GM’s Dysfunctional Risk Management Comes Home to Roost in Court

 | Huffington Post Business

Monday, January 11 marked the beginning of a ‘bellwether’ trial for General Motors (GM) that will provide a template for future litigation stemming from a faulty ignition switch. Between 2004 and 2013, at least twelve people died in ten separate accidents involving GM Cobalts and Saturn Ions which featured the faulty ignition switch. The switch was easily disabled by knee movements, which turned off the engine en route, disabling power steering and power brakes, thereby making it difficult for drivers to maintain control of their vehicles.

Manufacturing companies frequently encounter technical problems like the faulty ignition switch. In and of itself, this problem should have been a minor issue that was easily correctable. The fact that it was not corrected for years was a consequence of GM’s dysfunctional risk management.

My new book Behavioral Risk Management describes why the major risk management failures to have occurred in the last fifteen years stem from deep seated psychological pitfalls. In the book, I discuss the GM case, describing the psychological issues that led GM to engage in critical don’ts and avoid important do’s in the way the company practiced risk management.

Four of the most important psychological pitfalls are:
1. Downplaying the likelihood of unfavorable events, known as excessive optimism;
2. Overassessing own ability, known as overconfidence;
3. Turning a deaf ear to information that is unfavorable, known as confirmation bias; and
4. Taking an unfavorable risk to avoid having to accept a sure loss, known as aversion to a sure loss.
Personnel at GM exhibited every one of these pitfalls.

A firm with a strong risk management profile establishes protections against psychological pitfalls in the way that it sets standards, engages in planning, structures incentives, and shares information internally. GM failed abysmally on all counts.

Amazingly, in 2004 GM CEO Rick Wagoner test drove a Cobalt and turned off the ignition with his knee while he was driving! Ray DeGiorgio, the engineer who chose the ignition switch design, eventually recognized the problem, but could not convince his colleagues to address it. In desperation, of his own volition, in 2006 he asked parts supplier Delphi to replace the faulty switch with a superior alternative. However, he did not change the part number on the ignition switch and did not share the information with anyone else at GM. That failure to share information hampered GM investigators when they subsequently tried to figure out what was going on.

In July 2014 Michael Millikin, GM’s general counsel, told a Senate hearing that although GM’s legal team had been investigating the faulty switch issue for some time, it was only several months before that they even told him there was an issue. This is a colossal information sharing failure.

A company with effective risk management profile puts in place a risk management edifice that is strong along three dimensions: structure, culture, and behavior. Strong structure entails effective policies, procedures, and systems, with sound risk management practices being rewarded through compensation. Strong culture entails making risk management a valued activity, with clear communication channels for the sharing of information, and bosses who are good risk management role models. Strong risk management behavior means encouraging constructive devil’s advocacy.

How GM emerges from its bellwether case remains to be seen. However, what is clear is that GM was weak in all three dimensions. Engineer DeGiorgio found no policies and procedures for how to deal with the faulty ignition switch problem once he discovered it. His bosses were hardly role models for strong risk management. And as a junior GM lawyer discovered in 2012 when the company was trying to figure out what to do, his suggestion of a product recall was not welcome.

All in all, when it comes to GM’s risk management report card, the verdict is guilty.

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New report will lead to creation of national plan to combat distracted driving

Cooperators-logo-blue-2X

GUELPH, ON, Dec. 16, 2015 /CNW/ – Today, the Traffic Injury Research Foundation (TIRF) and The Co-operators released Distracted Driving in Canada: Making Progress, Taking Action, a report that provides a snapshot of activities underway in Canada to reduce distracted driving. Based on an environmental scan TIRF completed in partnership with Drop It and Drive (D.I.A.D.) earlier this year, it identifies the need for a national action plan to combat the problem and recommends the creation of a National Working Group on Distracted Driving that can work with a diverse set of stakeholders to develop such a strategy. In the months ahead, TIRF will take the lead on creating the working group, with the ongoing support of The Co-operators.

The report contains the results of an environmental scan and compiles statistics, recent initiatives and lessons learned about distracted driving strategies throughout the country, to establish a solid foundation upon which future activities may be planned and coordinated. It examines five main areas of focus: provincial and territorial government approaches to understanding and addressing the issue; enforcement strategies and outcomes; data collection and measurement; education and awareness campaigns; and legislation.

“The rapid pace of activity in response to this issue is unprecedented. Work is being undertaken on multiple fronts, both across jurisdictions and across sectors, to increase knowledge, track outcomes and identify solutions,” said Robyn Robertson, president and CEO of TIRF. “Increased coordination and sharing of these activities can help to maximize the results of our collective efforts.”

The report revealed that a primary emphasis was placed on improving data collection, and raising awareness and educating Canadians about distracted driving. In addition, there was a high level of coordination of activities within individual jurisdictions. Nevertheless, the problem of distracted driving persists. In fact, the research revealed that distracted driving is a significant contributor to crashes that is comparable to impaired driving in several jurisdictions.

The report concluded that distracted driving is widely considered a top priority by provincial and territorial governments across the country, which have implemented a number of measures to begin to address the problem. Researchers, non-profit organizations, industry professionals and media are equally engaged and working to strengthen efforts using complementary approaches. Yet there is a gap in specific mechanisms to facilitate coordination across groups of stakeholders, and efficient exchange of information and outcomes at the national level.

