Monday, March 22, 2010

Criticism of GE’s CEO, Jeffrey Immelt

A March Money Watch article on Jeffrey Immelt, titled 'GE Has Been An Investor Disaster Under Jeff Immelt', is strongly critical of his relatively high level of compensation as it relates to GE’s depressed stock price. Mr. Immelt is General Electric Company’s Chief Executive Officer.

An example of the criticism:
"By any measure of shareholder value, GE has been a disaster under Jeffrey Immelt. Investors haven't made a nickel since he took the helm as chairman nine years ago. In fact, they've lost tens of billions of dollars."
There is certainly room to criticize Mr. Immelt’s salary, bonus, common stock grants and retirement plan while GE’s stock price and profit performance are in the doldrums. However the article does not analyze the condition of GE’s operating businesses. Have its divisions deteriorated? Are there market share losses? Are its operating units registering Operating Losses? Or is its poor profit performance related solely to the 2007-2010 financial and economic crisis?

During this crisis most blue-chip, well-run companies have experienced sales and operating profit declines of 20% - 30% with large declines in the price of their common stock. Although slightly improved recently, many prices are still sluggish and down.

This even includes my Alma Mater, Emerson Electric Co., one of the best managed companies in this country. Emerson has registered sales and operating profit declines of 20%-30%. But their operating divisions have continued to perform well.

Chief Executive Officers are responsible for the operating performance of the businesses they manage – this is their primary role. Granted their tenure is also dependent on the stock price. If the performance of GE’s operating businesses has deteriorated, then Mr. Immelt should be criticized and replaced as CEO.

Lenders Change their Treatment of Troubled Loans

An interesting recent Reuters article, titled 'Lenders More Willing To Own Bankrupt Firms', documents a fairly significant change in the distressed and bankrupt marketplace. Lenders, it reports, are no longer selling their delinquent and troubled loans. They are not selling the loans at steep discounts. They are converting loans to equity ownership and managing the companies themselves.

Reportedly lenders are “kicking the proverbial can down the street" by granting waivers. They are no longer forcing companies to default, or marking loans to market. This is quite unusual, as compared to prior practice.

Will this continue? Once the economy improves, will lenders focus on lending money? Or will lenders continue to be owners and manage the operating companies? Or will they return to selling troubled loans?