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John Flannery, CEO of Ousted General Electric Co., was instructed to clean a house that had turned out to be dirtier than expected, then complained of having created all the garbage that he had removed. No good action goes unpunished.
When Jeffrey Immelt took the reins of Flannery at GE in August 2017, GE's shares
GE, + 7.09%
has fallen 19% since the beginning of the year, while the Dow Jones Industrial Average Index
DJIA, + 0.73%
had rallied 11%. The stock has been by far the worst performer in Dow for 16 years. Flannery was tasked with straightening a ship that was slowly sinking under the weight of a deteriorating balance sheet, too many independent companies, questionable bookkeeping and bad acquisitions.
Do not miss: GE replaces the CEO and investors rejoice, despite the warnings of a lack of profit and a huge load
But it seemed that every time he tried to pull the curtain, investors did not like what they saw. And, finally, he paid the price for not cleaning up someone else's disorder fast enough.
When Flannery announced GE's transformation plan in November 2017, which included detailing some of the company's issues, concentrating the company, and halving the dividend to preserve liquidity, the stock experienced its largest decline in eight and a half years.
But this plan was put in place just two months after Flannery took office. So he did not have time to create his own problems.
Then, after Flannery revealed massive losses in his long-term insurance portfolio in the GE insurance industry, the stock dropped by 15% over the next five sessions, the worst five-day period for nine years. However, the significant insurance losses result from Immelt's decision to retain its North American life and health reinsurance business.
Read also: The new accounting rule aims to solve the problem highlighted by GE's multi-billion dollar insurance loss
Even when GE made the right decision by taking a comprehensive retrospective approach to adopting new revenue recognition standards, Flannery could not pause, instead of adopting a modified approach to reduce the negative impact. change. The stock plummeted due to lack of widespread investor and media understanding – with the exception of MarketWatch – that the redesign of GE's previous period numbers was the result of an error or error rather than a mistake. choice of transparency.
Read more: GE shares a zigzag with confusion regarding the impact of new accounting rules
After Flannery spoke at an industry conference last May, the stock had the biggest sale in nine years, disrupting investors by not supporting GE's dividend.
Flannery's Chief Financial Officer and Jamie Miller then pledged to be more transparent and direct with investors and the Securities and Exchange Commission regarding the release of the results, after years of confused and potentially misleading reports. And while GE has acted on this promise, the stock has been shaken again after the last quarterly report as investors expressed dissatisfaction with Flannery's franchise that GE Power's problems would be a multi-year solution.
Do not miss: GE's commitment to being more responsible comes after SEC comments, falling stocks
Also: Investors who have paid attention to GE's accounting have seen difficulties
This volatility could include Monday's announcement of an impairment of "substantially all" of GE Power's $ 23 billion goodwill balance. But keep in mind that the large balance of goodwill was the result of abuse of acquisitions, including the purchase of $ 17 billion from Alstom in France, under the reign of Immelt. For more information, see GE's latest annual report on SEC.gov.
Basically, it's as if a coach was fired after a season, for having lost with bad players signed and written by a previous regime.
But Flannery knew what he was getting into. And he even admitted that one of the concerns of investors, and therefore of GE's board of directors, was that his style was "deliberate and moving when things made sense, as opposed to simply moving because someone else" was not a good idea. one wishes it. "
And it is safe to assume that a 55% drop in GE's stock in just over a year under Flannery's responsibility means that many people want a stronger response.
A goodbye rather brutal
The resignation of a CEO after such a brief term was certainly a surprise, given the long tradition of the company within the company, but the way Flannery's departure was announced was similar. When Immelt resigned, the press release included five paragraphs describing Immelt's achievements and the ways in which he had positioned GE for success.
In Monday's publication, announcing the appointment of Culp to the position of Chairman of the Board, following a "unanimous" vote of his Board of Directors and "immediately in effect", Flannery was mentioned in two sentences and two different paragraphs:
• "Mr. Culp will succeed John Flannery as President and Chief Executive Officer."
• "On behalf of the Board of Directors, I thank John for his significant contributions and long service with GE." (Citation attributed to principal director Thomas W. Horton.)
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