A Stalwart Of Corporate America Is Forced To Pivot. My Top Of Mind Thoughts.
Founded in 1892, General Electric Company (GE) is a multinational conglomerate that at one time was involved in aviation, power, renewable energy, digital industry, weapons manufacturing, locomotives, and venture capital and finance. GE divested from several areas, and last week announced that the conglomerate was going to be split into three completely separate companies. The three companies will be focused on aviation, healthcare, and energy. The first spinoff of the healthcare division is planned for 2023 and to be followed by the spinoff of the energy division in 2024. In light of this corporate giant deciding to break up, I turned to a friend of mine who spent many years at GE, serving various roles and responsibilities. Thank you, Chris, for taking the time to give all of us your insight about GE.
Given the latest announcement regarding the break-up of GE, I feel a cathartic need to:
- Provide an ‘insiders’ perspective on GE.
- What went wrong and why?
- What the latest announcement might mean to shareholders and employees.
I joined GE on a management training program in 1984, three years after Jack Welch took helm as CEO. At the time, revenues were about $28B. I have stayed in touch with several of my management training class members (I am the young man seated on the right). I stayed with the company for 28 years, some peers left earlier, and one is still there. In the early 2000’s GE was the most valuable company in the world and when I left, revenues had reached almost $147B. What went wrong?
Jack was a great leader. We both hated how hard he drove us and loved the professional and financial rewards he provided. For some of us, it was worth it. He did make one awful decision – promoting Jeff Immelt to CEO. That’s hard for me to say – I worked for Jeff and liked him a lot. But we were taught to be candid, and, in obvious hindsight, Jeff was just the wrong guy to lead GE into the twenty-first century.
Jeff and the Board made many bad investments. Repeatedly, they overpaid for acquisitions and over-levered the company with debt. At the same time, the company lost its focus on costs. The solution was to sell off assets to pay down the debt and meet other obligations. The company needed a leader who was not wedded to its past or paradigms. Investors lost confidence in Jeff and for the first time in the company’s 130+ year history, they turned to an outsider.
Over the last 5 years, GE stock lost 2% of its value each year while the S&P increased 9% on average. The latest announcement by CEO Larry Culp to separate the remaining pieces was a final admission that the company could not achieve necessary returns and was likely not self-sustaining. This move will create some near-term value for current shareholders of GE. If you are one, based on prior divestitures, I expect you will be issued shares in the two new companies as each are spun off (a healthcare company and an energy company – both to be named). Your newly formed company positions will be offset with a re-valued ~ $20B GE (aircraft engine business) at a lower share price.
The above is only my perspective. Others may see if differently. Regardless, in the end, I remain so very grateful to have worked for and learned so much at GE.
Five Things I Think I Think:
- Kyle Rittenhouse is one mature 18-year-old, or one of the best actors ever.
- There needs to be a standardized protocol dictating Covid tests and/or vaccinations to enter different venues and facilities. Obviously, this is not an issue for those who are vaccinated.
- Former NFL coach Jon Gruden’s contract was $10M a year for ten years. He resigned last month after revelations that he had made racist, homophobic and misogynistic comments. He now decides to sue the NFL and Commissioner Roger Goodell. Another baseless lawsuit.
- I am trying to be more cognizant and respectful of the environmental challenges some will face in the future. Automobile companies are betting big on their fleets of electric cars. In fact, various economists predict that U.S. all-electric sales to be 25% to 30% of new vehicles in 2030 and 45% to 50% by 2035. How will this onslaught of electric cars affect the world’s power grids? Maybe my friend T.A. can help us understand how power generation and supply entities are planning on dealing with this issue?
- Mental health finally is finding its way into the regular and normal thread of healthcare. It is about time that all of us respect the fact that people struggle with a myriad of health issues, and they are not necessarily physical. The pandemic, in my opinion, literally fueled the fire of mental health awareness. The welfare of our friends and family’s mental health is not to be taken lightly.
Speaking of mental health, I leave you with some inspiring words from the one and only Michael Scott, from the television hit, The Office: