8 June, 2022

Corporate Governance

Final Project

By
Ibrahim Riaz
FA18-BBA-052

Muhammad Dayem Iqbal

FA18-BBA-085

Submitted To: Mr Ather Yaqoob

Department of Management Sciences
COMSATS University,
Islamabad-Pakistan
Contents
1. INTRODUCTION..............................................................................................................3

2. EXECUTIVE INCENTIVES:............................................................................................4

2.1 Fixed Remuneration:...................................................................................................4

2.2 Compensation (Bonuses) based on business performance to the CEO of GM:..........4

2.3 Stock-based compensation of the CEO of GM (Stock options and restricted stock): 5

2.4 GM's other top executives:..........................................................................................5

2.5 Personal benefits:........................................................................................................5

2.6 IMPACT ON COMPANEY’S GOVERNANCE:......................................................5

3. Audit report Summary:.......................................................................................................6

4. Board structure of General Motors:....................................................................................6

4.1 Purpose of GM’s Board:..............................................................................................7

4.2 GM Policy of Board composition:..............................................................................7

4.3 Board Structure:..........................................................................................................7

4.4 Good Board:................................................................................................................7

5. Investment banks and Security analysts:............................................................................7

6. Credit rating:.......................................................................................................................8

6.1 Credit Rating from Moody’s:......................................................................................9

6.2 Credit Rating from S&P:.............................................................................................9

6.3 Impact:.........................................................................................................................9

7. Shareholder activism and their Proposals:..........................................................................9

8. Shareholders Proposals:....................................................................................................10

8.1 Impact on Governance:.............................................................................................11

9. Takeover / Mergers:..........................................................................................................11

9.1 Summary of past takeovers:......................................................................................11

10. Bailout:..........................................................................................................................11

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 10.1 Bankruptcy: Financial crises.....................................................................................12

10.2 Affect of Governance in the Aftermath:....................................................................12

11. PESTEL ANALYSIS:...................................................................................................12

11.1 POLITICAL:.............................................................................................................12

11.2 ECONOMIC:.............................................................................................................13

11.3 SOCIAL:...................................................................................................................13

11.4 TECHNOLOGY:.......................................................................................................14

12. CONCLUSIONS:.........................................................................................................14

13. References.....................................................................................................................14

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1. INTRODUCTION
General Motors Company (GM) manufactures cars, trucks & sells them under brand names
such as, GMC, Daewoo, Holden etc. It is an American automobile corporation ranking 22 nd
on the fortune 500 rankings. It’s headquarter is in Detroit, Michigan, USA. Overall 77
successive years for GM it was the largest automaker manufacturer from 1931 surpassed by
Ford Motor until 2008 when overtaken by Toyota.
General Motors contributes hundreds of millions of dollars in economic activities across USA
and almost 85,000 employees are working under corporation. They are sharing services of
Mobility & have the vision of advancing in zero crashes, zero emissions and zero congestion
through the creation of electric, self driving, connected vehicles.

2. EXECUTIVE INCENTIVES:
The separation and least flow of information between the ownership pf corporation and
control(management) causes agency problem & this cause trouble to the organization’s daily
work & market value. To resolve this problem there are two methods: first to give executives
incentives; to motivate employees to work hard & to improve performance of the corporation.
Second is to monitor them to align the activities with the goal of organization & analysing
whether there is not fraud. In incentives, stock options, bonuses, restricted stocks &
performance shares are significant. In case of GM, It has been using three incentives to
motivate its executives to align their goals with the interests of shareholders’. These three
are:7
• Bonuses
• Restricted stock
• Stock options
GM’s compensation plan for its executives is given below:

2.1 Fixed Remuneration:

It will be rewarded to executives according to the size of the company (General Motors),
Senior Executive's level of responsibility and competition in market to attract talented
executives.

