General Electric’s Chairman and CEO Jeffrey Immelt announced last week that his next big step as leader will be to sell off the company’s real estate assets and the balance of its financial services business. This is a massive $300B asset sale. It follows the very large spin-off of GE’s retail banking unit as Synchrony Financial in 2014, and the sale of NBC/Universal in 2013. When it comes to shrinking a company, few CEOs have ever been as successful as Mr. Immelt!
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The money is not going into developing any new markets or new products. It is not being used to finance growth of GE at all. Rather, Mr. Immelt will immediately begin a massive $50B stock buyback program in order to prop up the stock price for investors.
When Mr. Immelt took the job of CEO GE sold for about $40/share. Last week it was trading for about $25/share. A decline of 37.5%. During that same time period the Dow Jones Industrial Average, of which GE is the oldest component, rose from 9,600 to 17,900. An increase of 86.5%. This has been a very, very long period of quite unsatisfactory performance for Mr. Immelt.
Prior to Mr. Immelt GE was headed by Jack Welch. During his tenure at the top of GE the company created more wealth for its investors than any company ever in the recorded history of U.S. publicly traded companies. GE’s value increased 40-fold (4000%) from 1981 to 2001. He expanded GE into new businesses, often far removed from its industrial manufacturing roots, as market shifts created new opportunities for growing revenues and profits. From what was mostly a diversified manufacturing company Mr. Welch lead GE into real estate as those assets increased in value, then media as advertising revenues skyrocketed and finally financial services as deregulation opened the market for the greatest returns in banking history.
Jack Welch was the Steve Jobs of his era. Because he had the foresight to push GE into new markets, create new products and grow the company. Growth that was so substantial it kept GE constantly in the news, and investors thrilled.
But Mr. Immelt – not so much. During his tenure GE has not developed any new markets. He has not led the company into any growth areas. As the world of portable technology has exploded, making a fortune for Apple and Google investors, GE missed the entire movement into the Internet of Things. Rather than develop new products building on new technologies in wifi, portability, mobility and social Mr. Immelt’s GE sold the appliance division to Electrolux and spent the $3.3B on stock buybacks.
Mr. Immelt’s tenure has been lacked by a complete lack of vision. Rather than looking ahead and preparing for market shifts, Immelt’s GE has reacted to market changes – usually for the poorer. Unprepared for things going off-kilter in financial services, the company was rocked by the financial meltdown and was only saved by an infusion from Berkshire Hathaway. Now it is exiting the business which generates nearly half its profits, claiming it doesn’t want to deal with regulations, rather than figuring out how to make it a more successful enterprise. After accumulating massive real estate holdings, instead of selling them at the peak in the mid-2000s it is now exiting as fast as possible in a recovering economy – to let the fund managers capture gains from improving real estate.
GE is now repatriating some $36B in foreign profits, on which it will pay $6B in taxes. Investors should realize this is happening at the strongest value of the dollar since Mr. Immelt took office. If GE needed these funds, which have been in offshore currencies such as the Euro, it could have repatriated them anytime in the last 3 years and those funds would have been $50B instead of $36B! To say the timing of this transaction could not have been poorer ….
The only thing into which Mr. Immelt has invested has been GE stock. And even that has been a lousy spend, as the price has gone down rather than up! Smart investors have realized that there is no growth in Immelt’s GE, and they have dumped the stock faster than he could buy it. Mr. Immelt’s Harvard MBA gave him insight to financial engineering, but unfortunately not how to lead and grow a major corporation. After 15 years Immelt will leave GE a much smaller, and as he said in the press release, “simpler” business. Apparently it was too big and complicated for him to run.
In the GE statement Mr. Immelt states “This is a major step in our strategy to focus GE around its competitive advantage.” Sorry Mr. Immelt, but that is not a strategy. Identifying growing markets and technologies to create strong, high profit positions with long-term returns is a strategy. Using vague MBA-esque language to hide what is an obvious effort at salvaging a collapsing stock price for another 2 years has nothing to do with strategy. It is a financial tactic.
The Immelt era is the story of a GE which has reacted to events, rather than lead them. Where Steve Jobs took a broken, floundering company and used vision to guide it to great wealth, and Jack Welch used vision to build one of the world’s most resilient and strong corporations, Jeffrey Immelt and his team were overtaken by events at almost every turn. CEO Immelt took what was perhaps the leading corporation of the last century and will leave it in dire shape, lacking a plan for re-establishing its once great heritage. It is a story of utterly failed leadership.
Very insightful article.
