Under Jack Welch, the market cap value of G.E. topped $400 billion, up from $15 billion. Today, under the leadership of Jeffrey Immelt, GE is the worst performing stock in the Dow Jones.
Welch left behind three rules that GE leadership had to follow: one, cash is always king, stay in cash; two, communicate everything, no surprises; three, buy or kill off the competition. GE leadership under Immelt was unable to consummate either tactic having witness his companies decline from geopolitical black swans. Having heavily bet on aviation, a heavily dependent financial arm and European made turbines squandered GE’s position throughout 2017. This year alone it didn’t have enough cash on hand to pay its vaunted dividend. Like all executives, GE leadership relied upon opaque financialization of currency movements, duplicate accounting standards and difficult longterm service contracts, all contributed to GE’s demise. Its acquisition of big oil companies coincided with low oil nearly burying GE.
The turnaround has begun under new leadership of John Flannery.
Flannery savagery is simple: cut costs, sharpen its domestic culture and shrink to its core.
By any measure, Flannery had to do it, GE is bloated. So he began by cutting the firms dividend by half saving $4 billion. Only twice in its 125 year history has the firm failed to deliver on dividend. Flannery also borrowed to pay the firms pension benefits, even though the current pension remains underfunded by $31 billion.
Flannery’s difficult spot will be on selling off assets worth over $20 billion over two years. Shrinking to a core means selling off the companies operations in transport and industrial lighting as well as its share in Baker Hughes oil-field services. Having assets worth over $365 billion means it remains grossly underperforming. GE still has outstanding performance in its healthcare and aerospace divisions.
What does this mean?
It means executive performance is going to matter more now than ever. It means smart sequencing with sound judgment of anticipating growth trends in an operating environment of hazard uncertainty.
The turn around at GE is apace. Jack Welch was right, ‘change before you have to.’