Pushing Out Wagoner Out Won’t Save GM

Of course Rick Wagoner needed to go. But investors hoping that having the government order the ouster of the CEO of General Motors might want to look at what happened at AIG.

Last September, the Treasury forced the resignation of AIG CEO Mike Sullivan, replacing him with Ed Liddy. No one expected this to be a panacea for AIG. But taking out the head of AIG might actually have some serious unanticipated costs.  Now the danger is that the same thing could happen at GM.

One of the most serious costs of removing AIG’s head was that it largely allowed the AIG management to escape accountability. The ruin of AIG was not a product of Sullivan alone but those under him—including the risk management team at AIG—have largely escaped unscathed.

Worse, the fact that the new head of AIG was not responsible for its failure has undermined political and public resistance to further bailouts of the firms. Politicians like having identifiable villains, and public anger is more likely to target individuals. When those individual villains are gone, it becomes harder for the political machinery to resist the charms—and bribes—of special interest.

The replacement of the head of AIG might also have encouraged looting at AIG. Basically, the mid-level management goes through a period of unsupervised anarchy during the transition period. That’s a great time for awarding bonuses to retain “talent.”

In short, don’t count on things to start coming up roses just because Obama forced Wagoner to take a hike.

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.