sacrificed pay, bonuses and benefits over the last several years, just like their employees (or even moreso) as part of helping their companies make it year to year.

What we have to realize is that these managers are Locked-in to the Success Formulas their companies created in the 1940s-1960s.  During those heydays, investing in auto manufacturing was a great way to grow wealth.  Working in an auto company made you amongst the highest paid workers on the globe.  Times were good, GM and Ford were on top, and the companies created behavioral norms and structural decision-making systems that helped them do more of what was making money.  The companies Locked-in on those behaviors and processes, and they are still trying to run these companies according to those outdated Lock-ins.  Even though the marketplace has shifted dramatically over the last 50 years, amazingly little has changed within the Lock-ins at these companies.  They have steadfastly Defended & Extended their Success Formulas – even ignoring the learning opportunities from acquisitions in aerospace and computers.

There are auto companies not on the brink of extinction.  Toyota, Honda and Kia may not be raking in the money this year, but no one thinks they are going broke.  They disrupted the auto market, and have never looked back.  As the market Disruptors, they have taken advantage of their Locked-in competitors in everything from labor agreements to manufacturing processes to design methods and even sales/marketing approaches.  GM and Ford have been sitting targets, easy to prey upon, because they were so unwilling to Disrupt and use White Space to evolve.  Quite to the contrary, the Locked-in leaders at GM and Ford have sold asset after asset – from Hughes Aircraft to EDS to GMAC at GM, for example – in their effort to protect the auto industry Lock-in within their companies yielding poorer and poorer return on assets year after year after year.

Now that the leaders of these companies (and this goes for the financial industry players looking for TARP bailouts) are asking for bailout, someone must step up to forcing change in the management.  Not because they are bad people, or ignorant, but because they are Locked-in to approaches assured of not improving results.  It makes no sense to put money into Locked-in management teams that have proven they can't make an adequate rate of return.  While some are saying "the smartest people about the auto industry are in the auto industry" (or banking), what they really mean is "the people who are Locked-in to how this industry has historically operated, and ignored market shifts to the point they took their companies to the edge of bankruptcy, are asking now for government support to maintain their Lock-in."  And that would be a foolish way to invest anyone's money – private or taxpayher.  Benjamin Franklin is credited with once saying "lunacy is doing what you always did but expecting a different result."  It would be lunacy to bail out these companies and leave the existing management in place – to do more of what was done that led them to failure. 

If managing was easy managers would be paid less than workers.  To earn more – like the remarkable pay of CEOs – managers are supposed to keep their companies making high rates of return.  If they don't, why are these managers there?  Once they fail, why should management teams be given money to do more of what they've already done, but to unsuccessful results?  Recent examples of AIG managers who are going on lavish business trips so shortly after their company was saved from bankruptcy by the governement is a clear indicator of how ready these managers are to return to the same behaviors and decision-making processes that almost destroyed their companies.  They are planning on more of the same, with possibly a little trimming around the edges.  Not the kind of change needed for these companies to regain competitiveness.  Have you heard any of these management teams take responsibility for their company failures, or recommend they be replaced?  Or are they asking for money to keep themselves employed?

There's a lot of competition for managerial positions.  There are a lot of leaders and managers who have been pushed out of organizations due to downsizings, or even age.  There are thousands of managers receiving new management degrees every year.  If these bailouts are to be effective, then we should assuage the anger of those supplying the bailout funds with a change in the management of these companies.  If we don't want government employees running them, according to stagnant rules incapable of keeping up with rapid market shifts, then we need a new batch of leaders and managers who are willing to Disrupt how these companies operate – internally – and start up a batch of White Space projects to create new Success Formulas that are competitive and able to produce positive returns in today's marketplace.  If we don't change the leadership, we shouldn't expect much payback for the investment.