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GM spares its top lawyer but not those below him

Source: Reuters - Fri, 6 Jun 2014 00:11 GMT
Author: Reuters
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(Recasts throughout with details of report by outside counsel)

By David Ingram and Nick Brown

NEW YORK, June 5 (Reuters) - Lawyers at General Motors Co came under withering criticism in an internal company report on Thursday and at least two of them were fired, but the company's general counsel, a key adviser to CEO Mary Barra, was expressly asked by the board to keep his post.

The report by GM's outside counsel found that while in-house company lawyers were warned in meetings and documents about an ignition-switch defect that has since been tied to 13 deaths, they ignored or did not understand the warnings and never raised them with their boss, General Counsel Michael Millikin.

In a show of confidence from GM leadership, the 65-year-old Millikin was asked by the board of directors to stay in his job past the mandatory retirement age of 65, a GM spokesman said.

At least two lawyers in GM's legal department, including senior safety lawyer William Kemp, were among 15 employees fired, according to a person familiar with the matter who asked not to be named. A company spokesman did not make Kemp available for comment.

GM employs more than 200 in-house lawyers to oversee compliance and assess lawsuits against the company. Faced with reports of people dying because of the ignition defect, which caused cars to power off and airbags not to deploy, in-house lawyers told company engineers about the problem but then did not adequately follow up, according to the report by Chicago-based law firm Jenner & Block.

"The lawyers felt they had done their job by emphasizing the importance of the issue to engineers," the report said, but they did not "elevate the issues" to Millikin or insist "on a quick and concrete timetable" to solve the problem.

The defect has led to multiple recalls, congressional inquiries and a criminal investigation by the U.S. Justice Department into the top U.S. carmaker. GM on Thursday said it was planning to compensate people associated with the defect.

The report puts more blame on lower-level lawyers for failing to keep Millikin informed than it does on Millikin himself. But one expert said Millikin's ignorance shows he did not build an efficient system to handle problems.

"If it's true he ... was out of the loop, that's a failing on his part," Bernie Burk, a corporate governance specialist at the University of North Carolina Law School, told Reuters.

Jenner & Block has close ties to GM and Millikin. It handled the company's $23 billion initial public offering of stock in 2010. Anton Valukas, the chairman of Jenner & Block who wrote the GM report, also served as lead counsel for GM during a four-year U.S. Securities and Exchange Commission investigation of pension accounting at GM prior to its 2009 bankruptcy, which concluded with no allegations of fraud or intentional misconduct.

In March, GM said Millikin would co-lead the inquiry into the defect with Valukas.

Later, it became clear that Millikin's legal department was among the GM offices facing questions. When the report was released Thursday morning, Valukas was listed as the sole author. A GM spokesman declined to elaborate on what role Millikin played in the investigation.

Millikin could not be reached for comment.

According to the report, one junior lawyer said he "got the 'vibe'" from supervisors that the legal team had "'done everything we can do'" by bringing concerns about ignition defects to the engineers.

But communication between the lawyers and the engineers was flawed, the report found. In 2011, lawyers wanted to set up a meeting with engineers to discuss ignition issues in GM's Chevrolet Cobalt. But the meeting took six months to arrange - "an unexplained delay that meant that more accidents were occurring," the report said.

Kemp, the senior safety lawyer, was the main liaison between Millikin and the engineers, according to the report. He "could not explain why he had not raised the Cobalt safety issues with Millikin," it said.

Nancy Rapoport, a corporate governance expert at UNLV's William S. Boyd School of Law, said the question of when and how to alert company leaders about festering problems is often a struggle. "The very hardest part of management is that if people don't tell you stuff, it's not always easy to know what's going on," she said.

But Kathleen Boozang, a law professor at Seton Hall in New Jersey who studies corporate governance, said the report uncovered "systemic flaws" in General Motors and its legal department.

"They did not have a reliable system by which significant concerns reached the highest levels," Boozang said.

According to the report, as early as 2010, an outside law firm that works with GM warned the automaker that ignition problems could lead to legal liability and money awards to plaintiffs in court, but the warning was not enough to spur action.

Millikin has spent almost his entire career at GM, according to his company biography, having started in 1977 after serving as a federal prosecutor in Detroit. He was based in Zurich from 1997 to 2000. (Additional reporting by Jessica Dye and Casey Sullivan in New York; Paul Lienert in Detroit; and Ben Klayman in Warren, Michigan; Editing by Eric Effron and Ken Wills)

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