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2.2 Compensation (Bonuses) based on business performance to the CEO
of GM:
Income that executives generate through bonuses based on specific financial targets that
effectively motivate Senior Executives. These bonus are offered to achieve financial targets
for mid to long term period & also remembering base year.
General Motors’ CEO Mary Barra adding value to the market & innovation for GM by
working hard & getting compensation for 2020 that was $23 million, & before pandemic19
she was awarded more of $2 Billion. She was on streak of getting most paid for 3 consecutive
years. When SEC filling released in 2021 they listed Bara’s pay as 201 times more than the
median pay of GM employees.
Bara announced that GM would boost by spending more than $27 billion thrpugh 2025 on
electric and automated automobiles & planning to take-off EVs globally by selling more than
1 million EV’s year by 2025
(GM, Reuters, 2020)

2.3 Stock-based compensation of the CEO of GM (Stock options and

restricted stock):
Stock options and restricted options are given to managers to motivate them to work hard,
increase value of share and to align them with interest of shareholders. Comparin both
executives stock options and restricted stock options, restricted is the good choice for
corporation because they are good indicator of lon term growth in value share as they align
by some value. Stocks options and restricted stocks are granted if they are able to increase
the price/value of GM’s stock at a specific benchmark in market.
By the data of January 2017, they company had given their board of directors the opportunity
to purchase the stiock options up to of $5 Billion wit benefit of no expiration date as their
repurchase program and they have covered $1.7 billion of the $5 billion December 31,2021.

2.4 GM's other top executives:

The CFO of GM, Paul Jacobson saw his rise in salary in 2021, in previous year he recieved
$5179672 for 2020. GM president Mark Reuss rise wasin 2020 as compared to 2019, he was
rewarded with $9,963,402 compensation as compared to last year he was paid a total
compensation of $8,182,247.
GM's newly appointed President of North America Steve Carlisle have rewarded by
compensation oftotal $6,289,463 & salary $711,136 last year.

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2.5 Personal benefits:
They have set other allowances and benefits for their employees as beyond well payed
salaries they have also spent $235,587 last year for travelling, security and other benefits for
the CEO. GM spent a total of $38,062 on cars and drivers (GM, 2020)

2.6 IMPACT ON COMPANY’S GOVERNANCE:

Above mentioned incentives are clearly indicating that executives are working hard to
achieve goals as they are benefiting themselves with increasing bonuses as coming years.
Due to pandemic in 2020 compensations decline but this is not by the lack of executive’s
interest or any agency problem in GM.

3. Audit report Summary:

Ernst & Young LLP have checked the cash flows, income statements & equity for each three
years in period ended Dec. 31 2021. They have audited the accompanying consolidated
balance sheets of General Motors Company. The correlated notes (collectively denoted as the
“financial statements”). Their opinion related to audit report was fair in all aspects &
financial positions of the company were stable at Dec.31 2021 by US generally accepted
principles. They have done the audit according to the standard of Public Company
Accounting Oversight Board (United States) (PCAOB).

4. Board structure of General Motors:

Boards in large corporations do not perform day to day operations of a company. They handle
main decisions and demonstrate the responsibility to executives which are appointed by them.
They have numerous duties such as fiduciary duty, fair dealing, loyalty, care of duty of
supervision. BODs are elected by shareholders.
The business of any corporation is conducted by management which is under observation of
board.In GM board and management roles are linked, their business plan is developed &
applied under the leadership of CEO , senior management & other staffs. The members of the
board act as consultants and counsellors to the CEO. In general GM’s boards duty is to make
reviews and assess strategic & business planning. And to address management about
significant risks and challenges facing by the company that relay to strategy, financial,legal
and compliance etc.

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GM is of the view that corporate governance is essential to boost our management in order to
achieve long-term value and growth. GM maintains its corporate governance strategy through
two ways:
• The Board of Directors (the “ Independent Board”), In GM majority of directors were
hired from outside, because they have no relatives or sympathy towards any member task,
they monitor the work of management operations and design a sound governance framework
by using director’s committee..
• GM’s board determines major policies of the organization and delivers it to every
individual senior executive. GM Corporation is governed by the board and Board’s members
are elected by voting in general meeting of shareholders.

4.1 Purpose of GM’s Board:

The primary roles of the Board at GM are to:
1. Identify GM’s management policies.
2. Monitoring and oversee the management.
3. From appointing to dismissing the comittee members.
4. Appoint and dismiss Corporate Executive Officers.

4.2 GM Policy of Board composition:

With the view of efficient monitoring at GM, selection of candidates for the boar depends
upon nominating committee with the aim that more outside Directors should be nominated.
Currently the GM has 12 independent directors. (GM, Annual Reports, 2020)

4.3 Board Structure:

GM’s Board structure is made up of more than 50% women, which remarks 7 out of 13
members are women and remaining are men.

