Traditionally, manufacturing companies, particularly in the auto industry, have looked only inside their own industries for executive talent.
“The thinking in the auto industry has been that you need an old auto guy to run a business in this space,” says Gary Chaison, professor of industrial relations at Clark University in Worcester, Massachusetts. “The feeling has been that you need someone who grew through the ranks and understands the relationships and products.”
But with the hiring of Nardelli, it seems that this line of thinking, like many of the old assumptions within the auto industry, is a thing of the past, Chaison says.
Nardelli’s appointment as head of Chrysler, which was announced on Monday, August 6, came just days after New York-based private equity firm Cerberus Capital Management completed its acquisition of the automaker from DaimlerChrysler.
Industry observers were surprised by the appointment, but weren’t surprised that Cerberus went outside the auto industry for a CEO, says Pete Hastings, an auto analyst with Morgan Keegan, an equity research firm based in Memphis, Tennessee.
“The fact that the company went outside of the auto industry for executive talent just points to the fact that there needs to be a dramatic transformation in the thinking of leadership at automobile companies,” Hastings says.
But it was somewhat surprising that the company tapped Nardelli, who resigned earlier this year after much controversy over his $28 million annual salary. “He isn’t who I would have picked,” Hastings says.
Terms of Nardelli’s compensation were not disclosed, but reports say it is tied to the company’s performance.
Chrysler is the second of Detroit’s “Big Three” auto manufacturers to tap CEOs from outside the industry. Last fall, Ford Motor tapped former Boeing CEO Alan Mulally as its top officer.
The reality is that auto manufacturers don’t have a choice but to look elsewhere for top senior-level talent, says Arthur Wheaton, a workplace and industry education specialist at Cornell University.
“The industry has had so much turnover that they just don’t have the talent base that they once did,” he says.
But how Nardelli performs will determine if other auto manufacturers will accept talent from the outside to lead their companies, observers say.
“The question that the United Auto Workers and others are asking is: Will Nardelli just focus on making the firm profitable in the short term, or will he be able to turn around Chrysler into a profitable company for the long term?” Chaison says.
And if more private equity firms scoop up automotive manufacturers, it’s only a matter of time before more outsiders infiltrate the industry, says Robert Chiaravalli, a labor lawyer and principal at Strategic Labor and Human Resources in West Bloomfield, Michigan.
“Investment banks tend to pull expertise from a lot of different industries,” he says. “As long as they are involved in these turnaround deals, I think you will seem more outsiders coming in.”