The Way it was: 1994.

The GM Board

Guidelines Issued

As I see it, the board's role is to act as an independent auditor of management -- asking the tough questions that management might not ask itself when the company is doing well and is a recognized industry leader. The board's independent members are uniquely capable of performing this function because they are not saddled with the burden of a company's past success and culture.... Monitoring, to me, involves more than looking in a rear-view mirror and asking management, "How did you do?" It involves asking management, in ways appropriate to each corporation's unique business and status: What are your plans for the future? How do you propose to achieve those plans? How do the results produced by those plans compare with the performance of other companies in your industry? Are you meeting your milestones along the way? That kind of monitoring requires candid dialogue, not just the review of oral and written reports. And, it can't be effective unless there is mutual trust and confidence between the board and ma nagement.

The GM guidelines are not etched in stone: They're guidelines, not bylaws. And, they evolved with the active participation of Jack Smith. They do not represent any shift of power or decisionmaking from management to the board. Rather, they represent a formal mapping of how the board intends to function in carrying out its own responsibility.

John Smale, chairman of General Motors Corp., in "The GM Board Guidelines" [Summer 1994]. He made these observations in a meeting with the Council of Institutional Investors. He retired from the GM board in 2000.

The 'Scoreboard Effect'

In my opinion, American corporate CEOs, in general, are significantly overpaid. Their job responsibilities and risks just do not justify multimillion-dollar compensation. Let me hasten to acknowledge also that I was a beneficiary of a good part of the inflation of the CEO's income before retiring at the end of 1988.

I was asked at one time in a TV interview if, during my last year as chairman, I was overpaid. My answer: If you rephrase the question and ask if I would have worked just as hard at my job for much less, I would say "definitely yes." But my senior managers and I would have been seriously embarrassed, as industry competitors with whom we dealt on a continuing basis wondered how come my board thought my job (or I, as CEO) was worth only half as much as my peers. I call this the "scoreboard effect," and I view it as...

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