GE: Immelt Gets Welched

Note to Jack Welch: If you really think "nothing is worse than having a predecessor perceived as commenting negatively on a successor," how about -- oh, I don't know -- not commenting on your successor? Just a thought.

Welch's comments yesterday about G.E.'s first-quarter numbers are one more reason to believe that he's nothing like the management genius he was once cracked up to be. In particular, he still doesn't seem to understand that the 1990s are over. People get that quarterly earnings micromanagement (of which Welch was a master) doesn't create shareholder value over the long term, and can instead be a road to doom, disaster, and even jail. You can argue (many have) that that G.E.'s earnings growth over the last five years of Welch's tenure there was basically an accounting con game that Jeff Immelt had to clean up after--which is why the stock has been such an oinker for the past seven years. Thanks, Jack!

Welch's apparent view that Immelt's main concern should be hitting his quarterly numbers is bogus. Rather, Immelt's main concern should be--duh!--to increase shareholder value (let's use book value per share as a proxy) as much as he can for as long as he can, even if results are a little lumpy along the way. Along that line, maybe the first thing Immelt might do is stop giving earnings guidance in the first place. I doubt that's a concept that Jack Welch can even begin to get his head around. At least he can lay off the CNBC appearances, though...

Comments

[JDB1:]

I think all quarterly guidance should be stopped. I'm glad someone else agrees.

2008 Apr 17 12:37 PM

[cranky old ...:]

it would be wonderful - however, judging by price alone, imnelt has done absolutely nothing to increase value to date

2008 Apr 17 01:19 PM

[Red Rider:]

Jack Welch was...well Jack --I've known for years he was bogus--could not convince anyone of the fact, that he put this company into a pit. This stock will come back, but first it will see $27.00 or less, and take five years. I think immelt is honest, and will get rid of the tricksters and yes men, leaving a good crew to save this disaster. I will not give you the problems in front of him because they will need to addressed one by one, and considering them all would not be a gauge of what can be done or helpfull.
As for for Jack, he will get caught for his misdeeds, I hope someone sue's him to get their money back, he has paid off enough people to look the other way, but someone with details will step forward to blow away lies, nail him good, and help immelt with facts and baggage this company is strugling with, so it can come clean, and leave Immelt with a clean ship to sail, he doesn't need the distraction of Jack to deal with. So if you want this ship to sail, give him a hand.

2008 Apr 17 01:32 PM

[CrossProfit_:]

Comments on Welch and Immelt seem to be a bit harsh coming from pundits that can't even name all of GE's divisions, let alone run them efficiently.

Not a single clear actionable thought was expressed, not in the article nor the comments.

For example;
"he's nothing like the management genius he was once cracked up to be."
Care to explain exactly what he was cracked up to be means?

"an accounting con game "
Care to be more explicit rather than making general statements?

"Immelt's main concern should be--duh!--to increase shareholder value"
Care to explain HOW exactly you would achieve this differently, taking into account each divisions capital requirements etc.?

"stop giving earnings guidance in the first place"
Care to explain how this would enhance trust in management and increase shareholder value? Usually, a lack of information is fertile breeding ground for rumors and misunderstandings. Transparency, on the other hand, can go a long way with analysts and the investment community.

Just some thoughts...

CrossProfit

2008 Apr 17 02:47 PM

[Bourbeau:]

Jack Welch didn't coordinate the 1st Quarter results, Immelt did. It's Immelt's responsibilty to manage that exercise and he failed it miserably, along with his CEO. He had time to warn The Street and he didn't; he seems to think this is just a "bump in the road" and it's more serious than that; and he appeared to be totally lost as to what exactly happened vis a vis Bear Stearns, and he had more than a few weeks to nail it cold. Jack was right, Jeff Immelt created the creidibility problem in conjunction w/his crack executive team. One more thing everyone is overlooking; all three GE Vice Chairmen - Rice, Neal and Sherin are finance guys - tell me they shouldn't have had better grip on this then they did.

2008 Apr 17 04:34 PM

[RPK:]

Considering that Immelt was Welch's hand picked successor I am unsure that Welch is in a position to criticize. The assumption is that Welch guided and trained Immelt to assume the role of Chairman and CEO of GE.

Other GE alumni, such as Nardelli at Home Depot and Johnston at Albertson's, have not done too well either in producing shareholder value. Although Bossidy did a great job at AlliedSignal.

2008 Apr 17 09:37 PM

[Chris Marshall:]

I believe that Quarterly reporting was brought in to make stocks more transparent for the smaller investor. However, the companies themselves appear to be able to make their figures opaque, with various financial techniques, or at least have done so in the past.

