In March of 2017, Jeff Immelt was in his 16th year as CEO of General Electric and — at least in his head — he was remaking the iconic conglomerate into the very model of the modern industrial company. He was expanding the old — GE’s historic footprint in power and aviation — while embracing a new world of clean energy and software analytics.
That’s why I am told he was shocked when he read a headline from a story in Fox Business stating he was on the verge of being ousted by a friend, the activist investor Nelson Peltz, because Immelt’s grand remake of GE was mostly a mirage.
Just a few months later, Immelt was indeed out as CEO. The fact that Immelt never saw either his or the company’s demise coming speaks volumes about why the GE of today is a shell of its former self, and a classic example of how CEOs can destroy even the greatest companies by failing to do the basic things right.
Peltz, I should point out, initially seemed like he was on Team Immelt when, in 2015, his Trian fund took a sizable stock position in GE. Nearly two years earlier, Immelt had invited Peltz to speak to GE management about how to fend off activists that would target the company and force massive changes.
GE’s stock price under Immelt consistently hovered not much higher than $30 (with a few crisis-level exceptions) and never reached its highs under the man he succeeded in 2001, the legendary Jack Welch. But Immelt was given credit, deservedly so, for leading GE out of the 9/11 terrorist attacks and later the 2008 financial crisis.
Less deservedly, he was given a break by many investors on bottom-line failures to grow earnings and cut costs and for making some bad acquisitions. Many on Wall Street, I suspect, wanted to believe Immelt’s story that he was on the verge of modernizing a staid conglomerate in a way that fit with the times by expanding into tech and green energy and devoting less time to the risky GE Capital.
Peltz was OK with Immelt’s vision if it produced results. But not long after Peltz’s engagement with GE, their relationship soured. Peltz began to observe what he believed was Immelt’s uneven management style, and it was hurting GEs bottom line.
Immelt’s defense was that the billions he spent on far-flung investments in technology, renewable energy and French energy company Alstom would ultimately pay off. But GE wasn’t on the verge of great things. The Alstom deal sank billions into a flailing business. GE’s growth stalled, profits waned and expenses piled up. Its accounting was in shambles.
Talk to people who know Immelt, and they’ll tell you he’s a smart, thoughtful man. His commitment to remaking GE was real. We want our CEOs to embrace the future with technology and green energy.
But while Immelt chased new ideas, his core business was struggling — and now he was being held responsible for it. In March 2017 when that Fox Business story broke, shares spiked on the news that Immelt was on the way out.
Immelt has a book coming out this month on his controversial career at GE, appropriately titled “Hot Seat.” Full disclosure: I haven’t read it yet other than reviewing the page where Immelt confirms his surprise at reading the Fox story and Peltz’s displeasure. He candidly recounts that after seeing the piece, he knew his “head was on the chopping block.”
Today GE is run by a guy named Larry Culp, who is skilled at corporate turnarounds. Gone are the visions of remaking GE into the conglomerate version of Microsoft. Also gone: Immelt’s habit of using two corporate jets, one on which he regularly flies, and the other just hanging around for “security purposes.”
Culp may or may not be able to save GE. Many investors are waiting for the next surprise loss to send the company into bankruptcy. A company spokeswoman says GE has regained its footing and is poised for growth. It has controls to prevent what happened a few years ago when billions of dollars in insurance liabilities suddenly appeared out of nowhere.
We shall see.
But if Immelt’s tenure at GE tells us anything, it’s that any CEO’s job is about knowing what you’re good at and knowing what you should stay away from — i.e., trying to be the next Microsoft with an ill-conceived venture into software analytics.
Take Corporate America’s current move toward “stakeholder capitalism.” This concept forces CEOs to place amorphous goals of helping society ahead of shareholders first, and it has Immelt-level disaster written all over it.
Immelt, of course, was always going to face difficulties in measuring up to Welch, who is not blameless in GE’s collapse. Welch had a storied career transforming GE into a corporate behemoth. He also handed Immelt a stock that was bloated from dot-com euphoria and a company in far too many businesses.
But Immelt, through his relentless focus on a grandiose vision of the future, failed to see the many warning signs. And he failed to take care of the simple stuff.