For generations, General Electric stood as an icon of American ingenuity and corporate stability. The company, with roots going back to Thomas Edison, was a pioneer in the type of industrial equipment — home appliances and plane engines — that formed the backbone of the 20th-century American economy.
It was led for two decades by Jack Welch, the chief executive both feared and revered for his management discipline.
But decades of stagnation at the company have taken a toll — a decline that culminated Monday in the surprise ouster of the company’s chief executive, John Flannery, after only a year on the job, and its announcement that it will take a write-down on its massive power business, effectively absorbing a $23 billion loss in the process.
GE’s struggles underscore how American capitalism can be unforgiving to companies that are slow to adopt a clear vision for success in the tech-dominated 21st-century economy. The company was plagued by strategic missteps, including poorly timed investments. It expanded into the power and oil industries at market peaks, paying top dollar for what turned out to be mediocre investments. It sold off portions of its financial portfolio, GE Capital, at near market lows.
“The market didn’t even give the company the benefit of the doubt that things would work,” said Ivan Feinseth, chief investment officer at Tigress Financial Partners. “Flannery’s plan hasn’t worked.”
GE also ran up against a seismic shift in the business world that has catapulted technology companies over traditional manufacturers.
In 2007, before the financial crisis, GE was the second-most-valuable company in the world, joined by the likes of Exxon Mobil, Royal Dutch Shell and Toyota. Now that list is dominated by tech giants such as Google, Facebook and Microsoft.
As Apple and Amazon.com have crossed the threshold as the first trillion-dollar U.S. companies, GE’s market capitalization has shrunk to $100 billion.
“You need to adapt and evolve when you are a large company,” Feinseth said. “GE adapted and evolved, but in the wrong direction.”
All told, GE has lost about a half-trillion dollars in value since Welch retired in 2001. Welch handed off to Jeffrey R. Immelt, on whose watch GE stumbled as the worst-performing stock in the Dow Jones industrial average among companies that had not gone bankrupt. This year GE, the only remaining original member of the Dow, lost its spot on the blue-chip benchmark to Apple.
On Monday, GE picked H. Lawrence Culp, former chief executive of Danaher Corp., to take over. It’s the first time an outsider has taken the reins.
The change of leadership reflects a growing sense of panic about the company. Along with Culp’s appointment, GE said it would miss earnings expectations for 2018.
GE long held a place in American business lore for its management prowess and years of steady returns. It has made appliances and jet engines and ventured into finance, health care and even media as the onetime owner of NBCUniversal. It has touched the lives and investment portfolios of hundreds of millions of Americans and consumers worldwide.
But it grew too big and disparate, despite efforts to reshape the company’s portfolio. Having a large financial-services arm proved to be a disaster in the financial crisis. And its stock — once one of the most widely held in the United States — became an anathema to investors. This year, Flannery promised to break up the company, selling off its locomotive business and divesting its Baker Hughes oil investment to raise money. His focus on its turbine power business was ill-timed because of overcapacity and poor demand, analysts said.
“We really can’t feel bad for John Flannery,” Feinseth said. “It’s been over a year. We are in a raging bull market that is making new highs, and GE is making new eight-, nine-year lows.”
GE has been mired in underperforming divisions and poorly timed acquisitions for years. Flannery, who joined GE in 1987 and climbed its ranks, was unable to deliver results fast enough for its board of directors. GE’s share price has dropped by half in the past year. On Monday’s news, GE’s share price closed up 7 percent, to $12.09.
“You don’t just wake up and say, ‘We’re swapping out our CEO,’ ” said Peter Crist, the chairman of the executive search firm Crist Kolder Associates and a longtime observer of GE. “Boards are resistant. They’re risk-averse. Usually it’s a series of missteps. It’s not an overnight decision."
Culp is only the 14th person to run the company. And its CEO successions have been among the most widely watched events in corporate America, making the sudden handoff to Culp all the more notable.
“Here’s the company that was the role model for well over 100 years of being able to generate leadership talent, and they didn’t have someone on the bench that the board felt comfortable moving in,” said Noel Tichy, a University of Michigan business professor who led GE’s leadership training center, known as “Crotonville,” in the mid-1980s.
Culp, who retired as CEO of Danaher in 2015, led the industrial giant for 14 years, a run the Wall Street Journal called “among the most successful in corporate America over the past decade.” In that time, Danaher’s revenue and market capitalization grew about fivefold and returns to shareholders well outpaced the S&P 500.
“GE remains a fundamentally strong company with great businesses and tremendous talent,” Culp said in a statement. “We will be working very hard in the coming weeks to drive superior execution, and we will move with urgency."
GE also installed Thomas W. Horton, the former CEO of American Airlines, as its lead director, succeeding former Vanguard CEO John J. “Jack” Brennan, who has said he would not stand for reelection in 2019. The lead director position represents the board’s independent board members and is common in publicly traded companies where the chairman is also a current or former CEO. As CEO at American, Horton led the airline’s restructuring and its merger with US Airways.
The board of directors that named Flannery CEO in June 2017 now looks very different. Just seven directors from that 18-member board remain after the company announced an overhaul in February. It added three independent directors — including Culp and Horton — but eight others left, reducing the board to 12 members and marking a kind of wholesale shift that is rarely seen in corporate governance. (GE’s board has 11 directors with Flannery’s departure; the company also named Edward Garden late last year amid pressure from activist investor Nelson Peltz.)
“This is a board that’s not loyal to anybody now,” Crist said. “Boards get impatient, and new boards are doubly impatient in a troubled situation. They demand change.”
After the fractures in the company that emerged at the end of Immelt’s 16-year reign, Flannery had worked to restore confidence.
He oversaw leadership changes, including replacing the chief financial officer. He grounded the company’s corporate jet fleet, reduced the number of cars issued to executives and announced a review of its compensation policies. Still, the company reported disappointing financial results soon after he took over. It cut its dividend by half as it sought to save money and regain its footing after more than a decade of lagging profits and poor stock performance.
Reviving GE will probably mean more painful changes ahead.
“These are historical issues,” Morningstar analyst Joshua Aguilar said. "And there’s a lot of other things hanging out there.”
Flannery, he said, "was too close to the company. He grew up in that company.”
Culp, according to Crist, “is going to look at the portfolio and say ‘This is a keeper, this isn’t,' and orchestrate the change.”
“He is a really smart, dispassionate, strategic CEO,” he said, adding that investors are likely to “view him as the right set of hands that can steer this without any of the emotion of the past.”