Why GM Keeps Swerving From Apology to Aggression in Recall Crisis – Businessweek (blog)

Posted: Monday, May 19, 2014

In the face of a spreading defect-liability crisis, General Motors (GM) can’t seem to get its story straight. The company is struggling to clarify whether it wants to apologize to consumers, mollify regulators, or shout down plaintiffs’ attorneys.

The automaker agreed on Friday to submit to unusually close and ongoing federal scrutiny in the wake of a massive recall of almost 2.6 million small cars. “We have learned a great deal from this recall,” GM Chief Executive Officer Mary Barra said in response to the announcement, which included news of a $35 million fine. “We will now focus on the goal of becoming an industry leader in safety. We will emerge from this situation a stronger company.”

The agreement with the National Highway Traffic Safety Administration didn’t quiet hostile plaintiffs’ lawyers. “Today was just a show,” Robert Hilliard, a Corpus Christi (Texas)-based attorney representing families who are suing GM over deaths and diminished auto values, told Bloomberg News. “It was taking GM to an artificial woodshed and pretending as if GM will now become responsible.”

The old public-relations formula—plaintiffs’ lawyers try cases in the media; corporate executives and their defense attorneys stonewall—is a thing of the past. Barra took over as GM’s new CEO in January. Almost immediately she was hit by cringe-inducing revelations related to ignition-switch defects and other flaws in GM’s vehicles.

In public pronouncements and congressional testimony, Barra has tried to project contrition without surrendering ground in the mounting lawsuits seeking billions of dollars in damages from the company. GM has signaled it will try to limit its liability by invoking the terms of its 2009 bankruptcy restructuring, which aimed to allow the company to leave behind legal troubles associated with the pre-Chapter 11 “old GM.”

“They’re trying to operate on two tracks, and that’s not easy,” says Adam Hoeflich, a partner with Bartlit Beck Herman Palenchar & Scott, a corporate litigation firm in Chicago. ”They need to resolve cases where there are real victims, but they seem determined to litigate cases where there weren’t injuries.” Hoeflich, whose firm isn’t involved in the GM case, has an impressive roster of product liability clients, including Bayer (BAYN:GR), DuPont (DD), Georgia-Pacific, and Merck (MRK). “Failing to react when plaintiffs work the media can create an enormous disadvantage, including at a potential trial if it gets that far,” he says. “Media strategy is now something you discuss with a [corporate] client from the beginning of a case.”

I chatted with Hoeflich in anticipation of a conference next month in Chicago on complex litigation where we’re both speaking. Others expected at the gathering include such prominent plaintiffs’ attorneys as Elizabeth Cabraser of Lieff Cabraser Heimann & Bernstein in San Francisco and Christopher Seeger of New York’s Seeger Weiss. The fact that defense attorneys and their corporate clients show up at this kind of event illustrates the erosion of traditional dichotomies on litigation strategy and tactics. “Communicating publicly has become a tool for both sides,” Hoeflich says.

That doesn’t mean both sides have mastered the art. In the GM controversy, plaintiffs’ attorneys and consumer advocates have conveyed two clear questions: Has the “new GM” really overcome the company’s long history of producing unreliable cars? And in the case of the faulty ignition switches, did GM cover up its knowledge of a problem linked to crashes and deaths?

Information that surfaced in connection with GM’s agreement with NHTSA will require the company to change the way it communicates internally as well as externally. As Bloomberg News reports, the pact requires:

GM to change the lingo it uses in training employees by disavowing wording diluting the urgency of potential safety defects. NHTSA attached to its order a 48-page presentation the company used in 2008 to help workers avoid language that could imply a condition might be dangerous. One slide lists 69 words to avoid in presentations and reports, ranging from “defect” to “Hindenburg.”

“For anything you say or do, ask yourself how you would react if it was reported in a major newspaper or on television,” the presentation instructed. GM’s training materials “explicitly discouraged” employees from using words like “defect, dangerous, safety related, and many more essential terms for engineers and investigators to clearly communicate up the chain when they suspect a problem,” NHTSA Acting Administrator David Friedman said.

When a corporation is obfuscating in private discussions among employees and managers, it’s unlikely it’ll be successful in dealing forthrightly with customers or the public at large. As Barra says, GM is going through what educators call a teachable moment.


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