Yes, yes, yes—everyone in the universe is complaining about General Motors, and the disastrous corporate culture there that led staffers to keep critical information from the board about ignition failures in the Chevrolet Cobalt.

In just a few keystrokes you can find plenty of columns about whether the chief compliance officer should have played a stronger role, whether the former CEOs should have set a different tone at the top, whether the legal department obsessed so much over litigation that it neglected GM's ethical responsibilities, and so forth and so on. You can find any number of analyses, most of them quite good, and most of them not quite reaching the root problem.

Here is the prime fact for GM: it had a culture of cost-cutting. That's what put the company into its current predicament, and I don't see that culture changing in much of Corporate America any time soon—no matter who the chief compliance officer is or which boss that person reports to. Consider this excerpt from GM's internal investigation report published last week:

[T]he 2000s were a time of extraordinary cost-cutting at GM. The messages from top leadership at GM—both to employees and to the outside world—as well as their actions were focused on the need to control costs. We heard repeatedly from GM personnel about the focus on cost-cutting and the problems it caused. For example, an engineer stated that an emphasis on cost control at GM ‘permeates the fabric of the whole culture.' Cost-cutting impacted all aspects of the business.

The report gives specific examples: extra duties assigned to one lead engineer, so other engineers could be laid off. A team of eight engineers charged with studying safety data, reduced to three. A policy of sourcing parts from the lowest bidder even if that supplier's parts were not of the best quality. (Compliance professionals who want to read relevant parts of the GM report should dive into Part VII, which looks at GM's leadership and corporate culture.)

That was the crucial value GM's corporate culture communicated: spend less money. It drove everything else at GM, including the other deeply troubling cultural flaw of employees afraid to speak their concerns aloud. And why wouldn't it? Speaking up costs a company money. Speaking up risks halting plans a company already has in motion: plans to manufacture a car, to hit sales goals, to meet Wall Street expectations, to send everyone home at 5 p.m. Halting plans costs a company money, and GM was crystal clear that spending money was something it did not want to do.

Some people will say GM's culture failed because the company was so large and complex. I don't buy that; plenty of small and simple companies have been undone by the same mistake. They hammer home the need to cut costs so often that employees come to believe cutting costs is the only thing that matters—and these are companies without complex silos of risk and operations, without complex reporting procedures or data analysis. They fall victim to

I am not saying that companies need to be spendthrift if they want a strong culture. Nor do I dismiss the formidable problems GM faced when its Chevy Cobalt problems were papered over into oblivion. Sales and market share were falling. Labor costs were too high. Innovation wasn't leading to new growth. In some of the most crucial years of this debacle—2007 to 2010—the whole country was economically going to pieces. GM itself went through bankruptcy. Of course the company was going to watch costs like a hawk.

The problem is that cost cutting is one of those corporate goals that can be implemented most easily, and measured most easily too—and every employee knows that what gets measured gets done, and if it doesn't get done then you run the risk of getting fired, laid off, “counseled out,” invited to leave. So you do it.

Values like safety, speaking up, putting the customer first, and all the rest that look good on a mission statement—and genuinely are noble goals for a company to pursue—they only get measured in employee surveys, if at all. Cost cutting gets printed on the income statement, and held out for the world to see. 

Topics