Being a GE retiree for over twenty years after a thirty one year career wth the company, I have had a unique opportunity to know and work with both Mr. Welch and Mr Immelt. Simply put, Jeff never was, is or could be Jack Welch. Jack was a grounded, PhD level visionary. Jeff Immelt was a Harvard educated MBA who was enamored with esoteric financial theories. Therin lays the problem. Engineering knowledge grows and expands on solid fundamental scientific principles. Financial theory is tied to the vaguaries of global economies and the personal opinions of the acting leader and his minions: The reality is that GE is dead with its current CEO. Under Ueff Immelt I have seen my pension remain unchanged since it started, and my Medical coverage disappear. I hope Jeff retires soon.
Thanks for commenting Lee Otto. Spoken as only a long-term employee can state the obvious.
Right on Lee. I worked for GE for 38 years and have been retired for 20. Not only no pension increase and loss of medical coverage, my GE life long stock holdings have tanked. I hope that Jeff takes a long walk soon. Bob Hughes
Jeff vs Jack is a classic view of what has happened to USA.
-Toss out complexities of Engineering fundamentals and actual production capabilities in lieu of financial mastery (manipulations).
-outsource everything and wonder why there is no value differentiation.
> Jack once said to invest in downturn as no one else will be and you’ll be best positioned in rebound…
> Jeff seems to want to cut faster in the down turn and react when rebound happens…
With such a stark contrast in performance one has to wonder why the board of directors does not find a replacement. There is still, even after all the legislation such as Sarbanes-Oxley and Dodd-Frank, too much board complacency.
Way back, in the mid 1980’s, I was informed that my name was placed on a list of 40 people whose careers were being tracked as potential replacements for Jack Welch upon his future retirement. However, I chose innovation instead and in 1987 left GE for Silicon Valley.
These articles about Jeff Immelt illustrate why GE has not been able to compete in the world of innovation.
They illustrate how my journey has been much more fulfilling. Google: Allen Ruszkowski Linkedin
Congratulations Allen. Well done.
Would you be able & willing to shares names of others on that list of40? Could weave an interesting tapestry of US corporate history in that era, from the collective paths.
I worked for Lee Otto as his finance support in 1978.
At that time, Lee, and the other engr mgrs I supported were inventing and producing multiple new products with significant R&D spending, which GE used to do in those days.
In my 40 year career, it was one of the most rewarding and exiting assignments that I still talk about, as a young finance support to help a team of brilliant engineers to advance innovative engineering, manufacturing, and commercial successes.
A good finance support is essential, but I have never wanted a finance person to lead a technology/manufacturing business.
Agree with you completely Karl.
I joined GE in 2015 as a fresh graduate. Thinking about its great founder Thomas Edison and GE’s great journey for inventing better solutions and touching lives of not just the privileged but also common people like me , excited me that finally I landed in a place where I can fulfill my dreams of being a part of technological innovations which directly impact the world. Little did I know that I considered GE’s Rich History as its current reality. Today I’m drowned in a list of processes and we are facing cost cutting anywhere possible. Every time the HR calls, it feels like its my time to go. I have never been more terrified in my entire life. I wish I was born a little earlier.
It has to be very tough to be a GE employee these days. Every leader has a responsibility to his, or her, employees. Unfortunately CEO Welch was a very poor leader with no idea how to deliver effective results for employees, allowing them to have opportunities to grow professionally and personally. Here’s hoping things improve soon for you and everyone else at GE.
I worked at GE from 2005 to 2015 at a senior level in GE Capital and then in GE Corporate, and although I never worked there under Jack, I have to agree with your evaluation of Immelt. He surrounded himself with yes men and very poor advisors. He relied more on the big consulting agencies than listening to customers or his own workforce. He has stumbled from crisis to crisis and failed to use the size and leverage of GE to master those opportunities, choosing instead to fire sale good businesses in a failed attempt to keep the share price above water. Flannery has inherited a powerless, shrinking, morale sapped basket case of an industrial company that thought that opening an office on the West Coast and stuffing it full of overpaid former Facebook and Google employees was the way to grow the business. I’ve now been out for almost 3 years – and the worlds a much better place outside GE than in…
Thanks for sharing your story Mark Grove. I agree completely with your assessment of GE. It is good to hear you’ve found a better place to work. Yes, it will be a very tough situation to turn around GE. Let’s hope for the best — but I would plan for the worst.
