SCHENECTADY — A newly published book lays out in extensive detail the long slide of General Electric from an icon of American industry to a corporation struggling to reinvent itself and avoid being strangled by its own finances.
“LIGHTS OUT Pride Delusion and The Fall of General Electric” was written by two Wall Street Journal reporters and based on information from hundreds of people they’ve interviewed while covering GE for the last six years.
GE’s wins and failures have been extensively chronicled in the financial and mainstream media. In their book, Thomas Gryta and Ted Mann give an account of the decision-making behind the scenes that led to the most epic fails. Prominently featured is GE Power, long the company’s marquee business, long based in General Electric’s birthplace, Schenectady.
The book opens with CEO John Flannery visiting the Schenectady campus in 2017, near the beginning of his brief, doomed tenure running GE.
The authors devote their first chapter to Flannery’s tour of company assets and focus on GE Power: With his long experience in finance, Flannery immediately saw big problems in GE Power’s balance sheet: The business was out of cash, its profits were mostly on paper and it was accumulating costly inventory — carbon-fueled power generation equipment — just as the market for that inventory was shrinking.
Flannery turned to the finance chief he had known for decades and said: “Did you [expletive] know about this?”
Here, and in many other situations, the answer may well have been no, the authors say.
GE’s financials, famously dense to the outside world, also didn’t gain the scrutiny and skepticism they needed within the company itself. And with a complex set of interwoven yet separate management structures between component businesses and headquarters, it was entirely possible that many high-ranking employees didn’t know.
Over 36 years, General Electric had just two CEOs, both hugely transformative for the industrial company created in 1892: Jack Welch (1981-2001) and Jeff Immelt (2001-2017).
When Immelt left the corner office in 2017, the debate had already been raging for years, occasionally voiced by Welch and Immelt themselves: Had Welch created an unstable, unsustainable model and handed it off to Immelt four days before the 9/11 terror attacks? Or had Welch built the nation’s greatest company and Immelt mismanaged it almost into oblivion?
Gryta and Mann place most of their book in the Immelt era, when GE’s problems came to fore, but they told The Daily Gazette this week that there’s not a bad guy or villain in the story, and they wouldn’t single out Immelt or Welch as solely responsible for GE’s problems.
Immelt probably magnified the flaws now recognized in the Welch era, Mann said. But both CEOs were operating with the external pressures of a financial world focused on immediate gains and the internal heritage of a very strong CEO.
“‘Bad guy’ implies a level of intent,” Gryta said. “This is not a story about true corruption and venality. There was no criminal villain operating here, there was no criminal intent.”
(The two writers also noted that there is an ongoing federal probe to determine if the company broke laws.)
The authors also are not critical of Immelt as a person. He did not like to hear his ideas criticized, they said, and executives who said “no” too many times did so at risk of their career prospects. Importantly, members of the board of directors that ostensibly oversaw Immelt also could be sacked for excessive criticism, as he was chairman of the board and had significant control over its membership.
There was an ego, certainly, but not a narcissistic one. Immelt worked around the clock for the company, not himself, Gryta and Mann said.
Immelt could snap at people but was neither imperious nor a ranter, they added. He was a master at engaging people, as a salesman must, but also possessed a genuine warmth and made increasing racial and gender diversity a priority for the company.
Some condensed excerpts of the reporting by Gryta and Mann in their 304-page book, released Tuesday:
- Immelt’s leadership philosophy was perseverance in the face of doubt, making it hard for others to change his mind about something.
- Immelt shared Welch’s ability to shake off criticism and unwanted questions.
- The GE board of directors, widely viewed as a rubber-stamp for Welch, became one as well for Immelt.
- Immelt became known early on for overpaying for acquisitions and developed a reputation for chasing trends and buying in too late.
- GE under Immelt repeatedly bought back stock as its value was falling, essentially throwing away money in the process.
- In another instance of bad timing, Immelt moved GE aggressively into the oil and gas equipment business, years after its competitors did and soon before oil prices would plummet.
- Most notably, GE moved into the subprime mortgage market soon before it collapsed into a world financial crisis of a scale unseen since the 1930s.
- Immelt made good acquisitions too, including the purchase of Enron’s wind turbine division at a bankruptcy auction.
- GE Power got into red ink by counting decades of future revenue from service contacts as present-day profit, and by tweaking contracts to produce more profit, both moves legal but aggressive and unsustainable.
- Welch built a small financial services unit into GE Capital, larger than most banks in the United States. Immelt wanted to shrink GE Capital’s profile within the conglomerate and return General Electric to its industrial roots, but he relied just as heavily as Welch did on Capital’s ability to virtually print money to help the conglomerate meet its profit projections. Amid the mortgage crisis of the mid-2000s, Capital stopped being able to do this.
- GE relied on a federally guaranteed liquidity program created in 2008 some 4,328 times to issue debt worth nearly $131 billion.
- Participating in the program opened GE Capital, formerly a black box, to federal regulators who were stunned by the complexity and vagueness of the unit and the deals it made.
- While GE under Immelt had created “Ecomagination” to boost an environmentally friendly image, Immelt also set his sights on French power equipment maker Alstom, with the goal of dominating the gas turbine market and legacy fossil fuel power generation.
