GM overhauling legal department to prevent recall delays, report says

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THE GM RECALL

GM General Counsel Michael Millikin is planning to make changes in the legal department.

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May 21, 2014 - 6:58 am ET

DETROIT (Bloomberg) -- General Motors is overhauling its legal department as the automaker tries to break down silos that delayed the recall of millions of cars for a defect linked to 13 deaths, people familiar with the matter told Bloomberg.

General Counsel Michael Millikin has assigned a legal adviser to work with the heads of global safety and vehicle development so information about defects is shared more quickly between departments, one of the people said. Millikin anticipates further changes once an internal investigation is completed in the coming weeks, said the person, who requested anonymity because the matter is private.

Transforming GM’s legal culture won’t be easy because lawyers have spent their careers battling to keep potentially incriminating safety information out of the hands of trial lawyers. In one case, lawyers tried to bury an internal memo that calculated the cost to the automaker of fuel-fed fire deaths, according to internal documents reviewed by Bloomberg News. Employees were discouraged from using words including “decapitation,” “deathtrap,” “eviscerated” and “mutilating” that could be used against GM in court, according to an internal memo released by the U.S. government last week.

“Corporate counsel is a reflection of management,” said James Butler, a Columbus, Ga., lawyer who has fought GM over defects for 25 years and claims a 35-to-0 record against the automaker. “You have to change the whole culture.”

Legal shakeup

Mary Barra, GM’s CEO since January, already has shaken up the carmaker’s communications, public policy, human-resources and engineering teams. In the legal department, North America General Counsel Lucy Clark Dougherty will advise the newly appointed head of global safety, Jeff Boyer, on legal matters, the people said.

In a statement, GM said Millikin, who turns 66 in August, has no “current plans to retire” and will remain in his position “at an important time for the company.”

The U.S. is investigating why GM took more than a decade to recall Chevrolet Cobalt and Saturn Ion cars with defective ignition switches that could be jarred into the “off” or “accessory” position, cutting power to the car and shutting off the air bags. Last week, the U.S. Transportation Department fined GM $35 million, the maximum allowed by law, for its handling of the recall.

On Tuesday, GM recalled another 2.42 million vehicles, raising its recall total for the year to more than 13.6 million vehicles.

Sacred cows

Anton Valukas, chairman of the Jenner & Block LLC law firm, is leading the internal investigation. He has the remit to follow the facts where they lead and there are no sacred cows, one of the people said. Yet some of the lawyers helping Barra find out what went wrong spent their careers at GM.

Millikin, who’s co-leading the investigation, joined the legal staff in 1977 and was named associate general counsel in 2005, the same time many of the ignition-switch problems came to light. King & Spalding LLC, the law firm hired to help Valukas with the internal probe, also has a long history with the company, going back to fuel tank litigation in the 1970s.

In the 1990s, GM lawyer William Kemp, who remains the liaison between the carmaker’s defect investigators and the general counsel’s office, exposed the “Dateline NBC” news program for using incendiary devices to ensure a GM pickup’s fuel tank caught fire in a crash staged for the newscast. The network apologized, handing the automaker a public relations victory even though the government later said GM knew the fuel tanks were defective and failed to fix them or warn the public. GM ultimately wasn’t required to recall the vehicles.

Trial lawyers

Breaking down the silos between departments will be hard because automakers have been keeping potentially damaging information compartmentalized since the early 1970s, when trial lawyers began targeting carmakers, said Steve Hantler, Chrysler’s assistant general counsel from 1990 to 2007.

Sometimes employees offer an opinion about the safety of a part that a plaintiff’s lawyer can use as a “smoking gun,” Hantler said. For example, in 1973 a young GM engineer wrote a memo in which he said it might not make economic sense for the company to pay more than $2.20 per vehicle to save drivers from fuel-fed fires.

GM lawyers tried to keep the memo from becoming public, with one calling it one of the “potentially most harmful and most damaging” internal documents ever produced. Years later, trial lawyers got hold of the memo and used it to suggest that GM had known for years that some of its fuel tanks were unsafe.

Employee lawsuits

In the late 1990s and early 2000s, two employees in quality control filed whistle-blower lawsuits alleging that their efforts to inform superiors about potentially dangerous defects were suppressed. Bill McAleer contended in his lawsuit that a “glass ceiling of information” prevented him from alerting top management about defects including collapsing axles on Chevrolet Corvettes. His successor, Courtland Kelley, filed his own lawsuit alleging that his career was sidetracked after he raised safety concerns.

GM denied wrongdoing, and both cases were dismissed. In a telephone interview, McAleer said his and Kelley’s experience sent a chilly message throughout the organization.

“We were a visible sacrifice that apparently worked extremely well,” he said. “They quieted everybody down.”

Last month, Barra told a Senate panel that preliminary results of the Valukas investigation showed that information known in one part of the company wasn’t “communicated as effectively as it should’ve been to other parts.”

If Barra wants to prevent GM from losing track of defects in silos, she’ll need to be sure she has the right people in the right jobs and the right kind of lawyers to execute her plans for more transparency, said Erik Gordon, a professor at the Ross School of Business at the University of Michigan.

“It could be the case that they were hired because they’re alligators, because the prior CEO said, ‘Fill the swamp with alligators,’ and they did,” Gordon said. “If that’s the case, then you have to get rid of a lot of them because alligators bite.”

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