Moneybox

GE Is So Desperate to Transform, It Transformed Its CEO Right out of the Building

Employees work on a General Electric turbine.
Employees work on a turbine at the General Electric plant in Belfort, France.
Vincent Kessler/Getty Images

The 2000s haven’t been a good century for General Electric. The company’s consistent earnings growth of the previous century disappeared after the departure of legendary chief executive Jack Welch (and the company’s creative accounting), its massive financial operations were hammered by the financial crisis, and it’s been going on a campaign of retrenchment and shrinkage—even shedding its iconic appliance business—all the while seeing its market value drop around $500 billion in the past 17 years and around $100 billion in the past year.

That helps to explain why John Flannery, who succeeded previous CEO Jeffrey Immelt just last summer, was unexpectedly canned Monday by the company’s board. The perhaps more surprising—and welcome—news was that the stock then jumped about 13 percent at opening.

But you can only fire the chief executive and see your stock pop so many times.

The boost was despite GE also disclosing Monday that it was taking a $23 billion charge from its power business, which primarily makes equipment like turbines and generators for power plants. Because of the weakness in its power business, which makes up almost 30 percent of its total revenue, the company said that it would miss its already reduced cash flow and profit forecast for this year. That unit had already seen its annual revenues drop 2 percent and its profits fall 45 percent as GE absorbed a massive acquisition of the French company Alstom’s power business in 2015.

The deal was supposed to be part of GE’s new focus on a few core areas as it made around a dozen deals to get rid of extraneous nonindustrial units, mainly in finance. The company said earlier this year that its slow-motion breakup would continue, with health care, oil and gas, transportation, and lighting next to go up for sale or be spun off, leaving behind an industrial company focused on turbines, jet engines, and generators.

The new chief executive, Larry Culp, came to GE’s board after a 14-year tenure as chief executive of the Danaher Corporation. The company has been a longtime favorite of big investors, returning more than four times what the S&P 500 as a whole did, according to data from the Wall Street Journal. Danaher is a D.C.-based conglomerate that largely specializes in medical technology. The company is also famous for its constant dealmaking; it split off its industrial businesses into a separate company in 2016 and was even rumored to be in the running to acquire GE’s health care business—and it seems like this approach is what GE expects of its new CEO.

In its release, GE hailed Culp’s “highly successful transformation of the company from an industrial manufacturer into a leading science and technology company” and his “disciplined capital allocation approach” (i.e., not overpaying for companies, getting good prices for the businesses he sold, and pouring money only into the most profitable businesses).

Whether he can now complete GE’s reverse transformation—or come up with something entirely different—remains to be seen. Hopefully he gets more time than his predecessor.