Lights Out: Pride, Delusion, and the Fall of General Electric

by Thomas Gryta

A targeted executive never forgot this kind of rebuke from Immelt. It was better to figure out a better way to deliver the bad news, or make it go away somehow, than to present it to him straight.

But the pressure from renewable energy sources was already rising. While governments were offering piles of incentives for new power generation from sources like wind, solar, and water, GE was still trying to weave together the Alstom operations in the biggest such combination in its history. GE was attempting to absorb and integrate a behemoth of the old energy economy, not the new.

But a future invoice can be sold only once. GE Power was making its numbers in a way that would make future growth more difficult. This accounting maneuver was legal, but aggressive. In time, that move would catch the attention of criminal investigators at the US Department of Justice.

Some parts of the agreement weren’t made public. But the bottom line was that if GE didn’t get back on track, Trian would push for a board seat or management changes or both. Both men understood that “management changes” meant defenestrations, including of Bornstein himself, even if many within the company thought that the CFO still was on track to succeed Immelt.

But serving on the Jobs Council had been a nightmare for Immelt. It was all exposure and no results in a still sluggish economy, and his visibility on the council only heightened the scrutiny of his company and himself. Internet pundits now declared Immelt, a self-avowed “center-right Republican,” to be an Obama stooge. And many people, both within and outside the company, hated the CEO’s attention being anywhere other than on the project of reviving GE’s lame stock price. Then the country went and elected one of Immelt’s ex–TV performers president.

The CEO was no dummy. Carving out distance from Trump, Immelt also carefully avoided criticizing his touchy former TV talent directly.

To close observers, there was a greater concern: Most of the shortfall came from the heart of the industrial business, Power’s service contracts. Services, as in any traditional industrial business, should have been the source of the easiest profits. Instead, the cavity in the heart of the service portfolio was about to tip the entire company into crisis.

John Flannery was being charged with taking GE in a new direction, but he was also deeply rooted in where the company had been over the course of the Immelt years.

Immelt initially denied knowledge of this two-plane operation, but then pivoted to say that he found out about it in 2014, when the practice stopped. But the practice didn’t stop. Flight records revealed the well-worn pattern of the two jets often following the same path with itineraries only minutes apart. The secrecy betrayed the notion that it was a practical decision.

For John Flannery, the two-planes controversy reflected what he already knew: GE wasn’t the company that most people imagined.

Instead of gathering in sunny Florida, Flannery replaced the event with a meeting in Boston in January. There would be fewer attendees and certainly no golf.

Flannery addressed the group, laying out many details of the company’s operations that he was finding out for the first time. In stark and jarring contrast to Immelt’s shining positivity and predictable pep talks, Flannery said that the state of the company was bad and the future was probably worse.

As the Berkshire Hathaway gurus note, “what is smart at one price is dumb at another.” And they flag perhaps the biggest risk of all: “Many CEOs never stop believing their stock is cheap.”

If the shares fall, buying back shares is little different than simply setting the cash on fire. Paying a dollar for something that will be worth 80 cents in the future isn’t a great way to spend someone else’s money.

Jeff Immelt will not be remembered for wisely deciding how to spend GE’s cash.

When Immelt’s retirement was announced in June 2017 and the repurchases stopped, it was as though someone had grabbed the assailant’s hand. GE spent $153 million in June and only $18 million in July.

GE’s size and ability to offset such pressures. Remember, $1 billion can be either a great deal of money or immaterial depending on whether it’s a sales contract or a noncash adjustment.

Flannery was constantly putting out fires, and then finding more fires.

Flannery unfortunately was now building a new and different kind of reputation: for seeming to drop GE’s stock price anytime he opened his mouth.