Ross Perot was intrigued with the proposition of becoming the CEO of General Motors. The only condition he was not satisfied with was that EDS was to become a small part of GM, which meant that he could lose control over his own company. Another point he was concerned with, was that when EDS was a separate company, the employees were awarded shares of the stock if the company performed well, which served as an incentive for better performance of each employee.
However, in the case of EDS’s becoming a small part of GM, awarding the employees with shares could not be a stimulant anymore. Ross Perot showed his worth as a talented leader and fighter for the rights of his employees; he never agreed to sacrifice their interests even for the welfare of the company he owned and insisted on compensating the employees irrespective of the more serious problems the merging of GM and EDS involved.
After being assigned the position of CEO of GM in 1981, Roger Smith started introducing changes into the company. His aim was to increase the efficiency of the company by modernizing it and making it less bureaucratic. The modernization plans included the acquisition of EDS; Smith liked Perot as the leader and was sure that he could make the company more productive. Ross Perot agreed to sell Electronic Data Systems for this allowed him to possess a part of General Motors, though a relatively small one. After being integrated into GM, EDS obtained a class E stock, which meant that the company owned a part of GM; it was also important that, in the case of voting, the worth of the stock equaled 1/5 of the total GM shares.
This ensured the independence of EDS and made Ross Perot able to still compensate his employees, which was his intention. Perot also benefited financially from selling the company; the sale brought him $1 billion, which is $44 for a share (he owned 45% of 58 million shares of EDS).However, the merging of the companies was aggravated by corporate cultural differences between them. GM’s employees objected the merging and resented the fact that nobody asked their opinion as to this issue.
They refused to work for EDS which was bought by their company, a much larger and more prosperous one; they did not want to work under EDS philosophy with the latter functioning under a separate name. Moreover, EDS employees got used to a military style of management and GM’s staff felt as if they were attacked. As a result, the relations between the workers of these two companies became strained and the environment in general was hostile.
Apart from the problems connected with corporate cultural differences, there was another troublesome issue. Roger Smith was aimed at introducing certain changes into the overall performance of the two merged companies. EDS tended to conduct business using fixed-price contracts which allowed the company saving money. GM, in its turn, used cost plus contracts and did not wish to change this policy.
Despite the contract concluded by these two companies (which stipulated that EDS was allowed using fixed-price contracts) at the time of merging, GM managers still insisted on their way of conducting business. One more problem was compensation to EDS workers, the issue Perot was so much preoccupied with. Smith disapproved the system of giving bonuses to EDS employees for he considered them excessive. This issue aroused numerous disputes between two executives with Perot’s completely losing his trust in Smith, and the latter flowing into furious rage because of the failure to introduce his changes.
Furthermore, acquisition of Hughes Aircraft became another stumbling block in the cooperation of Smith and Perot. It is possible to agree with Ross Perot that the acquisition of Hughes Aircraft by General Motors was unnecessary. This could lead to redirection of their business as such and involve high expenses without returning them in future. It was risky to put the whole business under a threat hoping that Hughes Aircraft could make the business more effective.
Defending the rights of his employees, Perot had numerous disputes with the General Motor’s Board of Directors. The best way to resolve these disputes was for the Board to agree to the terms put forward by Perot. Perot acted in the interests of employees, rather than his own; he agreed to sell EDS under condition that he would be allowed to compensate his employees. Otherwise, the only way out was to buy Perot out.
If I were a member of General Motor’s Board of Directors, I would not agree to buy him out because he was valuable as a leader of the company, even with his employee-oriented policies; though, if I were a shareowner of General Motors, I would agree to do it since his stock was significant for voting in the company. Judging from exhibit to, the composition of the GM Board of Directors is really impressive; all the members of the Board are respected and experienced people able to fulfill their role. However, unlike Ross Perot, they primary aim is the welfare of the company, rather than its employees, which affects the decisions they make.
In conclusion, it is worth adding that, despite all the problems which Ross Perot encountered while being a CEO of General Motors, he always remained true to his principles. He resigned from this post not because it was hard for him to handle these problems but because he did not want to abandon his position.