(Recasts throughout with details of report by outside counsel)
By David Ingram and Nick Brown
NEW YORK, June 5 Lawyers at General Motors Co
came under withering criticism in an internal company
report on Thursday and at least two of them were fired, but the
company's general counsel, a key adviser to CEO Mary Barra, was
expressly asked by the board to keep his post.
The report by GM's outside counsel found that while in-house
company lawyers were warned in meetings and documents about an
ignition-switch defect that has since been tied to 13 deaths,
they ignored or did not understand the warnings and never raised
them with their boss, General Counsel Michael Millikin.
In a show of confidence from GM leadership, the 65-year-old
Millikin was asked by the board of directors to stay in his job
past the mandatory retirement age of 65, a GM spokesman said.
At least two lawyers in GM's legal department, including
senior safety lawyer William Kemp, were among 15 employees
fired, according to a person familiar with the matter who asked
not to be named. A company spokesman did not make Kemp available
GM employs more than 200 in-house lawyers to oversee
compliance and assess lawsuits against the company. Faced with
reports of people dying because of the ignition defect, which
caused cars to power off and airbags not to deploy, in-house
lawyers told company engineers about the problem but then did
not adequately follow up, according to the report by
Chicago-based law firm Jenner & Block.
"The lawyers felt they had done their job by emphasizing the
importance of the issue to engineers," the report said, but they
did not "elevate the issues" to Millikin or insist "on a quick
and concrete timetable" to solve the problem.
The defect has led to multiple recalls, congressional
inquiries and a criminal investigation by the U.S. Justice
Department into the top U.S. carmaker. GM on Thursday said it
was planning to compensate people associated with the defect.
The report puts more blame on lower-level lawyers for
failing to keep Millikin informed than it does on Millikin
himself. But one expert said Millikin's ignorance shows he did
not build an efficient system to handle problems.
"If it's true he ... was out of the loop, that's a failing
on his part," Bernie Burk, a corporate governance specialist at
the University of North Carolina Law School, told Reuters.
Jenner & Block has close ties to GM and Millikin. It handled
the company's $23 billion initial public offering of stock in
2010. Anton Valukas, the chairman of Jenner & Block who wrote
the GM report, also served as lead counsel for GM during a
four-year U.S. Securities and Exchange Commission investigation
of pension accounting at GM prior to its 2009 bankruptcy, which
concluded with no allegations of fraud or intentional
In March, GM said Millikin would co-lead the inquiry into
the defect with Valukas.
Later, it became clear that Millikin's legal department was
among the GM offices facing questions. When the report was
released Thursday morning, Valukas was listed as the sole
author. A GM spokesman declined to elaborate on what role
Millikin played in the investigation.
Millikin could not be reached for comment.
According to the report, one junior lawyer said he "got the
'vibe'" from supervisors that the legal team had "'done
everything we can do'" by bringing concerns about ignition
defects to the engineers.
But communication between the lawyers and the engineers was
flawed, the report found. In 2011, lawyers wanted to set up a
meeting with engineers to discuss ignition issues in GM's
Chevrolet Cobalt. But the meeting took six months to arrange -
"an unexplained delay that meant that more accidents were
occurring," the report said.
Kemp, the senior safety lawyer, was the main liaison between
Millikin and the engineers, according to the report. He "could
not explain why he had not raised the Cobalt safety issues with
Millikin," it said.
Nancy Rapoport, a corporate governance expert at UNLV's
William S. Boyd School of Law, said the question of when and how
to alert company leaders about festering problems is often a
struggle. "The very hardest part of management is that if people
don't tell you stuff, it's not always easy to know what's going
on," she said.
But Kathleen Boozang, a law professor at Seton Hall in New
Jersey who studies corporate governance, said the report
uncovered "systemic flaws" in General Motors and its legal
"They did not have a reliable system by which significant
concerns reached the highest levels," Boozang said.
According to the report, as early as 2010, an outside law
firm that works with GM warned the automaker that ignition
problems could lead to legal liability and money awards to
plaintiffs in court, but the warning was not enough to spur
Millikin has spent almost his entire career at GM, according
to his company biography, having started in 1977 after serving
as a federal prosecutor in Detroit. He was based in Zurich from
1997 to 2000.
(Additional reporting by Jessica Dye and Casey Sullivan in New
York; Paul Lienert in Detroit; and Ben Klayman in Warren,
Michigan; Editing by Eric Effron and Ken Wills)