4.4 Good Board:

We can say that GM has a good board. It is because it has accomplished steadily growth from
year to year. Market price of its shares also increases in 2021. In 2020, its profits decreases
but not because of inefficient monitoring or management of GM,. It is because of pandemic
“COVID-19” that hit all the world severely.

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5. Investment banks and Security analysts:
Investment banks suggest a variety of services to its customers which are mainly firms. Their
most significant service is to sell the newly created securities. Investment bank has experts
who help the firm ease the process of selling their securities in market. Investment bank
works as both advisors to a firm and security seller on behalf of the firm.
On the other hand security analyst’s primary duty is to evaluate securities and then
suggest/recommend their clients about whether to buy or sell certain security or not. Security
analysts basically review the attractiveness of already issued financial securities for investors,
for example stocks and bonds. They also predict pay of other firms in market to give investor
make their investment or buying decision based on that information.
Now these two can pay a huge role in company’s governance and financial performance. If a
company is performing its processes in an efficient manner, Investment banks will prefer to
sell its shares and can sell its bonds or stocks easily in market. Analysts will also rate this
company positively and will recommend investors to purchase its securities if they float in
market. This will enhance the performance of a company in future also, as company can now
collect more external financing with ease. If company is not doing its business efficiently,
These two sources can tell a position of the firm in market. Analysts will not recommend
investors to invest in its stocks or bonds, as there is a lot of risk associated with its securities.
Investment bank will also charge high underwritings costs from such companies as more risk
transferred to investment banks. Shareholders can predict the position of the company from
these two sources in market.
During 2010, Morgan Stanley MS.N and JPMorgan Chase & Co JPM.N were underwriters
for General Motors' GM.UL initial public offering. Banks were competing fiercely to
underwrite an offering that could be $10 billion to $20 billion. At that size, the deal would
have been one of the largest U.S. IPO. And one of the biggest U.S. offerings of all time.
GM did not issued more shares in last two years, means in 2020 and 2021, so it did not need
any investment bank to sell its shares. If GM is planning to issue an IPO, it may need an
investment bank in future.

6. Credit rating:
Credit rating agency helps investors to invest in safe stocks/bond, which are favourable to
them. CRA rate different firms on their credibility on credit paying or return rate. CRA rate
positive to those firms which pays due on time and creditors are not in loss. Investors look at

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the rating of corporation before investing in it, purchasing of bonds or firm or giving loans.
Here we are going to discuss GM has evaluated its credit performance from two major global
credit rating companies:

6.1 Credit Rating from Moody’s:

Every CRA has its own rating like Moody's Investors Service affirmed the "Baa3" LT- local
currency credit rating of General Motors on March 29, 2021. At that time their rating revised
from negative to stable.

6.2 Credit Rating from S&P:

S&P global ratings on Aug11, has given negative remarks about GM which was previously
rated stable & affirmed automakers BBB issuer credit rating. In the same time rating agency
removed CreditWatch with negative implications of GM rating.
Rating was on behalf of pandemic because markets were collapsing & ongoing uncertainty
due to corona19 introduces much risk to GM sales, profitability and cash flows. Because of
virus plants shutdown rate was up to 51% year over year.\

6.3 Impact:
A downgrade in economy had weaken demand, because of unfavourable demands by
customers and competitive developments away from trucks, Gm profit margin was below its
targets. By this GM rating can also be disturbed because of period of stress and cyclical
downturn.

7. Shareholder activism and their Proposals:

The shareholders, who actively monitor the company, try to present their proposals at the
AGM for voting, demand an external audit, and take action against the corrupt board are
active shareholders.
An important type of activity is the suggestions that shareholders present at the AGM. GM’s
individual shareholders were Marie Bara, Mark Reeve and John stapleton that has the
majority of shares, if they vote on the proposal then chance will be their proposal will be
accepted otherwise rejected. Their interest align with the investor’s of GM i.e. Fannie Mae
and NYSERDA because their interest is align with the interest of management and
shareholders and profiting the organization, adopting new technology, selling more and

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auditing the company etc. If they do not participate in company as active then manager will
take benefit from it by Proxy vote then company and their investment may be jeopardized.
An important type of activity is the suggestions that shareholders present at the AGM. These
proposals are then voted on. If a majority vote is taken on this proposal, it will be accepted,
otherwise it will be rejected. These proposals are related to aligning the interests of
management and shareholders, adopting any new technology that can sell more, auditing the
company, etc.
Major shareholder of GM are more interested because of their much more investment then
minor shareholders because they will do their best to increase market value of the company’s
shares. This will benefit the organization and also the smaller shareholders. Because of the
activism in firm, they can detect any fraud or misleading activity in the company. They have
the right to check on performance and governance of the company & they keep check on
financial accounts regularly before pandemic 19.

