Thursday, 4 Mar 2021

Jeff Immelt Oversaw the Downfall of G.E. Now He’d Like You to Read His Book.

There are two ways to think about Jeff Immelt’s 16-year run as chief executive of General Electric.

The charitable interpretation is that Mr. Immelt was dealt an impossible hand. He followed the two-decade reign of Jack Welch, during which G.E. became the most valuable company in the world. His second day on the job was Sept. 11, 2001, and fallout from the terrorist attacks left several of G.E.’s major business lines battered. And G.E. Capital, which Mr. Welch built into what was essentially a giant unregulated bank, was a ticking time bomb that almost blew up during the financial crisis.

The less charitable interpretation is that Mr. Immelt bears singular responsibility for allowing G.E. to fall apart. Mr. Immelt paid too much for some acquisitions and didn’t get enough for some divestitures. Rather than rein in G.E. Capital, he let it spin out of control. And critics contend he was set in his ways, misguided in his big bets and unable to adapt to changing market conditions.

Either way, the results were disastrous. On Mr. Immelt’s watch, G.E. stock plunged some 30 percent, wiping out more than $150 billion in market value and obliterating the savings of thousands of G.E. retirees. Since Mr. Immelt was pushed out in 2017, it has only gotten worse. G.E. was dropped from the Dow Jones industrial average, its stock has continued to slide and it recently paid $200 million to settle with the Securities and Exchange Commission for misleading investors. Once a paragon of modern management excellence, G.E. became a punchline.

It was a stunning fall for a company that was among the country’s most admired corporations for a century, popularizing everything from the light bulb to the refrigerator, mass-producing televisions and washing machines, and ushering in the modern age with jet engines, power plants and plastics used during the moon landing.

Today G.E. still makes engines, wind turbines and medical equipment, and Mr. Immelt did generate some organic growth. Gone, however, are its once-vaunted businesses in appliances, plastics, locomotives, light bulbs, media and more. It is an object lesson in how even the mightiest companies can fall victim to bad management, black swan events and the unforgiving nature of the stock market.

Dueling narratives have now emerged that try to explain what went wrong. In “Lights Out,” two Wall Street Journal reporters lay the blame squarely at the feet of Mr. Immelt, describing in detail how his rosy projections were too often out of step with reality.

Mr. Immelt, 64, is telling his side of the story in “Hot Seat,” a book in which the former C.E.O. seeks to own up to his failures while explaining the complexities of running a company with more than 200,000 employees and operations around the globe.

Mr. Immelt acknowledges that he made mistakes, and writes candidly about his tactical errors and lapses in judgment. But there often seems to be a caveat, something to explain why it wasn’t all his fault: He was working with the best information he had. McKinsey had done a study. Goldman Sachs had offered its assurances. The markets moved in unpredictable ways.

For the most part, Mr. Immelt does not blame other individuals for his missteps — with one major exception. In his final years as C.E.O., Mr. Immelt writes that Steve Bolze, the head of G.E.’s power division, essentially ran one of G.E.’s most important businesses into the ground. Mr. Bolze championed the ill-fated acquisition of Alstom, a French energy company, then froze when it came time to execute the deal. He “wasn’t committed,” and “lacked what I can only describe as a C.E.O.’s intuition,” Mr. Immelt writes. He was “naïve,” “didn’t have command of the most basic material,” was “indecisive,” was “not operationally sharp” and “didn’t seem to be thinking ahead.”

At the same time, Mr. Immelt writes, Mr. Bolze engaged in “unyielding politicking” and launched an overt campaign to replace Mr. Immelt as C.E.O., while abandoning his day-to-day operational duties. “His main concern seemed to be self-promotion,” Mr. Immelt writes, and “his behavior had become self-serving to the point of outrageous.” Not firing Mr. Bolze, Mr. Immelt writes, was “a terrible mistake, maybe the worst I ever made.”

(“Many clearly have different perspectives on this chapter in G.E.’s history,” Mr. Bolze, now an executive at Blackstone, said in a statement. “Jeff’s narrative simply doesn’t align with the facts.”)