Quarterly reporting has, I believe, brought more volatility to stocks, which has helped hedge funds, day traders Etc. When stocks are more volatile derivatives become more attractive to investors, but this volatility makes decision making more risky.

Regarding GE in particular, It would appear that they have to refinance over $100 Billion of debt this year. But with the tightening credit market, will it be on inferior terms?

2008 Apr 18 04:31 AM

[Ames Tiedeman:]

Welch is out of line. Also, I find his "managed earnings" approach obscene.

2008 Apr 18 07:24 AM

[gabe borens...:]

It appears that Mr.Immelt ,underestimated the impact of the "subprime "debacle on nthe G.E's earning.Nothing to worry about as every CEO of every financial institution did the same.Little criticism from the former CEO is not the worst that could have happened.The G.E is well diversified company and is well positioned for the record recovery in the period ahead .The "financial "crisis in the U.S is almost over.Any investor/hedge fund short the financial sector is taking on the FED and the ECB.Central banks do not have trading P&L but a mandate to stabilize the economy.With some further accomodation from the FED,an incredible business conducive environment is created .Recession ,the word frequenty used ,is a reflection of the market psychology not a reality.Both Dow and he NASDAQ are heading for the record high and the G.E shares will ascent to a new high.To the skeptics ,I will say the following -In June of 2005 I have discussed the economic risks which we are dealing with today,iwith Mark Gilbert of Bloomberg News(London).My opinion was met with a broad based skepticism.On September 18 ,2007 , I have expressed a warning about pending "sub-prime" debacle on the Brian Sullivan show (bloomberg TV),again my analysis met with a great degree of skepticism as the market paranoia grips the market ,I believe that the U.S economy is poised for a record rebound and companies such as G.E will eventually lead the rally.I am sure for now my analysis /convictions are met with skepticism again -but I am sure that my opinions will be proven to be correct.

2008 Apr 18 07:07 PM

[strategyleader:]

High Expectations and Surprising Yourself
During my 25 year GE tenure and my subsequent 23 years as a consultant to major corporations, I stressed two leadership tenets:
1. Set minimum expectations and always meet or even slightly exceed them. This demonstrates that you are credible and can always be counted on.
2. Never surprise your “key stakeholders”, especially customers and investors and most of all YOURSELF. This shows that you have done your homework and are prepared for uncertainty.
Last Friday, Jeff Immelt and his GE team violated both of these leaderships tenets.
In my recent book: The Secret to GE’s Success, I ended my 127 year strategic history of the company with concerns about Immelt’s ability to “meet high expectations and avoid surprises”.
I cited four concerns:
• Ability to “Go Big”, which was the theme of the 2005 annual report. In this area, I applauded his “missionary zeal”, but didn’t believe that he could grow organically, at a 8% compounded rate, because of the size and complexity of the company ( adding $14 billion of revenues each year and even a higher rate of earnings can’t be achieved forever… it is simply the “law of BIG numbers”).
• “Selling Solutions Globally” - highlighted the complexity of selling to developing nations, like China and India, who are not willing to “repatriate earnings and even nationalize companies” if they are too profitable and big.
• “It Always Takes Longer Than You Think”, focused on how difficult it is to get large, infrastructure orders and maintain strong competitive positions.
• “Maintaining a Strong and Deep Bench” focused on GE’s willingness to invest in people and even allocate a month of the CEO’s time to evaluating key people. When you have over 300,000 employees with a wide variety of cultures, religions and skills, this is almost impossible. GE has been and continues to be the prime source of executive and professional talent by headhunters and companies who have a “just in time” staffing philosophy.
Chief Executive Article. In June, 2007, I published an article in Chief Executive magazine, entitled: “Decision Time for Buffett and Immelt”, in which I contrasted the “GO BIG” simple approach of Warren Buffett with the complex approach GE’s Immelt. In this article, I stress three actions for Immelt to consider:
o Make the company less complex.
o Continue to Prune the Portfolio.
o Create “tracking stocks”- that would allow investors to invest in sectors of the company, while allowing GE to remain in control and one company.
Blogs on Amazon and Google. Since November, 2007, I have been writing a series of blogs, entitled GEWatchers, to keep my readers and clients up to date on what Immelt and his team are doing strategically and how their actions compare to what made GE successful in the past. These can be accessed on my site: strategyleader.com.
If you want to discuss…visit our blog on: strategyleader.com
Bill Rothschild

2008 Apr 20 11:41 AM