8. Shareholders Proposals:
I. GM was facing the risk of child labor, forced labour, risky working conditions &
other human rights. Shareholder proposal was about the tougher policies on labour,
labour abuses in the operations and supply chains. Shareholder wants to employees to
do effectively. After facing risk Shareholder propose Board of directors to prepare a
report at a sensible cost on human rights policy.
(GM, Report-on-Human-Rights-Policy-Implementation_-General-Motors-2020, 2020)
II. They have a significant impact on the operations of General Motors,
Case 1: Greenlight capital sent a proposal of gaining seats of BOD of GM and they said
it will be beneficial because of independent board will monitor GM’s performance &
suggested that Board of Director’s teeam should be divided into two categories, Firstly,
that will only work on investment & Second will work on growth and earning. But GM
shareholder’s voted aginst the proposal and rejected as their BOD work was helping
them to improve their financial position in the market due to god governnave.. (GM,
Proxy statement, 2021).
III. Shareholder propose asking the GM to separate the chairman and chief executive
positions; But then GM stakeholders rejected it because they donot want small
stakeholder to rule upon.

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8.1 Impact on Governance:
Their activism impacts directly on the operations as they have the voting rights. If they use
didn’t involve in the Company then their investment could be at risk. Their activism can not
only monitor governance but also the financial performance in market rises.

9. Takeover / Mergers:
Takeovers are not easy for various companies because of the fact that it will cost too much as
if they takeover any smaller company, i.e. majorly big company takeover smaller
companies.GM is a large company so it has no previous history of takeovers or any attempt
on acquiring it by any other corporation but they have done various mergers and acquisitions
in past to grow in market and increase the vale.

9.1 Summary of past takeovers:

GM has bought recently Cruise on Mar11, 2016 but it has a history of 8 organization under it.
They acquire it for 1$ billion & it marked the largest acquisition till date. They also acquire
the Electronic data base system corporation, a huge data processing company for covering
their outsource expense & also acquired a manufacturer of weapons systems and
transportation satellites.
GM has a various history of vertical and horizontal mergers trought long destiny. Despite the
crises they have done mergers with MOTOR COMPANY, CADILLAC, PONTIAC,
ELMORE & others.

10.Bailout:
When a financial crisis or recession hit any economy, it creates severe economic conditions.
Corporations go bankrupt, financial institutions run away from banks and panic, employees
lose their jobs, GDP declines and many other serious situations arise. The military threat is
also the result of a recession or financial crisis. Bailouts reason is that managers know that
goernment will savethem they invest in high risk because of the term high risk high profit,
but this generally donit rely on every case.It is the possibility of bankruptcy or failure of a
company (large in the economy) that causes other firms to fail in the economy.If government
donot save these firms then county will be at high risk of economy collapse, But if managers
misuse it then it will impact in negative for governance.

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10.1 Bankruptcy: Financial crises
On June 1, 2009, GM suffered for bankruptcy because their assets were low $82 billion and
their libailities were more ($173 billion). This bankrupcty was the largest till date in
industrial secttor.
With knowing the fact of economy crises then government of canada and ametica has provide
extraordinary financial bailouts of &85 billion to help restructure company, allow employees
to work, controlling of inflation rate & allow inheritence loans to be jetted.
TARP Funds:December 19, 2008: President of America Bush, Government of USA approves
the bailout plan for GM to carry on their process of statbility in market by giving them 13.4
billion in finance from Troubled assets relief program Funds.
During the 2009 financial crisis, GM was takeover by Government for bankruptcy and
became the oriperty of Government but after 2010 they revived with IPO in market with new
stocks.

