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Too Little, Too Late: Flannery Out As GE CEO

Unimpressed with the slow pace of change and a steady stream of poor financial results, General Electric’s board has removed chairman and CEO John Flannery after just over a year on the job.
Former GE CEO & chairman John Flannery.

Unimpressed with the slow pace of change and a steady stream of poor financial results, General Electric’s board has removed chairman and CEO John Flannery after just over a year on the job and replaced him with board member and former Danaher CEO Lawrence Culp.

The move provides some insight as to how GE’s board views the company’s outlook on the future according to Jeff Cunningham, Chief Executive’s editor-at-large and professor of leadership at Arizona State University/Thunderbird School of Global Management.

“After barely a year on the job, ousting John Flannery is a move so fraught with risk it can only suggest the GE board has looked into the abyss and saw themselves at the bottom,” Cunningham says. “Let us remember, Flannery also reconstituted the GE board with four new members, so this is his board, and that means he just didn’t have the goods in a time of duress, or we are witnessing a cover-up of some kind of scandal. The board is sending the market as well as employees and customers the signal that nothing is sacred, and that this great old American company is heading for a bust-up or a merger. Warren Buffett, are you available?”

Jeffrey Sonnenfeld, senior associate dean, leadership studies at the Yale School of Management believes Flannery had a hard time getting out from under a crop of bad circumstances sowed prior to his assuming the role of chief executive.

“Flannery inherited a bad hand and suffered from being in the shadow of liability for bad decisions and ill-timed strategic moves which were not his call. As an insider making major changes, he was still classified as sluggish even though the board endorsed his strategy and schedule,” Sonnenfeld told Chief Executive. “The crushing weight on the stock each time he spoke never gave uplift to show belief in his vision of the future of the company. Fresh faces, namely Larry Culp and Tom Horton, may have an easier time of making a fresh break with the past. Culp has rebuild heavy industry before and knows the health technology field as well as anyone on the planet. He may startle us all by retaining this large successful unit, which was on the auction block even though it had been Flannery’s baby.”

Flannery took over from longtime GE CEO Jeff Immelt on Aug. 1, 2017 and immediately set out to make his mark with the ambitious goal of reducing GE’s overall structural costs by $3.5 billion in 2017 and 2018. First, he grounded the company’s private jet fleet and slashed corporate car perks for executives in a move to cut wasteful spending. Last December, GE Power announced it was cutting 12,000 jobs worldwide. In February, Flannery shook up the company’s board by selecting new directors and slimming its membership down from 18 to 12 directors.

But the moves weren’t enough to put investors (or directors) at ease—GE’s stock prices hit their lowest value in nine years least week. Much of the financial trouble stems from GE’s power business, which has struggled mightily as the demand for its power plant turbines has slowed. GE also announced that it will be taking a $23 billion goodwill impairment charge on its power business.

In addition to naming Culp its new CEO and chairman, GE also named former American Airlines CEO and chairman Thomas W. Horton as lead director. Horton believes that Culp will be the person best suited for leading GE out of its tailspin.

“Larry Culp has a proven track record in company transformation and delivering shareholder value. He is a strong leader with deep knowledge of industrials and technology, and an intense focus on execution, organization, and talent development,” Horton said in a statement. “The board looks forward to working with Larry and his team to return GE to growth and long-term success.”

Here’s a roundup of reaction to the news:

  • CNBC reports that GE shares are soaring in value in the wake of the announcement.
  • The Wall Street Journal reports that some investors have questioned whether Flannery was moving quickly enough to restructure GE’s portfolio.
  • CNN Money says Culp will be facing serious challenges moving forward, including an SEC investigation into the company’s insurance business and accounting practices.
  • Bloomberg Intelligence’s Joel Levington says Culp is “definitely the right leader for GE” thanks to his experience as Danaher CEO.
  • TheStreet highlights some of the financial woes GE endured during Flannery’s time at the helm.

RelatedFlannery Embraces Role of Becoming the CEO Who Undoes Jack Welch’s Legacy


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