General Electric has fired another CEO. From the Wall Street Journal:
General Electric ousted CEO John Flannery on Monday after barely a year in the big chair. Anxious shareholders want a turnaround, and Mr. Flannery wasn’t delivering fast enough. He had moved to refocus the company on aviation and power generation, while selling other businesses. Yet on his watch the stock fell by half, and GE warned Monday it would miss more financial targets. Anyone who thinks corporate CEOs hold sinecures in today’s competitive world should contemplate Mr. Flannery’s fate.
His replacement, Larry Culp, is the first outsider in GE history to get the top job. That’s telling. Jack Welch, who led the company for 20 years, spent equally as long working his way up the corporate ladder. Successor Jeff Immelt did the same before beginning a 16-year run as CEO, which ended last year under similar pressure from investors.
GE used to be a $600 billion company. Now it’s barely a $100 billion one. What has gone wrong for GE?
- GE doesn’t know what business it’s in. It takes a manager of extraordinary skill and energy to manage a company with interests as diverse as GE’s had become. It hasn’t had one since Jack Welch and that was nearly 20 years ago.
- A string of bad acquisitions, mostly by Welch’s successor, Jeffrey Immelt.
- Process alone isn’t enough. Is GE’s Six Sigma, an empirical, quantitative approach to management, a sign of GE’s decline, its cause, or both? Or was it just insufficient to prevent GE’s decline?
- GE Capital never recovered from the financial crisis of 2008.
- You can’t maintain a great enterprise on the basis of outsourcing and creative accounting. Those are proven ways of goosing stock value and consequently executive compensation though.
I’ve posted several times over the last year or so on General Electric. Why? Because I think it’s an epitome of what’s happening to the United States.
And I think there’s a lesson for the Democratic Party in GE. Don’t cozy up to failing big company CEOs or CEOs who are doing reprehensible things, particularly reprehensible things abroad where they’re conveniently out of sight. Rich, successful, and admirable aren’t all the same thing. The last thing we needed was for Jeffrey Immelt to do to the United States what he did to GE but President Obama named Jeff Immelt to his Economic Recovery Advisory Board anyway.
I think you can throw IBM in as an example, too.
I’m not a GE watcher, so this is a hip shot. But I’d suggest dot points 2,3 are most relevant. Dot point 1 presents challenges, but that’s why they have group executives.
As for accounting gimmicks. I hear a lot about it. It never seems to end up being more than timing differences driven by capitalized item amortization into the income statement.
Went back and looked and Yes stock price was in the 20s and sometimes 30s 7-8 years ago. It looks to me, not really a GE watcher either, that its decline has come fairly rapidly. The 2007 peak looks like an end of the bubble peak.
Steve