General Electric’s board abruptly fired CEO and chairman John Flannery yesterday and replaced him with board member H. Lawrence Culp, Jr. in a move that both surprised and delighted the market.
“GE shares jumped 7% to close at $12.09 as investors bet that Culp could re-energize the GE brand and more quickly transform its portfolio,” Reuters' Alwyn Scott and Arunima Banerjee report.
GE also said it would take a $23 billion charge to write off goodwill in its power division.
Culp, 55, was CEO and president of Danaher Corporation from 2000 to 2014. GE points out in its release about the news that “he led the highly successful transformation of the company from an industrial manufacturer into a leading science and technology company.”
That’s a move GE would clearly like to replicate.
Flannery, a 30-year veteran of GE, took over from long-time leader Jeffrey R. Immelt just a year ago. He was apparently seen as being hobbled by his insider status.
Culp, who joined the board in April, is the first outsider to be named CEO of the company since it was launched in Schenectady, N.Y. in 1892, with Thomas Edison and J.P. Morgan among its founders. Jack Welch, who preceded Immelt, was one of the most visible CEOs in the world for two decades. He stepped down in 2001.
“Three CEOs later, is Boston a curse for GE?” asks the hed in the Boston Globe. The company moved its headquarters there in 2016 under Immelt.
“Since it set up a temporary headquarters in an old loft space in the Fort Point neighborhood, its stock has plummeted more than 61%. Not only was the industrial giant the worst-performing stock in the Dow Jones industrial average in 2017, but the company got bounced from the list in June after more than a century,” Shirley Leung writes in the Globe.
“In recent days, the GE board decided that Mr. Flannery, 57, was not the right leader for the daunting turnaround challenge. Directors felt that he was not decisive enough and not moving fast enough, according to a person familiar with the deliberations who was not authorized to speak publicly,” Steve Lohr and Kevin Granville write for the New York Times.
Culp, who is a senior lecturer at Harvard Business School, “is a nuts-and-bolts executive with little name recognition outside of the business world, noted for turning a little-known industrial conglomerate into a hugely profitable growth machine. And that may be precisely what GE needs as it struggles to revive a depressed stock price and figure out its future,” Tim Logan and Jon Chesto write for the Boston Globe.
“Some analysts said that GE Power likely missed financial targets for the third quarter, contributing to Flannery’s ouster. GE, scheduled to report results on Oct. 25, declined to comment,” Reuters' Scott and Banerjee write.
“GE’s struggles underscore how American capitalism can be unforgiving to companies that are slow to adopt a clear vision for success in the tech-dominated 21st-century economy. The company was plagued by strategic missteps, including poorly timed investments. It expanded into the power and oil industries at market peaks, paying top dollar for what turned out to be mediocre investments. It sold off portions of its financial portfolio, GE Capital, at near market lows,” observe Thomas Heath and Jena McGregor for the Washington Post.
“The market didn’t even give the company the benefit of the doubt that things would work,” Ivan Feinseth, chief investment officer at Tigress Financial Partners, tells them. “Flannery’s plan hasn’t worked.”
CNBC’s Berkeley Lovelace Jr. raises the question of whether the planned spin-off of the GE Healthcare business under rising-star CEO Kieran Murphy will be put in jeopardy by the development. CFRA analyst Jim Corridore suggested yesterday that “Culp could decide that the multibillion-dollar health division would be better off staying within the company.”
“To be sure, GE is still one of the world's most recognizable brands. And the health-care unit, which makes hospital equipment as well as lab supplies, gives up a powerful corporate parent in spinning out on its own,” Lovelace writes. A GE Healthcare spokeswoman, however, tells him that the planned “separation” remains on track.
“There’s hardly a tougher challenge in business than breathing new life into a fading behemoth. A lesson that must be constantly relearned is that today’s success guarantees nothing for tomorrow. Once a successful corporate giant begins to fall — think Kodak , Compaq or Sears — arresting the drop is a heroic task. IBM under Lou Gerstner is a rare exception,” the Wall Street Journal’s editorial board opines.
Yeah, but Lou Gerstner hasn’t been at IBM since 2002 -- and it has not exactly been a paradigm for growth since then.