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Lessons Counsel Should Learn from the GM Ignition Switch Failure

May 11, 2015

If GM had taken a few simple steps, it would have avoided many of its later problems

Originally appeared in InsideCounsel on May 11, 2015.

—by Alan Salpeter and Emily Newhouse Dillignham

The tragic results of the General Motors ignition switch failure have provided important lessons for in-house counsel around the globe. As context, in May 2001, GM engineers found that the Saturn Ion’s ignition switch could move from “run” to “accessory” inadvertently, from the bump of a knee or the weight of a heavy keychain. The engine would stall, and the airbags disengage. In May 2002, GM approved this same ignition switch design, even though GM’s suppliers had stated that the design did not meet GM’s specifications. Customer complaints began as early as 2003, but GM continued to use the same switch design in multiple new models, including the Chevrolet Cobalt. In May 2005, GM opened and quickly closed an investigation into the switch design, deciding that the fix was too costly or time-consuming.

Over the next several years, GM began settling lawsuits involving crashes resulting from the defective ignition switch. In 2012—11 years after GM engineers first noticed the problem—GM conducted tests and calculated the costs of a new ignition switch design. The company, however, did not issue a recall of the faulty switches until Feb. 7, 2014, when it recalled 780,000 vehicles. To date, GM has recalled more than 2.6 million vehicles as a result of the ignition switch failure. Up to 90 people died in crashes linked to the faulty switch; 163 have sustained injuries. The National Highway Traffic Safety Administration has imposed a $35 million fine on GM, and the Department of Justice and nearly all state attorneys general are still conducting investigations.

GM hired Kenneth Feinberg to head the GM victim compensation process. GM also hired Anton Valukas, a former U.S. Attorney, to conduct an independent investigation. Valukas and his team conducted more than 350 interviews with over 200 current and former employees. A 276-page report was issued in May 2014. Commonly known as the “Valukas Report,” it details many of GM’s failures and the changes it could make to avoid such problems in the future. Ultimately, the fallout from these deaths and injuries could have been prevented if GM had taken certain, simple steps to make safety the company’s number one priority. What are the critical lessons to be learned from GM’s failures? Create the right culture!

Elevate and escalate

According to the Valukas report, GM’s in-house lawyers first became aware of the ignition switch issue in 2004. Although they began reviewing and settling lawsuits, they did not elevate the issue to the general counsel until 2013. These same lawyers failed to recognize that an ignition switch failure was a safety issue and to escalate the problem quickly. They should have worked with the company’s engineers to launch a safety investigation, and they should have insisted on a tight timeframe for doing so.

In-house lawyers everywhere should learn from these mistakes: If you become aware of an issue, like a safety issue, that requires immediate attention, elevate it to someone who can and will act on it. Demonstrate a sense of urgency. Insist on an appropriate timetable for action. If your superior is not responsive, go to his/her superior and quickly move up the chain of command. Delays or inaction, especially in industries involving consumer products, can lead to significant safety concerns, high litigation costs and potential punitive damages.

Coordinate within the company

At GM, the attorneys, engineers and safety investigators operated within “silos.” Each group functioned as its own unit, with little to no coordination among or between them. No one group took ownership of the problem. Although GM’s engineers conducted investigations into crashes that resulted in litigation, the findings were rarely shared with either the legal or safety teams. Similarly, in January 2011, GM attorneys discussed setting up a meeting with GM’s safety team, but they waited six months to hold that meeting. During those six months, the in-house lawyers continued to settle lawsuits, but without the benefit of input from GM’s engineers or safety inspectors. A formal, coordinated effort among the three groups could have expedited litigation review processes and, in many instances, avoided the crashes that led to litigation in the first place.

In-house lawyers can learn from GM’s lack of internal coordination. Be sure that you have formal channels of communication and coordination established among the legal, safety and technical, and business teams. Schedule regular meetings for evaluating issues covered by multiple groups within the company. Frequent contact and interaction will help to ensure that when a problem arises, everyone is aware of it early and can take coordinated action. Most importantly, decide at the beginning of the process which group owns the problem.

Appoint a chief

Finally, GM never designated a safety chief within its legal team to serve as the liaison with the engineering and safety teams. No individual ever took charge of the safety concerns raised by the ignition switch issue, so no one felt responsible for addressing the problem. Had GM designated a safety guru, that person presumably would have identified the seriousness of the ignition switch failure at a much earlier date.

Every in-house legal team must decide which department is ultimately responsible for managing the problem under investigation. Is it the law department? Another department within the company? Or a business unit? And which individual is ultimately responsible for the company addressing the problem—which includes taking it to the highest levels necessary to get it resolved? This advice seems so basic and intuitive, yet GM’s failure to act cost it a loss of reputation and goodwill, more than $1 billion in recalls, and payments to the victims and their families.

Conclusions

In-house legal teams should learn from GM’s failure. Whether your company’s issue is safety or compliance with a federal or state regulation, create the right culture. Make sure one individual within your legal department takes ownership of that issue. That person must act with a sense of urgency. Ensure that the designated inside lawyer has the resources to manage the problem. Make sure that that individual knows when and how to escalate the issue within the company.

If GM had taken these simple steps outlined above, it would have avoided many of the problems that resulted from the ignition switch crisis.

» Read the full article on InsideCounsel (subscription required).

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