10.2 Affect of Governance in the Aftermath:

In exchange for the TARP bailout,The copanies were forced to accept consessions and
restructure. The company had given the rukles for reducing the mnagament ranks, excutive
roles, close many plants running in diferrent cities, discontinued their minor brands and
reduced labor cost for current workers and compensations for riterees. (GM, -bailout-and-
was-it-worth-it, 2018)

11.PESTEL ANALYSIS:

11.1 POLITICAL:
The impact of government plans and measures on automotive firms is a source of interest. In
case of GM Its remote or macro environment, following are the external factors that are
relevant:
Political instability reacts in encouragements of the public transport, this was the direct threat
to the GM, Harsh tax policies towards the combustion type vehicles but in big market like
USA they have the advantage of profit.
GM faces threat of government of public transportation. They stated that people are
encouraged towards the shared transportation, Buses and trains etc. This will dir4ectly inpact

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General motors’ because of the fact they will lose the customers of automobiles & increase in
the tax means decrease in the profit
(GM, general-motors-pestel-pestle-analysis, 2017)

11.2 ECONOMIC:
 Developing of markets can increase growth rate. (opportunity)
 Economic hardness of huge Markets.
 Growing rivalry in initial markets (risk)
The external factor of far above the ground growth rate of markets generates the
opportunities to develop the business in them and expand their business in those areas.
Example: Company can expand its dealership in India which is a growing automobile
industry but other fact that it will have to face completion in large markets. They have to
ensure their ability to increase from domestic, local or regional automotive firms

11.3 SOCIAL:
Following socio-cultural external factors significantly affect General Motors:
 Electric vehicles demand is increasing. (opportunity)
 Self Driving vehicles demand rise. (Opportunity)
 Vehicle sharing demand and ride programs are basic risk. (Risk)
The increasingly demand of electric vehicles is the basic opportunity to grow in
expansion, produce and sale their electric future product under any GM brand. Similarly
on demand for self driving cars manufacturing idea of GM is a basic hit in the market
because Population is converting themselves in rest position but when their is a risk of
pollution then the growing demand of vehicle sharing and ride sharing progras by people
is a threat to GM. Ride hailing programs initiative by the society to access easy
transportation which is the risk to chance of the buying of a new automobile from GM.
(GM, general-motors-pestel-pestle-analysis, 2017)

11.4 TECHNOLOGY:
Following are th external factors that are related to GM analysis:
 The technology of self driving vehicle can increase demand(opportunity)
 Increase fuel effectiveness in automobiles (Opportunity)
 Rise in the production of electric vehicles (opportunity)

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The value and technology development has a significant effect on importance of external
analysis. Increase in the technology of self driving technology helps to motivate customers to
look at the new innovation of automobiles, Fuel efficiency in todays world is a criticial
interest for the customer in today’s inflation. General Motors may also benefit from the trend
of increasing fuel efficiency in vehicles. (GM, general-motors-pestel-pestle-analysis, 2017)

12.CONCLUSIONS:
GM the market leader one of the largest automotive and truck maker. Other manufacturer like
Honda, Toyota, Nissan etc will compete it.
GM has been working on new models because of different numerous risks, legal risks,
currency risks. They have to tackle the risk of little cars in markets. They are thinking on
moving on merger with another company, they should do now rather waiting. They are
supporting user friendly technology, & manufacturing of environmental fuel flexible
automobiles. This had increase their sales and market value.GM has been attempting to create
green products because majority of people are pulling themselves on green because of the
recycling of the products to avoid polluting the environment the company is using energy
which is based on renewable energy. It has set rules on websites to inform public.

13.References
GM. (n.d.). Retrieved from General Motors: https://www.gm.com/
GM. (2017). general-motors-pestel-pestle-analysis. Retrieved from panmore.com:
http://panmore.com/general-motors-pestel-pestle-analysis-recommendations
GM. (2020). Retrieved from Reuters: https://www.reuters.com/business/autos-
transportation/gm-ceo-barras-pay-rose-226-million-2020-2021-04-30/
GM. (2020). Retrieved from Reuters: https://www.reuters.com/business/autos-
transportation/goldman-sachs-issue-credit-cards-general-motors-2021-01-15/
GM. (2020). Retrieved from Annual Reports:
https://www.annualreports.com/HostedData/AnnualReports/PDF/NYSE_GM_2021.p
df
GM. (2020). Detroit Press. Retrieved from Detroit Press:
https://www.freep.com/story/money/cars/general-motors/2021/04/30/gm-ceo-mary-
barra-pay-compensation-2020/7389374002/

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