Not so long ago, G.E. was the most valuable company in the world, a conglomerate that included everything from light bulbs and jet engines to financial services and The Apprentice.
Now it’s selling off body parts to survive. What does the C.E.O. who presided over the decline have to say for himself?
Listen and subscribe to our podcast at Apple Podcasts, Stitcher, or elsewhere. Below is a transcript of the episode, edited for readability. For more information on the people and ideas in the episode, see the links at the bottom of this post.
Stephen DUBNER: So there is a silly question that a lot of authors get asked, which is: Why did you write this book? Silly, because it’s usually obvious. But in your case, I don’t think it’s such a silly question because:
a) you don’t need the money; let’s be honest. And
b) you don’t have a tale of triumph to tell.
So why did you write the book?
Jeff IMMELT: I’d say really two reasons. I felt like the story had been out there, but lacking context and quite honestly, not always being truthfully told. And the second thing is, today all leadership is crisis leadership, and I have a lot to offer to that debate.
That is Jeff Immelt.
IMMELT: I worked at G.E. for more than 35 years. I was the C.E.O. for 16.
And yes, G.E. — that’s General Electric — gave Immelt a lot of experience with crisis leadership.
IMMELT: I lived and led at a time of immense volatility and change. Always did my best. Some things worked and some things didn’t.
Okay, let’s start with what didn’t work out. When Immelt inherited the C.E.O. position in 2001 from the legendary Jack Welch, the stock price was around $38, representing a market capitalization of just over $400 billion.
When Immelt left, in 2017, the stock price had fallen to around $25, with a market cap of around $220 billion, a drop of roughly 45 percent.
And now, just four years and two C.E.O.’s later — John Flannery lasted just 14 months, and Larry Culp now has the job — G.E. stock has fallen even further, and the company’s only worth around $100 billion, or one-quarter what it was when Jeff Immelt took over in 2001.
The financial collapse is only part of the story. For decades, General Electric was the quintessential American corporation, a combination of scientific ingenuity and muscular execution.
It was founded in the 1890’s to capitalize on the inventions of Thomas Edison, including his light bulb. For years, its headquarters were in Schenectady, N.Y., built up around Edison’s own machine works.
I happen to have been born in Schenectady. G.E. was the biggest fixture on the horizon — literally, its famous cursive logo visible for miles in the night sky; and economically, too; it was by far the biggest private employer in the region, and many would say the best employer too.
G.E. had grown into an industrial conglomerate, making airplane engines and locomotives; gas turbines and medical equipment.
During the Jack Welch era, it became a much broader conglomerate, expanding into financial services, insurance, commercial real estate, even the N.B.C. television network!Some of its growth was spectacular. Just as the economy in California is larger than that of most countries, G.E.’s finance arm — G.E. Capital — was bigger than most banks.
But in the past decade-plus, G.E. has been selling off body parts to stay alive — including, last year, its iconic Lighting division.
And then there are the allegations of accounting and other financial fraud, brought by the Securities and Exchange Commission and the Department of Justice. In 2019, G.E. agreed to pay a $1.5 billion penalty for its misrepresentation of the subprime residential mortgages it sold. There was a $200 million penalty last year for violating a number of accounting and anti-fraud provisions, and a similar, $50 million penalty in 2009.
Most of these alleged violations happened on Jeff Immelt’s watch. — although in a recent book called Lights Out, about G.E.’s decline, the Wall Street Journal reporters Thomas Gryta and Ted Mann write that fudging the numbers was a standard G.E. practice that went back at least to the Jack Welch era.
The exposure of this practice can help explain the decline of General Electric. But there were other reasons too.
According to his critics, Jeff Immelt’s strategy to modernize the old industrial company was erratic and wayward: buying high and selling low as he shuffled G.E.’s portfolio, and placing bad bets — bulking up in the oil-and-gas sector, for instance, just in time for oil prices to tank.
So yeah, those are the things that didn’t work out for Jeff Immelt when he was C.E.O. of General Electric.
The things that did? That list is shorter.
Today on Freakonomics Radio: how Immelt won the C.E.O. job in the first place.
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