The leaders who replaced Mr. Immelt don’t fare much better in the book. John Flannery, who took over for Mr. Immelt, “created a culture defined more by victimhood than by a sense of purpose.” That came as no surprise to Mr. Immelt. “Flannery couldn’t make a decision,” Mr. Immelt writes. “He was ponderous and always needed reams of data before choosing a course of action.”

Mr. Immelt, who received more than $200 million in compensation during his time at G.E., developed a thick skin as C.E.O. Yet even as a wealthy executive who hopscotched the globe accompanied by an extra empty plane, he was never able to escape the long shadow of Mr. Welch. Wall Street had come to expect the extraordinary from G.E., and no matter how he tried, Mr. Immelt could never revive the company’s stock price. Eventually, even Mr. Welch, who handpicked Mr. Immelt as his successor, lost faith in his protégé.

In the book, Mr. Immelt recounts how badly it stung when Mr. Welch went on CNBC and said he would “get a gun out and shoot him” if Mr. Immelt missed his earnings target. “When you lead an organization the size of G.E., you accumulate a lot of ‘friends in name only,’” Mr. Immelt writes. “I hadn’t thought Jack Welch was one of them.”

G.E. is a shell of its former self, but Mr. Immelt has concocted a series of second acts. As a partner at a venture capital firm, he is advising up-and-coming companies. And as a lecturer the Stanford Graduate School of Business, Mr. Immelt — a consequential figure in the history of business, wherever you lay the blame — is imparting his wisdom on the future leaders of corporate America.

This interview was condensed and edited for clarity.

What kind of work are you doing with the companies you advise these days?

I’m the guy in the boardroom who knows what really (expletive) days look like. For entrepreneurs, it’s lonely. So having somebody that isn’t sitting there looking at a spreadsheet, but can kind of just say — “Hey, I know how you’re feeling. Here’s two or three things I’d be thinking about.” — it turns out that that’s pretty valuable.

Is there a tech bubble?

There’s no doubt that there’s a bubble right now. Tesla is a great company. What should it be worth? I don’t know.

Do you feel like the jobs you had at G.E. prepared you to be C.E.O.?

Yes and no. I had experienced the old-line businesses, more technology-oriented businesses and financial services. So that gave me a pretty good platform. What I didn’t have, which I wish I had had, was I’d never seen a totally unexpected horrible event. What does it look like? What does it feel like? How do you lead through that? We had to kind of learn that on the fly.

In the book you write that when you became C.E.O., the board didn’t have a clear mandate for where it wanted G.E. to go. They just wanted more of the same. Does that represent a failure of corporate governance?

It’s hard to capture for you the G.E. of 2000. Fortune Magazine had just named Welch “Manager of the Century.” The stock was trading at 60 times earnings. And it was a complicated company. I mean, we did everything from dog insurance to TV shows.

One of the things I did to try and boost understanding was have the board go visit two or three businesses a year, without me there. Even if you have eight board meetings a year, you can never bring everybody fully up to speed on all the things you’re working on. You just need them to spend the time in the bowels of the company to get things understood.

The book is clearly an effort to tell the story of your time as C.E.O. on your own terms. What do you think you don’t get enough credit for?

We had world-leading businesses that generated a lot of earnings and cash flow. We had the world’s best global position. We really were the true global company of the 20th century. And we had really good people. I’d say those three things.

If all those things were going so right, how did it go so wrong?

Three things: tough energy markets; G.E. Capital just proved much tougher and more expensive than any of us anticipated; and I just think the team in our power business, for a two- or three-year time period, just executed really poorly. You add those three things up, and you had Covid on top of that, you get a $10 stock price or whatever it is today. Not that I’m blameless, but I’d hang on those three things.

Did you understand the fundamental risks and exposures inside G.E. Capital when you took over as C.E.O., and how all those products were connected with the broader financial markets?

Certainly when I became C.E.O., I didn’t know the whole panorama. But I tried very hard to get grounded in each one of those businesses across the financial services sector. And it was big, it was massive. What was hard to understand before the financial crisis hit was, when you were that size, just how interrelated you were to the entire capital markets.

Was there a culture of creative accounting at G.E., where people did what they needed to to hit the numbers?

