What Happened To General Electric?

I was in the process of reading Lights Out: Pride, Delusion, and the Fall of General Electric by Thomas Gryta and Ted Mann when The Wall Street Journal reported that General Electric(GE) was separating into three businesses: Aviation, Healthcare, and Power. Thus ending the conglomerate status of GE.

Full disclosure, I worked as a contractor for GE Capital in the early 2000’s. To say that job came in the nick of time is an understatement. I spent 6 months on that assignment before finding a job at a mid-size regional bank.

I never stopped following news about GE. In fact, I read Jack Walsh’s autobiography Straight from the Gut. With Jeffrey Immelt at the helm, I wasn’t a fan of his leadership. To me, Immelt is an example of the problems in American business leadership. Not only did we have a deal with the terrorists attacks, and the economic downturn that followed. We also looked at how corruption can undermine storied companies.

Gryta and Mann offer insider information on what happens when a company rests too much on its laurels. And how short-range thinking can undermine a once prosperous company. My takeaway from this book is 3 major issues that ultimately led to the “downfall” of GE.

The first issue is the focus on increasing stock prices and setting unrealistic targets. It’s obvious that any publicly traded company should focus on the performance of its stock. However, stock performance should be grounded in reality. GE had a serious problem with using “fuzzy” accounting practices to shore up its businesses. Not only was this unethical, it was also illegal which led to massive fines. It clouded everyone’s ability to look at the facts of a dire financial situation.

The second issue was the ineffective board of directors under Immelt. Immelt was also Chairman of the Board. From my understanding board of directors are independent of the CEO. They should take an objective approach in determining if the CEO is making sound business decisions for the betterment of the company. Under Immelt the board of directors were completely absent. It seemed every decision Immelt made was rubber stamped by the board. Despite members being paid handsomely, no one questioned his decisions; many of these individuals had significant industry experience. Yet no one challenged Immelt decisions that were undermining GE’s bottom line. Even when trying to turn an industrial giant such as GE into a Silicon Valley type company with its own software development division was a foolish move which failed miserably.

And finally we have the issue of compensation. I’m not of the leftist school that CEOs should not be paid substantially. The CEO steers the ship of a business which requires skills that take decades to develop. It requires having a conceptual mind to synthesize disparate ideas. It requires handling different types of personalities, and to deal with our increasingly ridiculous burdensome regulatory system. Yet Immelt’s compensation was not tied to performance. In fact, he seemed to be a CEO politician. His preference was to hobnob with politicians instead of competently running GE. Immelt took advantage of the massive company perks. The authors chronicled something Immelt did when it came to the corporate jet. When traveling, Immelt would bring 2 jets: one used while traveling, and a second, empty backup plane in case of malfunction!!! I was completely shocked by this. How reckless and irresponsible. Especially when the company was on the verge of bankruptcy.

Now that we are in 2022, let’s hope GE has learned from its past and can successfully implement its new model.

Bookish Babe