How Jeffrey Immelt’s ‘Success Theater’ Masked the Rot at GE

A culture that disdained bad news contributed to overoptimistic forecasts and botched strategies

Jeffrey Immelt, the longtime boss at General Electric Co. , was a polished presenter who held court each year at a waterfront resort off Sarasota, Fla., where industrial executives and Wall Street listened for his outlook on the conglomerate.

“This is a strong, very strong company,” Mr. Immelt said at the event last May.

.. GE’s precipitous fall, following years of treading water while the overall economy grew, was exacerbated, some insiders say, by what they call “success theater.”

Immelt and his top deputies projected an optimism about GE’s business and its future that didn’t always match the reality of its operations or its markets

.. “The history of GE is to selectively only provide positive information,” said Deutsche Bank analyst John Inch, who has a “sell” rating on the stock. “There is a credibility gap between what they say and the reality of what is to come.”

.. “GE itself has never been a culture where people can say, ‘I can’t.’

.. GE once had the highest market value of any U.S. corporation. Its alumni have gone on to run companies such as Boeing and Chrysler.

.. Few knew just how badly ailing the American icon was. Even GE’s board didn’t realize the depth of problems in the biggest division, GE Power, until months after directors had replaced Mr. Immelt

.. A spokesman for the former CEO pointed to his decision to purchase $8 million worth of GE shares in 2016 and 2017. That included 100,000 shares in mid-May at a price roughly twice today’s.

.. But Mr. Immelt didn’t like hearing bad news, said several executives who worked with him, and didn’t like delivering bad news, either. He wanted people to make their sales and financial targets and thought he could make the numbers, too, they said.

.. Over the past three years, GE spent more than $29 billion on share repurchases, at an average price of almost $30, twice the current level. That included billions of dollars spent less than a year before GE suddenly found itself strapped for cash last fall.

.. Trian Fund Management LP, which invested $2.5 billion in GE in 2015, wanted it to buy back even more stock. The activist investor urged the company to borrow $20 billion for repurchases (which it didn’t do), based on a belief that the profits Mr. Immelt was promising would send the stock soaring when they arrived.

.. Instead, at Mr. Immelt’s retirement in August the stock was below its level when he took over 16 years earlier. Including dividends, GE gained 8% with Mr. Immelt at the helm, while the S&P 500 rose 214%. Since he stepped down, the stock has lost about 43%, erasing almost $94 billion in market value

.. Instead of $2 a share GE now projects $1 to $1.07.

.. Several directors discussed in November whether the entire board should be fired

.. Jack Welch, delivered steady profit growth and sent shares soaring in the 1980s and ’90s by striking deals and aggressively slashing costs and jobs. Mr. Welch also built up a huge lending business called GE Capital that for years generated outsize profits—but nearly sank the company during the financial crisis on Mr. Immelt’s watch.

.. Results were strong at two of GE’s big units, aviation and health care (medical equipment).

.. Acquiring companies that help drillers pump and transport fuel, he had GE spend more than $14 billion over 10 years, most of it based on higher oil prices than today’s.

.. Mr. Immelt’s optimism was part of the problem, according to some people close to the situation. They said he told the board that management had identified risks in the power business, yet downplayed them. The probability and risk were way off, one said.

.. Lisa Davis, the U.S. chief of Siemens, said the German company’s executives “have seen this decline coming for the last several years.” So Siemens had reduced its capacity in its power business, she said, while GE bought more.

.. According to former executives, the upgrades meant lower service fees for customers, in exchange for one-time upgrade costs, meaning that future sales were being pulled forward.

Is the Business World All About Greed?

Laurence Fink, the chief executive of the investment firm BlackRock and one of the biggest investors in the world, shook the business world last week with an implicit threat to punish small-minded companies that “only deliver financial performance” without “a positive contribution to society.”

What’s driving the rethink isn’t a tingling of the tycoon conscience but brutal self-interest. Millennials want to work for ethical companies, patronize brands that make them feel good and invest in socially responsible companies.

Some of this is shallow and some is deep, but it’s authentic: Doing good is no longer a matter of writing a few checks at the end of the year, as it was for my generation; for many young people, it’s an ethos that governs where they work, shop and invest.

C.E.O.s tell me that this forces their hand. If companies protect groping scumbags, that hurts recruitment and they lose in the war for talent. Increasingly, a company that ignores social value loses shareholder value.

.. I believe the best industries for doing good are law (pro bono work) and certain pharmaceuticals (drug donation programs). That’s because they are held accountable by metrics: Big law firms are ranked by American Lawyer for their pro bono work (Jenner & Block is top of the list), and pharma donations are rated by the Access to Medicines Index (GSK is No. 1).

.. Other companies hailed as model global citizens include Unilever, Starbucks, Whole Foods, Mastercard, Danone and Chobani.

Trump’s 7 months of self-destruction

President Trump, with at least two years of full Republican control of government at the national and state levels, has systematically damaged or destroyed his relationship with — well, almost every group or individual essential to success.

Trump’s undisciplined and incendiary style has left the most powerful man in the world with few friends — not onein the United States Senate, for instance.

  • The public: Gallup has his approval at 34%, down from 46% just after the inauguration.
  • Republican congressional leaders — Senate Majority Mitch McConnell in particular.
  • Every Democrat who could help him do a deal.
  • The media.
  • CEOs.
  • World leaders.
  • Europe.
  • Muslims.
  • Hispanics.
  • African Americans.
  • Military leaders.
  • The intelligence community.
  • His own staff.

And who’s happy?

  • Steve Bannon.
  • Saudi Arabia.
  • Breitbart.
  • David Duke.