Thursday, November 01, 2018

The blue-est of the blue chips is looking pretty faded

GE slashes dividend, takes $22 billion charge in 3Q
The precipitous fall of GE seems like it deserves more attention. This is not your average corporate failure. This is a story with Shakespearean drama and a host of important questions.

Under Jack Welch GE was the gold-standard for corporate performance and management practices. It routinely appeared at the top of the lists of the Largest, the Most Admired, and the Most Profitable companies. Then, his hand-picked successor led it to ruin.

Jeff Immelt ‘destroyed’ General Electric: Ken Langone

GE CEO feud: Welch vs. Immelt
Questions worth investigating:

Is Immelt’s failure a reflection on the management training system Welch instituted and made famous?

Does the hiring of an OUTSIDE CEO (the first in company history) reflect on Welch or Immelt? Is it further evidence that the Welch system was flawed or did Immelt gut/destroy/burn down his predecessor’s legacy?

What does the crash of GE say about business journalism? Did they over-praise Welch? What did they miss about Immelt and his strategies?


James Fosten said...
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David Foster said...

The most direct cause of the disaster was the decision to get into the long-term care insurance business, coupled with under-reserving for the committed benefits...unless one is omniscient, one can't really know those costs, so one should either: (a) be super-conservative, or (b) stay out of that business. GE had plenty of other options for things to focus on.

Historically, GE's great growth was initially driven by the electrification of the US and much of the world--they may products for energy generation, transmission, and use. The energy-generation technology (turbines) gave the company a strong starting position in the jet engine business; they were aided by very strong and knowledgeable management in the form of Gerhard Neumann.

Healthcare emerged from work done at the R&D center involving X-ray generation tubes and has benefitted from the higher HC spending and the strong trend toward use of imaging. Transportation emerged from electrification technologies, in the form of electric locomotives; these transitioned to diesel-electric.

So the company was historically able to take advantage of many upward trends. What is the star or stars to which they have hitched their wagon(s) in the last 2-3 decades? It's hard to see anything comparable to the ones I've mentioned above.

One possibility is the 3-D printing ("additive manufacturing") initiative; I'm not sure where this shook out in the recent reorg. They were a little late to this market, in any event.

Another is the "Industrial Internet", aka Internet of Things initiative; one would think GE is well positioned here since it actually knows something about the *things*, as opposed to some of the other players. I have an intuitive sense, based on nothing very specific, that too much money was thrown at this and it's too Silicon-Valley-centric.

Quite a few interesting things bubbling around in Healthcare, but that's (still, I believe) going away, although existing shareholders will participate in it in whatever its new form turns out to be.

I believe most of the Materials business, which is where Jack Welch made his initial mark (GE Plastics) has been divested. So has GE Information Services.

Shareholders are understandably concerned about the short term, but as the example of Amazon indicates, the market does care (in at least some cases) about good long-term stories.