The pursuit of better corporate governance has its downside as well. Last year, for the first time since the spin-off, Mr. Battenberg and his senior lieutenants did not receive a cash bonus. And although many people saw the benefits of Mr. Irimajiri’s involvement, the company terminated his consulting agreement after just one year to avoid the appearance of a conflict of interest.
With the auto industry under continued pressure, management and the board now face the greatest business challenges since Delphi’s spin-off three years ago. The stock price has declined from a high of just over $20 at the end of 2000 to about $7.50 as of early April 2003. Moreover, Delphi’s preferred status as a GM supplier, which it enjoyed for three years under its spin-off agreement, expired in January; now Delphi will have to compete on cost and quality with other potential GM suppliers. Delphi also is still struggling to offset the benefits of its GM experience with the need to forge a new culture. Even Delphi’s greatest fans note a certain “GM arrogance” that persists at the company. Delphi executives spend hours each day responding to internal e-mails. Some Delphi units have inherited a penchant for bureaucracy that rivals the company’s erstwhile parent’s. Bureaucracy, say experts close to the company, has also bogged down the process of taking innovations from the lab to the marketplace. Shedding that culture will be as important as a knowledgeable and activist board in giving Delphi the nimbleness it needs to move quickly into new markets.
In addition, during these rough economic times especially, striking the right balance between management prerogatives and an activist board might be tough. David Wohleen, president of Delphi’s electrical, electronics, safety, and interior sector, noted in a Harvard Business School case study on Delphi: The “leadership team has [the] obligation to run the company. You don’t want to get to the point where you’ve engaged everybody so much that you’re now doing errands for the board and you’re distracted from running the company.”
Delphi says that it has achieved a healthy balance between board involvement and management’s need to establish a vision and to chart its future. In fact, the current chaos of the financial markets and slow global economic growth might give boards such as Delphi’s more leeway to set long-term objectives than they had during the boom years. Still, with the typical U.S. investor holding stocks for only 290 days in 2002, “the problem directors have is that they don’t know who the shareholders are,” says Professor Lorsch. “There’s so much churn and uncertainty, boards need to make decisions about the time horizon in which they are going to operate.”
A board that clearly articulates its objectives, Professor Lorsch says, will attract the shareholders it wants, including those who are willing to entertain a longer time horizon. For Delphi, which is in a cyclical industry that is also facing global restructuring, more patient shareholders — and a patient board — willing to stick with a long-term vision are a necessity.
Reprint No. 03209
Andrea Gabor, AAGabor@aol.com
Andrea Gabor is the author of three books, most recently The Capitalist Philosophers: The Geniuses of Modern Business — Their Lives, Times, and Ideas (Times Business, 2000). She has been an editor at U.S. News & World Report and Business Week. She currently teaches in the business journalism program at Baruch College at the City University of New York.