Worked with Jeff for several years in GE Plastics. At the time, I thought he had the potential to be the next great GE leader. I was initially a big fan. His reputation preceded him. Looking back on it, he did have some issues that I just missed. He was really good at surrounding himself with his buddies. Perhaps they were too “yes men,” I don’t know. He was Jack’s favorite and everyone knew it. Jeff never said it overtly, but he used that image to push people to make decisions that served his interest, even when their better judgment indicated otherwise. It was obvious that Jeff was being groomed as Jack’s backfill. McNerney and Nardelli were just stalking horses in the three horse final race. I pushed back on Jeff when I thought it was in the best interest of the business. I was not a yes man. He didn’t like it. I decided that environment was not for me. Ended up making a mid-career change to West Coast tech. My time at GE was for the most part, educational, challenging, and rewarding. Worked with a lot of great people. It was a very difficult decision to leave. Sold my GE Stock. Turned out to be a really good decision professionally, financially, and quality of life. I feel badly for my friends and colleagues that stuck it out and rode it down. GE hired well and had a lot of really great people. Now, it’s a dumpster fire and many of them are paying the price. But hey, Jeff travelled with a personal back-up jet in case the first one ran out of Champagne. He had his priorities in order
Thanks for your comment BobbyBilly. I think you were spot on, Jeff Immelt was groomed by his father, a professional GE man, in how to position himself for the top job. But not about how to actually run the company. Like many a dictator, he was much better at gaining the throne than governing once he achieved it. So many lose as a result. I congratulate you for having the courage to move out, rather than hope for the best but end up with the worst.
Had a lot of second thoughts and sleepless nights at the time. GE was an excellent company, and difficult to leave. Maybe I was more lucky than good, but I’ll take it. The key learning for me was around the regrets I would have had if I stayed. I was in a rapidly commoditizing business (GE Plastics) that started losing ground as soon as the key Lexan patents expired. A lot of what our self aggrandizing leaders, including Jeff, characterized as world class sales and marketing was actually a cross licensed patent duopoly shared by GE and Bayer. It was a business built on innovation, and we had stopped innovating. When our patent barrier came down, our hubris inhibited recognition and fundamental change, and the downhill slide began. A few years after I left, Jeff peddled the business to the Saudis. I would have been out anyway, and not on my terms.
Personal inertia is difficult to overcome. Making a company change, a career discipline change, and uprooting one’s family in the process, is a big risk. Looking back, I am glad I was able to overcome those potential blockers, and very fortunate to have a supportive spouse that backed me all the way. One of my buddies at GE used to say, “if they decide they don’t like me, or I decide I don’t like them, there are 499 other Fortune 500 companies that would be glad to have me.” It was whimsy, and the Fortune 500 opportunity was not the only option, but the obvious logic in that statement has stayed with me to this day.
it’s not all about Jeff. Jack had milked every ounce of upside out of the industrial businesses, and GE Capital. Jeff inherited a leaky boat. That said, his tendency to manage rather than change, exacerbated the problem and accelerated the decline. Then there is the board. Obviously asleep at the switch. No evidence of proper oversight, until it was too late. GE always had a cozy and CEO loyal board. That’s the way Jack wanted it, and as long as he was delivering for shareholders, there was no driving force for change. Plenty of blame to go around. Books will be written. MBA case studies will proliferate. Analyzing the collapse of GE will become its own cottage industry.
I too am an ex-GE’er…after 20 years just got washed-out with the sale of the Water business. I think that everyone but the Board thought Jeff should have been kicked-out years ago. GE’s downfall is a cautionary tale for having the CEO also be the Chairman of the Board.
One other thing to note is the damage that Immelt did to the GE culture…he completely destroyed that too. The famed talent development process and six sigma culture died on the vine during his tenure as did the feeling of being part of something special. During his first couple of years of Jeff’s tenure, my customers were very eager to meet him and benchmark themselves against GE. After the financial crisis, not so much.
His foray into the Internet of Things was also just folly. My first seven years with GE were in IT in the GE Capital and Healthcare businesses, we were horrible at developing basic software programs let alone innovative applications for emerging technologies. Jeff openned a lot of new research centers but that was also a waste of resources since no real new commercial innovations came out of them. Flannery is now busy shutting all but the originals down. Sad.
Flannery does have his work cut out for him; I hope he doesn’t only focus on cutting costs (he has a reputation for being a ruthless cost cutter) but also steers the company back to growth. GE has lost so much talent over the past few years through divestitures and cost cutting. Couple that with the boomers all retiring and they have a serious brain drain on their hands which will make growth more difficult. Am really wishing GE the best but know that there is some rocky road ahead of them.
Very rarely does a leapard change its spots Caspr. Once a cost-cutter, pretty much always a cost-cutter. It takes a very different skill set to understand trends, investing and managing for growth than it does to analyze financial statements and figure out how to most efficiently strip out costs and resources. Most likely Flannery will pay lip service to growth while cutting GE down considerably, selling assets and businesses and most likely finish dismantling the organization. Thanks