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Published: May 21, 2003

 
 

Delphi Builds a Board

CEO J.T. Battenberg III was determined his directors be not just independent, but engaged.

Illustration by Tavis Coburn
It was a cold Wednesday in January 2003. J.T. Battenberg III, CEO of the Delphi Corporation, the world’s largest automotive supply company, leaned back in his chair and dwelled not on the success of his largest customer, the General Motors Corporation, but on what he had learned from its past failures. He was describing the wrenching years a decade earlier when GM wrestled with the ouster of its CEO and a major corporate governance crisis.

In 1992, the General Motors board forced out CEO Robert C. Stempel, a GM lifer, after he had served just short of three years in the top job. At the time, Mr. Battenberg was an executive vice president at GM. He watched as the company’s market share eroded, and Mr. Stempel took the fall. During this time, Mr. Battenberg also witnessed GM’s quiet revolution, in which the largely nonmanagement GM board selected a new CEO, John “Jack” F. Smith, Jr., and a nonexecutive lead director, John G. Smale, the former CEO of Procter & Gamble Company. Mr. Smale helped put in place guidelines designed to ensure the active monitoring of management by independent directors. “I was exposed for about seven years to Smale’s leadership style and that of his corporate governance guru, Ira Millstein,” recalls Mr. Battenberg, who had sat in on board meetings. “It became clear to me the value of the separation between the corporate chairman and the lead director.”

To an outsider, Mr. Battenberg’s interest in relatively ancient GM history and in corporate governance, might seem misplaced, given Delphi’s immediate challenges. A former division of General Motors spun off in 1999, Delphi still gets about 65 percent of its business from GM (a proportion that has steadily shrunk since the spin-off). But Delphi has faced some trying times for the past three years as it feels its way as an independent company and deals with the turmoil and weakness in the global automotive industry. A sharp drop-off in GM sales reduced Delphi revenues in 2001 to $26 billion, about a 10 percent decline from the previous year. In 2002, sales and earnings recovered somewhat; sales reached $27 billion, and net income grew from a $370 million loss in 2001 to a positive $343 million.

In the face of near-term financial pressures and troubles in the automotive industry overall, is corporate governance really worth the CEO’s precious time and attention? For Mr. Battenberg, who began his career as a GM Institute student in 1961 and spent close to four decades at General Motors, including some of the rockiest years in U.S. automotive history, the answer is emphatically “yes.”

Indeed, ever since he became the head of Delphi, which has nearly 192,000 employees (about half as many as its former parent), Mr. Battenberg has been determined to forge a new management and governance culture — one that breaks the ossified mold that led GM and the other two of Detroit’s Big Three automakers through so many upheavals during the last 20 years.

With the help of the late Thomas H. Wyman, a former chief executive of CBS who left the GM board to become Delphi’s first lead director, Mr. Battenberg set out to build what Jay Lorsch, a corporate governance expert at the Harvard Business School, calls one of the most effective and unusual boards in the country.

What sets Delphi’s board apart, in large measure, is a design that positions it to be completely engaged in strategy, not just to serve as an independent advisory council. Individual directors have been selected to support Delphi’s specific managerial and strategic challenges:

 
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Resources

  1. Art Kleiner, “The Cult of Three Cultures,” s+b, Third Quarter 2001; Click here. 
  2. Paul F. Kocourek, Christian Burger, and Bill Birchard, “Corporate Governance: Hard Facts about Soft Behaviors,” s+b, Spring 2003; Click here. 
  3. “The Way We Govern Now,” The Economist, January 11, 2003
  4. Andrea Gabor, “Challenging a Corporate Addiction to Outsiders,” New York Times, November 17, 2002
  5. Corporate Governance, The Wall Street Journal Reports, February 24, 2003
 
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