Jeff Immelt, former CEO of General Electric.
Christophe Morin/Bloomberg
Ex-GE CEO Jeff Immelt has a new book out on leadership. It’s called Hot Seat, and it’s being published today. In it, he opens up about what happened during his troubled tenure at the helm of the iconic U.S. manufacturer. There are some reflections, some explanations, and some attempts at rehabilitation.
Immelt sat down (virtually) with Barron’s to discuss his book. Some of his thoughts that weren’t necessarily expressed in its pages are as interesting as the book itself—and worth a listen for investors.
Immelt ran General Electric (ticker: GE) from September 2001 to October 2017. The stock, over that span, lost roughly 3% a year on average. Including dividends, shares returned just north of 0% a year on average. The S&P 500, by comparison, returned about 7.5% a year on average, including dividends, over that span.
GE stock started Immelt’s tenure at roughly $38. It ended at about $22. About a year after he left, shares were below $10.
Immelt’s tenure was marked by crises. Events like Sept. 11, 2001, and the Fukushima nuclear disaster, which affected part of GE’s power business, weren’t caused by corporate decisions. Problems at GE’s lending unit, GE Capital, along with other problems at GE Power were, largely, crises of management’s own making.
And then, of course, there was the tale of Immelt and the two private jets. The former CEO started traveling with two jets to avoid being stranded at any location. Call it a belt and suspenders approach to business travel. “It started as an element of safety. It probably went on too long. I know this isn’t a pleasing answer, but I never really thought about it. I really didn’t,” he told Barron’s. “But I understand how it looks. And I’m not going to defend it.”
Immelt is interested, instead, in defending his record and the record of his team. “I think it’s been unfair the way the team has been treated. I think people like Jeff Bornstein, who was my CFO—he’s a hero,” says Immelt. “I don’t like the way our financial team gets depicted, particularly among others, and I feel like there has to be a voice that supports them.”
Finance, in one respect, was the undoing for GE during Immelt’s tenure. When he took over, GE Capital had roughly $380 billion in assets. That ballooned to more than $600 billion by 2007, just before the financial crisis. Wells Fargo (WFC), by comparison, had fewer assets at that time.
Back in 2001, Capital represented about 50% of GE’s pretax income, which was too much for Immelt’s liking. His intention was to shrink Capital—at least relative to the size of the rest of GE. It didn’t work out how he expected. “We were growing GE Capital to help provide some of the cash flow that could help invest back in the industrial business,” says Immelt. “But when you get kind of headwind like we got in the financial crisis, it just was way too big.”
GE Capital made almost $13 billion in pretax income in 2007. Since then, in the aftermath of the financial crisis, it has reported about $9 billion in cumulative pretax income. The unit has lost money in about half of the years since 2007.
Capital was an issue, and so was capital allocation. Immelt is largely blamed for GE’s bet on power, buying some of Alstom ‘s power assets in 2015 for roughly $17 billion. GE also bought back about $37.5 billion in stock between 2010 and 2017.
“People forget, with Alstom…this was a dogfight to see who could get the asset,” says Immelt, defending the deal and adding GE’s $12 billion 2004 purchase of British medical company Amersham worked out well.
His reflections on share repurchase were more contrite. “I think in retrospect, clearly we wouldn’t have done the repurchase we did…but you can only kind of live life forward. You can’t live it in reverse,” he says.
GE investor ire won’t likely be slaked by that observation. Attempts to claw back some of Immelt’s pay ended in 2021. He was paid more than $300 million in total compensation over his tenure, according to company proxy statements.
It’s an enormous sum. Immelt demurred when asked how much is too much for CEO pay, but he did have a comment. “I’m not the best messenger for any of this, right? So I’m going to preface my answer with that,” he says. “I actually think the problem is, we don’t create enough middle-class jobs, and that if there were more middle-class jobs, there would be less scrutiny on what CEOs made. But the combination of executive pay and the fact that the people who are on the front lines don’t appear to be benefiting, that is a tough combo.”
It’s a valid point, though he doesn’t have an easy solution on creating more middle-class jobs. He does have some ideas about another current policy question: China. “We need to protect ourselves from a military, we have to be cognizant of military risk and cyber risk and things like that. But from a business standpoint, they have been graduating more engineers than the U.S. and Europe combined for 30 years,” Immelt points out. “And I think that the goal for the U.S. needs to be a constructive relationship with China.”
He appears to hope the Biden administration will take a less antagonistic approach than the Trump administration toward China. U.S. relations with China, however, aren’t all up to governments. Business leaders have a role too. “I think the younger generation feels like, well, you know, ‘My country doesn’t want me to go to China. I can’t work with them anyhow. I’m not going to be curious about it. I don’t have to go there.’ That is a huge mistake. Huge,” he says.
That isn’t the only advice Immelt has for the next generation of business leaders. Another message: Innovate or die. Tesla (TSLA) CEO “Elon Musk could announce an all-electric airplane tomorrow. He can, he has the capital. He has the brand. He has the name,” he says. “If you’re not innovating, if you’re not spending enough in innovation, you’re just really susceptible to bad things.”
Immelt says in 2001 half of GE’s industrial earnings came from one product—a power turbine. GE tried to innovate off that base, spreading out earnings among more products. The company had some success with products such as new jet engines. Those innovations, however, weren’t enough to overcome some missteps or the headwinds created by GE Capital.
Write to Al Root at [email protected]
