General Electric: A Sign of the Times?

lightbulb1I have spent a good deal of my career writing and editing books on Jack Welch and GE. Unfortunately for General Electric, Welch, the so-annointed “Manager of the Century,” stepped down in 2001. There were three managers in line to succeed him, but it was Jeff Immelt who got the nod. 

Why him?

A couple reasons: Welch said that he wanted a CEO who could be there for 20 years, long enough to live with all of  the decisions he made, so he would not be tempted to make a decision that helped the company in the short run but impaired it for the long haul. That meant someone young enough to get those years in before retirement age of 65. Immelt was exactly the same age as Welch when he got the job, 44, so he was a natural.

Immelt also was an avid fan of the quality program that had become Welch’s obsession—Six Sigma. In fact, Immelt has a degree in applied statistics which also made him a natural for the position.

In 2000, The Wall Street Journalasked me to write an Op Ed on Welch’s selection of Immelt. The title of that piece, published in November of 2000, was  “Welch Successor Likely to Succeed.” In 2008, GE’s earnings exceeded $18 billion, the third highest in its history, and revenues were up by6% and global earnings by 13%. However Wall Street feared that there was too much bad commercial paper still in its GE Capital unit, and as a result, dragged the company’s stock price down to below $6 a share (for one day), something that is almost unimaginable for the last remaining stock of the original Dow stocks established a century ago.

Now Immelt has a gargantuan problem: he has a huge credibility gap with just about every constituency.  Before the stock swooned some 80% from its high, it was unthinkable that Immelt would be replaced. Now that possibility has to be back on the table for the GE board. After all, the company is in crisis. And when crisis hits, the board needs to consider every possibility, including a change at the top. And Immelt has made some big mistakes. I watched him on CNBC defending the GE stock price in the 30’s and again in the 20’s. He just bought 50,000 shares of GE stock at $8.26 per share, so at least he is now putting his money where his mouth is. Today, the stock is trading in the mid $7 range. 

It will be interesting to see what happens from here. I would hate to see the Op Ed I wrote just over eight years ago proved wrong, but on the other hand, the company has to come first. That’s because GE is a microcosm of the entire stock market. If it continues to fall, there could be some really dismal days for the entire stock market in the days ahead. However, I don’t see that happening. I think that GE and the market will bounce back. But I have been wrong many times before when it comes to the market. Let’s hope this isn’t one of those times.


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