Geoff Colvin on Whether “Government Motors” Will Work

Geoff Colvin is a smart guy who is one of the must-reads in Fortune Magazine. He wrote this piece on whether this morning’s news — that the federal government is effectively taking an operational role in a car company — will work.

Because the government plays such a major role in Chrysler, AIG and Citigroup, the CEOs and directors of those companies are effectively serving at the pleasure of the President. He didn’t appoint them, but he could dispatch them just as swiftly as he did Wagoner. Instead of using the Fannie and Freddie model for GM, the administration should have operated through the board, sending the critically important message that shareholders and governance matter. And then – the hard part – the government should let the bankruptcy process, in which all players get a hearing, operate if necessary.

I asked Ira Millstein, the attorney for whom Yale’s corporate governance center is named, what GM’s directors are supposed to do at their board meetings – just call the Treasury Department for instructions? “That’s what they do in China” was his response. “They make no bones about the fact that the commissars on the boards of these putatively private businesses really call the shots.” This didn’t seem like the most encouraging example. Do the directors have any role at all? “They’re not completely useless,” Millstein said. “They keep an eye on the business.”

So the namesake of Yale’s corporate governance center is saying this is the same model as the one employed by communist China? That’s a frank and illuminating statement.

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