Careful steering takes General Motors, Takata through quagmire
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Craig Glidden knew exactly what he was getting into when he joined the carmaker General Motors as its general counsel in March 2015. A year before, the manufacturer recalled almost 1m cars because of faulty ignition switches that could potentially turn off an engine while a vehicle was moving and render airbags inoperable.
A company recall — and 124 deaths allegedly linked to the defect — had triggered civil suits, a congressional inquiry and a criminal investigation by the US Department of Justice.
At stake was the company’s survival, whether victims would be adequately compensated and the trust of millions of consumers in the GM brands, which include Buick, Cadillac and Chevrolet. His overriding strategy was to take the manufacturer out of a legal quagmire by moving “from crisis management to sustained change management,” Mr Glidden says.
“As well as solve the problems of the past, we needed to position the legal team to be able to focus on the issues critical to the future of GM,” says Mr Glidden. He identifies those as being electrification, automation and safety — three areas where legal and regulatory considerations will be crucial for the automaker’s survival.
Mr Glidden’s first goal was to defuse the legal and financial risk posed by the DOJ, a
nd by September 2015 his team had negotiated a $900m fine attached to a not-guilty plea and a deferred prosecution agreement with the dismissal of criminal charges contingent on improvements in vehicle safety. A federal monitor was installed to ensure GM complied with the terms of the agreement. The role of the monitor came to an end in September.
Even in the thick of GM’s complex legal challenges, Mr Glidden embarked on a wholesale change of management that overhauled the carmaker’s legal team. “We couldn’t just practise preventive law. We had to align with the business’s goals and adjust as the business adjusted,” he says.
When Mr Glidden arrived, GM had about 170 lawyers and 105 other legal staff. By 2018 they had 234 and 123, respectively. The largest increase in staff who were not lawyers were legal analysts for data mining, project management and investigations, says Mr Glidden.
GM’s general counsel restructured practice groups to better focus on the safety of products and employees and emerging technologies. He oversaw the development of legal technology that can mine non-privileged factual safety data from litigation to “help GM do a better job — making cars safer”.
The wider auto sector has also encountered complex challenges. Scott Winkelman, a partner at the law firm Crowell & Moring, faced tough regulatory hurdles when he negotiated the $1.6bn acquisition of the bankrupt airbag maker Takata after defects were said to have led to the deaths of 20 people. It led to the recall of tens of millions of vehicles across the world.
Mr Winkelman’s client, the Chinese-owned Key Safety Systems, sought to purchase Takata’s assets and take on its responsibilities as the primary supplier of safety equipment for automobiles, while limiting its exposure to Takata’s civil suits, criminal charges and regulatory obstacles.
“Not only was this the largest recall in automotive history, our client was a Chinese entity wanting to invest in US assets when the president [Donald Trump] was running hot on China,” says Mr Winkelman. “Takata was also held to be a felon, which meant dealing with its criminal liabilities.”
The usual legal strategy when dealing with regulators is to create distance, but Mr Winkelman’s team sought to engage the DOJ and other agencies. “We aggressively approached the government and the DOJ’s appointed monitor to have a voice in the creation of a compliance programme. We affirmatively approached Congress and actively sought to apprise them of our assessment of the situation and how we could move ahead,” he says.
A US company, Joyson Safety Systems, was formed with Takata’s assets and Mr Winkelman’s team negotiated a minimal rollover of Takata’s liabilities. The deal saved most of its 45,000 jobs and allowed the new business to concentrate on supplying safety systems. “No one else would have been able to provide airbags,” says Mr Winkelman. “This had to work.”
Fourteen original equipment manufacturers (OEM) — including nearly every leading carmaker in Asia, Europe and the US — had an interest in who bought Takata’s assets, and under what terms. “The OEMs had to have confidence in the new operation to maintain safety standards,” says Marcia Goldstein, a partner at Weil, Gotshal & Manges, part of the team that represented the 14 OEMs. “Unlike other bankruptcy cases where you’re looking for the highest bid, safety and continued production were essential to any deal.” Compensation for victims was also a priority. While the government had valid claims to criminal penalties, “every dollar it took was taking dollars away from victims”, she says.
The parties devised a channelling injunction — a legal structure used in asbestos cases in the 1980s — to direct claims for personal injury and wrongful death into a trust.
Ms Goldstein says the structure, rarely used outside asbestos bankruptcies, was adapted for the first time in the automotive sector. Weil ringfenced the liabilities relating to airbags to protect the buyer and help it continue supplying safety equipment to Takata’s clients in the car industry and to complete recalls.
“The DOJ settlement worked well, because $1bn came back to creditors” who could compensate victims and continue supplying cars, says Ms Goldstein.
Foundation structure: Helping retrieve Yukos dollars
While “Dutch stichtings” might sound like a crochet pattern, this legal technique, little known outside the Netherlands, has played a role in retrieving millions of lost dollars for retail investors in the repatriated Russian oil conglomerate Yukos.
The special foundation structure was even used during the second world war to protect assets from the Nazi regime, says Keith Biancamano, a partner at Gibson, Dunn & Crutcher, who led the charge to protect the offshore assets of Yukos from illegal expropriation by the Russian government and compensate investors. Dutch stichtings are effectively vehicles without owners. They have full legal personality, which means they can buy and sell assets as they choose. Their ability to protect assets makes them useful as an anti-takeover device.
Protecting the assets was one challenge but distributing lost funds to investors was another level of complexity. Using leading economists, Mr Biancamano’s team created a model to determine compensation. Some $337m has so far been returned to former Yukos shareholders that suffered losses.
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