- Neither Immelt nor GE Power CEO Steve Bolze foresaw at the time that the market for gas turbine power generation was about to soften markedly, with the rise of subsidized clean wind and solar power. Bolze was predicting that the gas power would grow nearly 50 percent in the next decade.
- A GE analyst flagged Alstom as a possible takeover target, figuring GE could cut staff and factories, keeping what it needed and selling off the rest. But he later saw danger in Alstom’s financials, and in the deal GE struck: GE would have been overpaying for a healthy Alstom but this was a company on the verge of collapse, and GE would have to further sweeten the deal to make it happen.
- Alstom was GE’s biggest-ever acquisition at $14 billion, and is now regarded by some as the worst of Immelt’s decisions. The authors asked the GE analyst if he’d sounded the alarm to his superiors. He had, and it had been brushed aside. His reaction to this? If it goes bad, no worries, GE is big enough to absorb the hit.
Asked for comment this week about “LIGHTS OUT,” a General Electric spokesman took the same tack as GE executives have taken when asked about clawing back Immelt’s generous retirement package in light of the failures that have since come to light: The company is moving forward and not discussing the past.
“We are focused on our future — strengthening our businesses, serving our customers, and driving long-term value for our employees and shareholders.”
Former General Electric officials have had more detailed critiques:
In commentary on Fortune.com, Gary Sheffer, former head of GE communications under Immelt and now a consultant to him, dissected some of the details the authors reported, including Immelt’s meeting with then-Treasury Secretary Henry Paulson and a dinner with film director Steven Spielberg, both in 2008. The Paulson meeting was for an entirely different topic than the book reported and the Spielberg dinner never happened, said Sheffer.
On LinkedIn, former GE Chief Communications Officer Deirdre Latour published a glowing piece about “The Jeff Immelt I Knew,” defending him against the upcoming book.
Gryta and Mann speculate that she hadn’t actually read the book, only a New York Post story based on a copy of the book apparently leaked to it — some of her points (Immelt worked endlessly, was kind and caring, advanced the cause of women in the workforce) are points they made themselves in their book.
Latour also wrote that she laughed out loud about the idea Immelt ate lobster on his corporate jet. He ate chicken soup or cheese and crackers, she said. However, the authors wrote that they don’t know whether he ate chicken salad or lobster and steak, merely that people have asserted both.
(Latour in her post doesn’t address the much larger issue mentioned in “LIGHTS OUT” — the fact that a second, empty company jet was often following as Immelt as he munched lobster or slurped soup at 30,000 feet, racking up millions in extra costs per year.)
Finally, former GE General Counsel Alex Dimitrief posted a response on LinkedIn titled “Anonymity is Not a License to Rewrite GE’s History,” asserting fundamental errors in the reportage, some of the sources for which are not identified. He writes that there are many reasons to be unhappy with the trajectory of GE in the 21st century but there is only one set of facts, and they can’t be revised to support opinions.
Mann said they are aware of these and other criticisms, and “We’ll be listening to everyone’s reactions to what we wrote.”
They’re checking claims of factual inaccuracies in their book but so far haven’t found anything that's incorrect, he said.
Both writers entered the project knowing some sources had an agenda or opinion and others would have recollections dulled by time; they said they weighed what these people said accordingly. Those who spoke anonymously were subject to standard cross-checking against multiple sources.
Gryta and Mann stand by the published result of their work.
GE has seen massive changes since Immelt's departure.
John Flannery was a career company man who came up during the Welch/Immelt years and took the CEO’s chair at a time when too many people thought GE needed something altogether different. This, combined with his ever-analytical approach to restructuring and GE’s ever-sliding stock value, apparently led to his being sacked after just 14 months on the job.
“He paid a price for wanting to measure so many times before he cut,” Mann said.
In October 2018, H. Lawrence Culp Jr., the highly regarded retired CEO of Danaher, a well-regarded conglomerate, became the first-ever outsider to head GE.
The stock price bottomed out in December 2018 and began a striking rebound. It came nowhere near its peak in the Welch years, or even its peak under Immelt, but $100 invested in mid-December would have grown to $150 just two months later.
Under Culp, GE has closed scores of facilities worldwide, slashed its corporate headquarters, eliminated tens of thousands of jobs outright and shed tens of thousands more employees through selling off businesses.
There have also been new disclosures of huge legacy costs from the Immelt era — including a whopping $23 billion writedown for GE Power, most of it attributed to the Alstom deal — and the crippling one-two punch of Boeing 737 crashes and COVID-19 disruption.
GE is stuck hoping to do better in some future quarter and is taking steps to make it happen.
Mann covered GE for the Journal from 2014 to 2017 and Gryta has covered it since.
They offer no prediction of what comes next.
They believe Culp understands the problem and has a strategy to fix it. It’s a lot of the same steps Flannery was taking, they said — streamlining and downsizing — just not as slowly.
“Larry Culp is very systematic, he’s really into the whole version of lean — the Toyota version of lean, not the ‘lean’ so many companies throw around,” Gryta said.
But Culp is also chairman of the board that oversees him.
It’s a smaller board, and a board that should be intimately familiar with the danger of passive rubber stamping, but still, there is not the full separation that Gryta and many business experts believe is the preferable arrangement.
“Larry has said having both roles allows him to make decisions and move apace,” Gryta said.
Immelt is reportedly working on his own memoir.