The incredible strategic vein that Jack hit in the late ’80s and through most of the ’90s was that you could take industrial cash flow, lever it eight to one, and build a financial services business whose earnings were valued like a high-tech industrial company. And that became so seductive to the company. The accounting stuff and pressure, I don’t really want to go there. But I do think that strategic thing just became really seductive over that period of time. No question about it.

Did we try hard to meet our target each quarter? We did. But one of the things that I felt like has been wrong about the way the company has been covered is this notion that people could just invent numbers. You had a dozen checks and balances in the system that would keep you from doing that.

In the book you acknowledge that after 9/11 there was a window of opportunity to address G.E. Capital’s outsize position in the broader G.E. portfolio, but you didn’t do it then. If you knew it needed to happen, why didn’t you do it?

I thought had the luxury of time. I thought that we could do this a little bit at a time, and do it over a period of five or eight years. You’re with the most admired company, with the most admired team, right after a crisis like 9/11. Standing up and saying, “Hey, the place is broken” — I had no foundation for that.

Was there also concern that taking those drastic actions right after 9/11 could have caught investors off guard and hit the stock price?

After 9/11, the market was closed for a week. When the market opened on a Monday, our largest investor sold half their position, and we were down like 15 bucks or something like that. And so I called the investor and I said, you know, “Hey, give us a break here. You know, this is a tough day.” And they said to me, “Look, we had no idea that G.E. was so big in the insurance business.” So you sit there and say, “Here’s your largest investor who doesn’t know that you’re in one of the largest businesses that you’re in.” We had a little bit of an education to do.

What went wrong to allow that to happen? Was that Jack’s fault? Was that the board’s fault?

You’re a “trust me” company until you’re not. People just looked at our earnings per share once a quarter. There were no quarterly conference calls. There were no earnings decks.

Many critics contend that you paid too much for deals, and that once you sort of locked in on a target, you were going to get it, price be damned. How do you respond to that?

It became kind of urban myth at some point in time. For a decade I was criticized for paying too much for Amersham. And then when people realized it was generating $2 billion or $3 billion of cash a year, and we paid $10 billion for it, people said, “I guess it wasn’t so bad.” Some of the energy deals I clearly would pay too much for. You just have to execute the strategy and let the chips fall where they may.

The events that led to the recent S.E.C. settlement happened on your watch. Why was that kind of thing happening at G.E.?

The S.E.C. said we got it wrong, and I accept that. But let me describe what we tried to do to get it right. We had an internal audit staff, and we paid our auditor $120 million a year. We had a very independent audit committee. We were regulated by the Fed. And I had 100 percent of my 401(k) in G.E. stock, and bought $8 million of G.E. stock in the open market in the last year I was C.E.O. So the only point I would make is, we tried awfully hard to get these things right. We took them very seriously as a company. And if we got them wrong, we got them wrong.

How do you think G.E. workers fared during your tenure as C.E.O.?

I never went to work one day without thinking about the people who were in our factories, how we could win in the market, how market share translated to job security. The stock didn’t work. I feel terrible about that. I think about that every day, and will for the rest of my life.

Do you feel like there’s a fundamental misalignment between compensation in this economy, when the outcomes for the people in factories and executives are just worlds and worlds apart?

I’m a little bit of a bad messenger, because our stock didn’t work. I worked 24 hours a day, seven days a week. And I was going to do that whether you paid me $5 million or $10 million. But I do think there’s a misalignment. I do think that that’s one of the reasons why business isn’t as trusted as it should be.

There’s a moment in the book when you say you felt like people weren’t rooting for G.E., and that you don’t understand why people don’t want big business to win. When you look at the American working class and how they’ve fared over the last 40 years, do you not understand where some of that animosity is coming from?

C.E.O.s like me grew up in the era of wage arbitrage, where we felt like we could put jobs anywhere we wanted to and have people still love us. Those days are long over. I moved refrigerator manufacturing back from Mexico to the U.S.

So over time, I became cognizant that there was a reason why American society didn’t trust business. And it had a lot to do with wage arbitrage, outsourcing — things that really had a negative impact on the high-end industrial worker that was so essential. In a town like Erie, Pa., people don’t go from working at G.E., making $36 an hour, to working at factory X making $30 an hour. They go from earning $36 an hour to earning $15 an hour. And that gap is a hugely negative impact. I get that.

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