It’s in with the new, but only kind-of-sort-of out with the old at GE. And that pitch just isn’t working for CEO John Flannery.
A day after presenting an underwhelming revival plan that’s largely premised on a multi-year grind through cost cuts and tough earnings challenges, Flannery went on CNBC on Tuesday morning to take a second stab at the messaging around his efforts. I don’t think he did much to help his cause; shares of General Electric Co. started dropping precipitously during the interview and were down about 7.3 percent as of 12:45 p.m. in New York. That’s after a 7.2 percent slide yesterday.
There are a number of things you could pick apart from the interview, but for now, we’re going to focus on Flannery’s commitment to keeping GE’s lead board director, Jack Brennan, in his role. Brennan’s status is apparently not up for debate — “it’s not a possibility” — even as Flannery seeks to refresh and resize the board down to 12 directors from the current 18.
Brennan has served on GE’s board since 2012 and he’s been lead director since 2014. He served on GE’s governance committee, and chaired its management development and compensation committee. That means he was directly involved in overseeing — and richly rewarding — the top executives responsible for the dire straits in which GE now finds itself. The company’s market value is now nearly $60 billion lower than the day Brennan was elected to the board, and yet, according to Flannery, he has a “tremendous track record.”
Brennan is also chairman emeritus of Vanguard Group Inc., where he served as CEO for over a decade. You don’t get those jobs by being ineffectual, and he may have valuable insights as to how to get GE back on track. But that still doesn’t excuse the absence of more decisive board action earlier on, before GE’s problems got so big. If you are going to reset the direction of the company, it is jarring to keep the lead director that oversaw the old direction. The kind of dramatic evolution Flannery is attempting is an all-or-nothing game.
The net of this is that Flannery seems to be attempting to strike a balance between a top-to-bottom rethinking of GE’s very identity and purpose, and a loyalty to the culture that fostered his career, the businesses he ran and the colleagues he’s worked with for years. It’s a weird dynamic.
Flannery admitted on CNBC that the $10.6 billion purchase of Alstom SA’s energy assets he oversaw “in total, has been a disappointment.” And yet, he still believes the problems in GE’s power business are fixable and it should remain within the conglomerate. He’s attempting to simplify GE’s reporting metrics, but what we got Monday are figures that are just as twisty and in some ways even more convoluted than before. Much of the old guard is out, from CEO Jeff Immelt to CFO Jeff Bornstein to power-division leader Steve Bolze. But among their replacements the biggest “outsider” is CFO Jamie Miller, and she’s been with the company since 2008. Russell Stokes, who now runs power, has been with GE for 20 years. And Flannery himself is a 30-year veteran.
Flannery appears to genuinely mean it when he talks about a full-scale rethinking of GE’s culture, and many of his changes have been positive, including increasing the equity component of executives’ compensation. But the more legacies he holds on to, the longer he will be haunted by the ghosts of GE’s past.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Brooke Sutherland is a Bloomberg Gadfly columnist covering deals and industrial companies. She previously wrote an M&A column for Bloomberg News.
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