If Not Immelt, Who?

What is one to make of GE recent share price tumble followed by Jack Welch’s blunt criticism that Immelt, Welch’s [...]

April 21 2008 by Chief Executive


What is one to make of GE recent share price tumble followed by Jack Welch’s blunt criticism that Immelt, Welch’s hand picked successor, “screwed up?” Nothing like having your former boss deliver it right between the eyeballs. It’s rare that a former GE figure, let alone the guy who ran the store for 20 years, go off the reservation and criticize the current CEO. He even made the remark on a GE owned television channel.

“Here’s the screw-up: you made a promise that you’d deliver this and you miss three weeks later,” Mr Welch said on  CNBC. “Jeff has a credibility issue. He’s getting his ass kicked. He apologised. Things happen fast.”

Welch made the comments following shareholder anger that the Fairfield based conglomerate missed first quarter earnings  that fell well below analyst expectations. Looking at the headlines generated by his outburst, Welch countered the following day  saying ,also on CNBC, that he “really stepped in it”  when he said his successor  had a “credibility issue” after missing first-quarter profit estimates.

“In an effort to put GE’s first-quarter earnings in context, I really stepped in it,” Welch told CNBC. “Much to my shock and horror” the comments “about the performance of GE and CEO Jeff Immelt were interpreted to mean the exact opposite than what I intended. Nothing is worse than having a predecessor perceived as commenting negatively on a successor.” And in case you missed the mea culpe, Welch added that Immelt is a “hell of a CEO.”  

Yes, and I’m Humphrey Bogart.

Predecessors find it difficult to leave things as they are. Welch concentrated on relatively mature businesses and financial services. When Immelt took over in 2001-four days before 9/11–he looked over the portfolio and said that “another decade of  4 percent growth and GE will cease being a great company.”

However, embarassed Welch may be, one can only imagine what’s going through Immelt’s mind. He has promised patient investors 8 to 10 percent growth. After seven years following his taking over the company from a legendary figure who ran it for 20 years GE’s stock continues to underperform. Recognizing that he needed to take a very different course from his predecessor, Immelt ditched businesses like Genworth and invested heavily in technology, services, infrastructure and his personal favorite–eco-imagination businesses. Immelt has also backed up his moves by buying GE stock himself saying, “I’ve got my own little buyback program going.”  Forbes reported that he notified the Securities and Exchange Commission that he had purchased 62,000 shares of General Electric for $2.0 million, an average price of $32.93.

Last June, Bill Rothschild, a former strategy leader for GE and the author of “The Secret to GE’s Success,” wrote in Chief Executive a prescient feature, “Decision Time for Immelt and Buffett,” where he posited that it was just a matter of time before GE’s current business model would hit the wall. Rothschild posited three reasons for Immelt’s dilemma:

“First, the company has become so complex and is so constantly changing its portfolio that investors are confused. Second, Immelt has a 20-year game plan and most investors are looking for immediate gains and have no long-term vision. Third, Immelt and his team appear so convinced that they are right that they may not be willing to change.”

Rothschild may not have been the only one who has called attention to GE’s predicament but he has put forward various ideas how Immelt & Co might work themselves out of a tight spot.

The question is does he have time? Just because GE has had the ability to succeed and prosper for over 128 years doesn’t mean the company will make it happen for 129. The question Immelt’s critic need to answer though is fairly straightforward but stark. If not Immelt, then who? There are few companies with the deep bench, talent and leadership ability. It would be an absurdity to bring someone from the outside to run GE-GE is the campus that provides outsiders to others!  Rothschild may have touched on the answer when he observed that the real question is whether team Immelt has the ability to adapt and admit mistakes.  Welch unconsciously or not has set a torch that investors may pick up and march on Castle Fairfield asking for Immelt’s head on a pike. If so, they better have a clear idea of who they want to replace him. Otherwise they will get a lot less than they are bargaining for.