General Electric, once considered the USA’s most iconic company, is now struggling to stay afloat
November 17, 2017 – CNBC
Throughout the twentieth century, business schools heralded General Electric (GE) as America’s most iconic company. It set the standards in leadership, organization, and effective management processes. The company delivered remarkable results over its storied history, evidenced by its stature as the only original component of the Dow Jones industrial average still on the list.
Today GE is becoming a shadow of its former self.
On November 13, new CEO John Flannery announced the shrinking of GE’s holdings to three businesses – aviation, health care and energy and power – while shedding such legacy businesses as lighting and locomotives. Flannery also declared a 50 percent dividend cut, only the third in GE’s history – this one coming when the economy is strong. Even by spinning off $20 billion in assets, GE apparently can’t move fast enough to preserve the dividends that millions of retired Americans depend upon to maintain their standard of living.
In describing these dramatic cutbacks, Flannery failed to shed any light on the end of GE’s tunnel. Disappointed investors drove GE stock down an additional 13 percent in the two succeeding days, bringing the cumulative decline to 40 percent since Flannery was announced on June 12, 2017 as successor to former CEO Jeff Immelt. Credit activist investor Nelson Peltz and his partner Ed Garden (now a GE board member) for blowing the whistle earlier this year, accelerating the CEO transition from Immelt to Flannery.
The contrast of GE circa 2017 with “The House that Jack (Welch) Built” could not be greater. Since its peak in 2000, GE’s $410 billion market capitalization has shrunk to $156 billion, down $254 billion (62 percent). During his twenty years at the helm, Welch increased GE’s market value twenty-eight times, making GE America’s most valuable corporation. He expanded GE through internal growth and acquisitions, especially in GE Capital, as GE hit every quarter while investing for the long-term. For these results Fortune Magazine named him “Manager of the Century.”
Welch followed a long line of fabled CEOs that includes Charles Coffin (1892-1922), Ralph Cordiner (1950-1963), and Reginald Jones (1972-1981). He moved aggressively as soon as he took over in 1981 to remake GE with his own imprint – even though it meant undoing predecessor Jones’s legacy. Recognizing GE needed to be much leaner and faster-moving to compete globally in the 21st Century, Welch slashed its bloated corporate staff, cut several layers of management, and radically changed GE’s cumbersome processes to accelerate decision making – enabling GE to move in front of major global competitors like Siemens, Phillips and Mitsubishi.
Under his leadership, GE was recognized for its disciplined execution, Six Sigma quality and cost control, and leadership excellence at all levels, built around its in-house training center at Crotonville. GE was known as a leadership factory that developed great leaders for its own ranks and beyond – training the CEOs of Honeywell, Boeing, ABB, Medtronic, and numerous other companies. Myriad business school cases were written to document the underlying reasons for GE’s success. Welch immortalized his accomplishments in his books, Jack: Straight from the Gut and Winning.
Welch is not without his critics, especially after the recent declines. Numerous observers correctly criticize the dependence he created on GE Capital, which accounted for nearly half of GE’s business by the end of his reign. But Welch left GE with a strong balance sheet and abundant cash flow to adapt to any difficulties encountered.