Mary Barra Needs to Explain GM’s Nikola Misstep

General Motors Co. has largely backed out of one of the year’s strangest deals — a partnership with an unproven startup, Nikola Corp. — that was meant to signal the auto giant’s commitment to electric vehicles. It has unspooled, instead, as a cautionary tale about weak corporate governance.

At the center of the debacle is Mary Barra, GM’s talented and well-regarded chief executive officer, and Stephen J. Girsky, a former GM executive who put the Nikola transaction in front of Barra in the first place.

To be sure, there are, and will be, corporate foul-ups far more serious and consequential than GM’s misbegotten partnership with Nikola, a three-year-old company that aspires to mass-produce zero-emission trucks that run on hydrogen fuel cells and rechargeable batteries.

There doesn’t appear to be any fraud involved in the deal, and GM didn’t squander boatloads of money pursuing Nikola. In fact, GM snared an 11% stake in Nikola, worth about $2 billion when the deal was struck, without fronting any cash. Nikola would have had to pay GM to produce its electric trucks, and the automaker would have collected most of the emissions credits received for selling the climate-friendly vehicles. Not bad.

But GM’s reputation has suffered significant damage. While it’s surely something Barra and her team can overcome, it’s still troubling that GM and its board don’t appear to have conducted a meaningful post-mortem on the misbegotten Nikola tie-up. If they have, they clearly don’t intend to be transparent about it. GM’s brief press release Monday announcing its downsized relationship with Nikola didn’t feature a statement from Barra or much about anything else, in contrast with the optimism GM displayed in early September when it rolled out what Barra called a “strategic partnership” with an “industry leading disrupter.”

Nikola was disruptive all right. Soon after GM announced the partnership, a firm that specializes in short-selling, Hindenburg Research, published a report claiming that Nikola was “an intricate fraud built on dozens of lies.” The allegations were serious and credible enough that both the Securities and Exchange Commission and the Justice Department are reportedly investigating Nikola’s practices.

Hindenburg said that Nikola, among other shenanigans, apparently padded orders for its products, hyped its ability to produce low-cost hydrogen and overstated its design prowess. Hindenburg also outlined a history of what it said were dozens of other false statements made by Trevor Milton, Nikola’s 39-year-old founder, about his company’s prospects.

There’s a lot left to unpack about what’s really been going on inside Nikola, but a couple of weird little things remain my favorites from Hindenburg’s report. Milton made his brother, Travis, “Director of Hydrogen Production/Infrastructure” even though his experience was reportedly limited to building driveways and renovating homes in Hawaii. Milton also shot a promotional video of a Nikola truck zipping along a highway under its own power when he had actually towed the truck to a hilltop and then filmed it rolling down.

Milton resigned from Nikola in September in the wake of the Hindenburg report, calling it a “hit job” and saying he planned to defend himself against “false allegations.”

That’s a lot of disruptive behavior, but surely not the sort Barra envisioned when she lavished praise on Nikola just three months ago and put her corporate seal of approval on the little tadpole. In a conference call she held with investors just a week before Milton resigned, Barra said she conducted “appropriate diligence” before linking up with Nikola.

Really?

It would be helpful if GM produced a detailed timeline of the due diligence it conducted as part of its Nikola partnership, along with a list of those involved with its analysis and what, exactly, they did to ensure that GM’s faith was justified.

After all, there was ample cautionary evidence about Nikola in the public domain long before the Hindenburg report landed. Bloomberg News, for example, reported in June that even though Nikola had a reached a stock market valuation greater than a well-established behemoth such as Ford Motor Co., Milton’s past was littered with exaggerated or dubious claims — including remarks about the performance of a prototype truck.

How appropriately skeptical were Barra and her due diligence team when Girsky, the former GM executive turned investor, walked Nikola through their doors? Girsky orchestrated a $700 million investment in Nikola in March and then transformed it into a public company in June by folding it into another publicly traded acquisition vehicle he ran. GM’s partnership with Nikola was a financial windfall for Girsky and certainly should have informed how Barra looked at any advice he might have given her.

Barra’s ascent to the upper echelons of corporate America is inspiring, particularly when women still remain under-represented in C-suites. The daughter of a GM tool-and-die craftsman, she’s entirely self-made and began working for GM herself when she was 18. She went on to earn a college degree in electrical engineering and picked up an MBA from the Stanford Graduate School of Business funded by a GM fellowship. She has been GM’s CEO for almost seven years and has navigated a number of thorny corporate hurdles.

But Barra also hasn’t delivered on a promise to put GM at the forefront of the electric vehicle revolution. And the Nikola escapade doesn’t instill confidence that she’s on the right path.

In a world in which corporate boards have grown comfortable rubber-stamping CEOs’ strategies and often fail to hold them to higher standards when they stumble, Barra could continue playing an exemplary role by being much more forthcoming about what went wrong in GM’s troubled dance with Nikola.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Timothy L. O'Brien is a senior columnist for Bloomberg Opinion.

©2020 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.