Was GE correct in replacing its CEO?

A nagging thought kept running through my mind when I read General Electric had replaced Mr. John Flannery as Chief Executive Officer after just 14 months on the job: Was he given enough time to fix this huge severely distressed $120 billion company?

My answer is no...

It would take at least 3 years to fix a company with the complexity and size of General Electric. It is extremely difficult to even save a smaller company with sales under $300 million in only one year, based on my own experience completing a number of turnarounds as CEO. This type of challenge takes time.

In my experience, although the chief executive officer I replaced had failed, the Board of Directors were at times also at fault and contributed to the failure. In more than one turnaround, the Board was more at fault than the chief executive officer.

It is not difficult to determine that a company is failing but surprisingly, in my experience, some Boards did not recognize that management failed and that the company was in trouble until the decline was at a desperate crisis level.

One has to wonder....

Why wasn’t General Electric’s decline identified some years earlier when it would have been easier to fix the problems? Siemens, one of General Electric’s competitors, realized it was headed for trouble in 2003 and began a restructuring. Now Siemens is reportedly successful.

News reports suggest GE's entire Board of Directors will be replaced by 2019. There are currently six new Board members.  But 5 of the 11 current Board members recently involved with removing Flannery were also on the Board during the company's decline. Did these five Board members participate in the decision to replace Flannery? If yes, how can anyone be certain the latest move was sound? Or did this Board make another poorly considered decision that got General Electric in trouble in the first place?

Personally I find General Electric’s demise particularly sad, since I started my career at GE. I would have thought this decline would have been virtually impossible after the excellent job Mr. Jack Welch completed in building GE from its troubled condition when he took over.

Bloomberg: GE Ousts Flannery After Slump, Names Lawrence Culp CEO 

Washington Post: Why GE is making a dramaticoverhaul to its board of directors

CNBC: GE was once America's most valuable company. Today it is fighting junk-bond status.

Wall Street Journal: GE Powered the American Century—Then It Burned Out
 

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.