“Because distracted driving is still an emerging issue, and one that falls under provincial jurisdiction, bringing together stakeholders to help develop a strategic plan at a national level will be very valuable work,” said Kathy Bardswick, president and CEO of The Co-operators. “The information in this report will serve as a resource for the National Working Group on Distracted Driving as well as decision-makers across the country who share our concern for road safety.”

TIRF will be working closely with D.I.A.D. in early 2016 to form the National Working Group and engage its members in the development of a national action plan.

Distracted Driving in Canada: Making Progress, Taking Action is based on information collected from a broad cross-section of stakeholders from all three levels of government, police departments, insurance companies, health care institutions, non-governmental, academic and community organizations.

About the Traffic Injury Research Foundation:
The mission of the Traffic Injury Research Foundation (TIRF) is to reduce traffic-related deaths and injuries. TIRF is an independent, charitable road safety research institute. Since its inception in 1964, TIRF has become internationally recognized for its accomplishments in identifying the causes of road crashes and developing programs and policies to address them effectively.

About The Co-operators:
The Co-operators Group Limited is a Canadian-owned co-operative with more than $40 billion in assets under administration. Through its group of companies it offers home, auto, life, group, travel, commercial and farm insurance, as well as investment products. The Co-operators is well known for its community involvement and its commitment to sustainability. The Co-operators is listed among the 50 Best Employers in Canada by Aon Hewitt; Corporate Knights’ Best 50 Corporate Citizens in Canada; and the Top 50 Socially Responsible Corporations in Canada by Sustainalytics and Maclean’s magazine. For more information visit www.cooperators.ca.

SOURCE The Co-operators

B.C. Signs Pledge to Join Global Race Towards Zero Emission Vehicles

British Columbia has joined a global alliance aiming to fill highways and city streets with zero-emission vehicles over the next 35 years, an initiative that could lower global vehicle emissions by 40 per cent.

Environment Minister Mary Polak signed an agreement in Paris at the United Nations climate talks on December 10, 2015, making B.C. the 14th member of the International Zero-Emission Vehicle Alliance.

B.C. joins Germany, the Netherlands, Norway, the United Kingdom, along with California and seven other states in pledging to ensure all new vehicles are zero-emissions models by 2050.

Quebec also signed the pledge, which could cut harmful carbon dioxide emissions from the global transportation sector by one billion tonnes a year.

B.C.’s Energy Minister Bill Bennett said the province already has the largest public-charging network in Canada for electric vehicles at more than 1,000 outlets, but more can be done.

So far, there are less than 2,000 electric vehicles on the road in B.C., he said.

“How do you get more people doing it?” Bennett said. “You have to show them that they can save a lot of money on not having to buy fossil fuels and you have to make it easy for them to charge their vehicle.”

B.C. introduced its Clean Energy Vehicle Program four years ago. It offers electric vehicle buyers point-of-sale incentives of more than $8,200. The program also invests in charging infrastructure improvements.

“You continue to provide incentives at this stage and we’ll have to do that for at least the next decade,” Bennett said. “If this is going to work, we’re going to have to invest in charging stations all along the Trans-Canada Highway. Every community is going to have to have convenient access to charging.”

“We’re a long ways from that, but that’s where it’s going to have to go.”

One of the lowest-price Tesla electric vehicles currently sells for about US$80,000 while other Tesla models list for about US$130,000.

 

GM Ignition Switch Compensation Fund Pays Out $594.5 million On 399 Claims, Final Report Says

Lawyers hired to compensate victims of General Motors’ faulty ignition switches have paid out $594.5 million to settle 399 eligible claims.

The numbers were released December 10, 2015 in a final report from compensation expert Kenneth Feinberg.

A total of 4,343 claims were filed with the GM fund. Only 9.2 per cent were deemed eligible for payments, including claims for 124 deaths and 275 injuries.

The fund says more than 90 per cent of the offers it made were accepted. Camille Biros, the compensation fund’s deputy director, has said that the claims that were rejected “couldn’t support any connection to the ignition switch.”

The switches in older model small cars such as the Chevy Cobalt can slip out of the “run” position and cut off the engine. They have been linked to crashes that caused at least 169 deaths.

The ignition switch scandal triggered a company-wide safety review that resulted in dozens of recalls of millions of vehicles. GM says it has made safety a priority and now is catching problems sooner to avoid large recalls. The company said in September that the recalls cost it over $5.3 billion. Since then, it has paid out another $1.6 billion to settle U.S. criminal charges and recall-related related lawsuits, bringing the total cost to about $6.9 billion.

The fund’s final report says that it paid 128 claims from crashes that happened before GM emerged from bankruptcy in July of 2009, which the company was not required to do. A bankruptcy judge has ruled that the new company that emerged from bankruptcy is shielded from such claims.

Despite the settlements, GM still faces costs from the recalls. In its most recent quarterly report filed with U.S. regulators the company said it still faces 217 wrongful death and injury lawsuits in the U.S. and Canada, as well as 122 lawsuits alleging that the recalls reduced values of owners’ cars.

GM spokesman Jim Cain said the Feinberg compensation fund was fair, compassionate and non-adversarial to crash victims and their families. “We faced the ignition switch issue with integrity, dignity and a clear determination to do the right thing both in the short and long term,” he said in a statement.

 

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