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Thomas Heath
Journalist and local affairs columnist, writer on entrepreneurs and businesses in the Washington metropolitan area
Jena McGregor
Reporter covering leadership issues in titles
For generations, General Electric has been an icon of the ingenuity and stability of American companies. The company, whose roots go back to Thomas Edison, was a pioneer in the type of industrial equipment – appliances and aircraft engines – that was the backbone of the twentieth century American economy.
It has been run for two decades by Jack Welch, the executive director feared and revered for his management discipline.
But decades of stagnation in society have had negative consequences – a fall that resulted in Monday the surprise dismissal of the company's general manager, John Flannery, after only a year of work and at the announcement of abandoning its important energy business, effectively absorbing a $ 23 billion loss in the process.
GE's struggles show how ruthless US capitalism can be for businesses that are slow to take a clear view of success in the 21st century-dominated economy. The company was plagued by strategic mistakes, including poorly executed investments. It has extended its activities to the electricity and oil sectors at the peaks of the market, thus paying the high price for investments that have proven to be mediocre. He sold part of his financial portfolio, GE Capital, at close market levels.
"The market has not even given the company the benefit of the doubt about the efficiency of things," said Ivan Feinseth, chief investment officer at Tigress Financial Partners. "Flannery's plan did not work."
GE has also been hit by a radical change in the business world that has catapulted technology companies compared to traditional manufacturers.
In 2007, before the financial crisis, GE was the second most valuable company in the world, joined by companies like Exxon Mobil, Royal Dutch Shell and Toyota. Now this list is dominated by technology giants such as Google, Facebook and Microsoft.
Although Apple and Amazon have crossed the threshold of the first US $ 1 trillion companies, GE's market capitalization has been reduced to $ 100 billion.
"You have to adapt and evolve when you're a big business," Feinseth said. "GE's adapted and evolved, but in the wrong direction."
In total, GE has lost about half a trillion dollars since Welch's retirement in 2001. Welch was transferred to Jeffrey R. Immelt, under whom he stumbled as the lowest performer in the industry average. Dow Jones among the steps goes bankrupt. This year, GE, the last original member of the Dow Jones, lost its place on Apple.
On Monday, GE chose H. Lawrence Culp, former managing director of Danaher, to take over. This is the first time an outsider takes the reins.
The change in direction reflects a growing sense of panic about the company. With the appointment of Culp, GE said it would miss earnings forecasts for 2018.
[GE CEO Jeffrey Immelt steps down after 16 years]
GE has long held a strong position in the American business world for its management prowess and years of consistent returns. She has manufactured appliances and reactors and ventured into finance, healthcare and even the media, as the owner of NBCUniversal. It has touched the lives and investment portfolios of hundreds of millions of Americans and consumers around the world.
But it has become too big and disparate, despite efforts to reorganize the company's portfolio. Having an important branch of financial services turned out to be a disaster in the financial crisis. And its action, which was once one of the most widely held in America, has become anathema to investors. This year, Flannery promised to split the company by selling its locomotive business and divesting its oil investment Baker Hughes to raise money. His attention to his wind power business was unfortunate due to overcapacity and weak demand, analysts said.
"We really can not feel bad for John Flannery," Feinseth said. "It's been over a year. We are in a bull market that is raging and reaching new heights, and GE is recording new lows of eight to nine years. "
GE has been mired in underperforming divisions and underperforming acquisitions for years. Flannery, who joined GE in 1987 and rose through the ranks, was unable to deliver quick enough results for his board. GE's share price halved last year. On Monday, GE's stock price jumped 7 percent to $ 12.09.
"You are not just waking up and telling yourself that you are exchanging our CEO," said Peter Crist, president of executive search firm Crist Kolder Associates and a long-time GE observer. "The panels are resistant; they have an aversion to risk. It's usually a series of missteps. It is not a decision overnight. "
Culp is only the 14th person to run the business. And his CEO successions have been among the most-watched events in American companies, making the sudden transfer to Culp all the more remarkable.
"This is the company that has been the model for over 100 years, able to generate leadership talent, and no one was on the witness stand if the board was at the facility," said Noel Tichy, a company from the University of Michigan. Professor who led the GE Leadership Training Center, known as "Crotonville", in the mid-1980s.
[A lesson from GE: The power of telling hard truths — and the peril of avoiding them]
Culp, who retired as CEO of Danaher in 2015, led for 14 years the industry giant, a Wall Street Journal decision, "among the most successful US companies in the last decade" . At that time, Danaher's profitability and market capitalization increased. about five times and shareholder returns have greatly exceeded the Standard & Poor's 500 index.
"GE remains a fundamentally sound company with big companies and exceptional talent," Culp said in a statement. "We will work very hard in the coming weeks to get a superior execution, and we will act urgently."
GE has also installed Thomas W. Horton, the former CEO of American Airlines, as lead director, succeeding former Vanguard CEO, John J. "Jack" Brennan, who had declared that he would not run again in 2019. The position of chief executive represents the independent members of the board of directors and is common in publicly traded companies where the president is also a current CEO or old. As American CEO, Horton led the restructuring of the company and its merger with US Airways.
The board of directors who appointed Flannery CEO in June 2017 is now very different. There remain only seven directors of this 18-member board after the announcement of the company's redesign in February. He added three independent directors – including Culp and Horton – but eight others left, which brought the board of directors back to 12 members and marked a kind of large-scale change rarely seen in governance. business. (GE's board has 11 directors named after Flannery left, and the company also named Edward Garden late last year under pressure from campaigner Nelson Peltz.)
"It's advice that is no longer true to anyone now," said Crist. "The boards of directors are getting impatient and the new boards of directors are doubly impatient in a difficult situation. They demand change.
[It’s a dangerous time to be a bad CEO]
After the ruptures of society that emerged at the end of Immelt's 16-year reign, Flannery strove to restore confidence.
He oversaw the leadership changes, including the replacement of the CFO. He immobilized the company's business jet fleet, reduced the number of cars issued to executives, and announced a review of its compensation policies. Despite this, the company announced disappointing financial results shortly after taking office. He cut his dividend in half while he was looking to save money and recover after more than a decade of late earnings and poor stock market performance.
The revival of the EG will likely result in more painful changes ahead.
"These are historical issues," said Morningstar analyst Joshua Aguilar. "And there are many other things lying around there."
Flannery, he said, "was too close to society, he grew up in this society."
Culp, according to Crist, "will look at the wallet and say" it's a guardian, it's not ", and orchestrate the change."
"He is a strategic, intelligent and impartial CEO," he said. And investors are likely to "see it as the good game of hands that can steer this without any emotion from the past".
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