Because of its size and ability to generate cash, the U.S. economy and the millions of pensioners, savers and investors have depended on the success of the General Electric stock price and dividend — whether they knew it or not. On Immelt's watch, GE has been the Dow's worst performing stock among companies that haven't gone bankrupt or left the group of blue-chip stocks.
Immelt’s inability to move that stock price — it fell by more than a quarter during his tenure — was thought by many to be his undoing.
"Why the change? Two words: stock price," said Ivan Feinseth, chief investment officer at Tigress Financial Partners. “There is no question. The board and shareholders have given Jeff Immelt a long time. He was CEO for almost 16 years in one of the biggest upmarkets cycles in history and the stock has underperformed."
Immelt, 61, will be succeeded on Aug. 1 by John Flannery, the current president and chief executive of the company's health-care business, and will remain chairman until the end of the year. The company said that the announcements were part of a succession plan that had been in place since 2011, and that now was an “ideal time for change” as the company has completed its “pivot” away from financial services and the move of its headquarters from Fairfield, Conn., to Boston.
In an interview Immelt put it this way: "The average tenure of a CEO is eight years. This is twice that. That's plenty."
The company appears to be trying to turn a new page with Wall Street. Jack Brennan, former CEO of Vanguard who is the lead independent director on GE's board, said in an interview that "what's been led by Jeff is what John will build upon."
"John brings a set of financial skills and a mind-set around returns and returns on investment that is very strong," he said.
The company's announcement comes amid recent pressure from the activist investor Nelson Peltz's Trian Fund Management, which had pushed GE to cut costs and change up the executive compensation bonus plan. Trian Fund had no comment on the leadership change. Before Monday's news, the company's shares have fallen 12 percent since Jan. 1, while the Standard & Poor's 500-stock index had climbed 9 percent. During Immelt's tenure, GE's total return with dividends included was about 12 percent; while the S&P 500 during the same period returned nearly 192 percent, with dividends included.
Immelt has been closely watched from even before he took over. He and two other GE executives, Robert Nardelli and Jim McNerney, were forced to undergo a very public “bake off” to succeed the larger-than-life Jack Welch.
Immelt ultimately earned the job, making him only the 9th chairman in GE's 125-year-history. Nardelli left to run Home Depot, then Chrysler. McNerney had successful subsequent careers with 3M and, until recently, Boeing. The company is widely considered a farm system for future executives of major U.S. corporations.
Welch was known for his singular mission: increasing the stock price. He and a cadre of similar executives during the 1980s and 1990s were known for their devotion to maximizing shareholder value. Many U.S. corporate executives in the decades following World War II strayed from that religion, with the result helping to spur the advent of takeovers, buyouts and other financial devices designed to increase corporate bottom lines.
General Electric stock jumped 1 percent on the news of Immelt’s departure Monday morning, signalling Wall Street’s positive reception to the change.
“His managerial decisions resulted in investing in projects that did not maximize shareholder value,” said David Kass, a professor of finance at the University of Maryland. “Did he choose the right portfolio of projects to maximize shareholder value? I question whether he did.”
Others see Immelt’s tenure in a favorable light.
“Jeff Immelt is unfairly criticized for not doing enough for GE shareholders,” said Michael Farr, an investor and president of Farr, Miller & Washington, a Washington, D.C. firm. “In fact, he provided an excellent transition from the Jack Welch magical, do-no-wrong leadership and a highly leveraged balance sheet to a more conservative firm able to weather and endure."
Many observers believe Immelt was dealt a difficult hand. The timing of his arrival to the job could not have been worse. He took over as CEO just days before the 9/11 terrorist attacks. The surprise attacks brought American business and airline travel to a halt, with far-reaching impact on GE’s jet engine business.
Moreover, says William Blair analyst Nicholas Heymann, Immelt had to rebuild $10 billion in loss reserves in the company’s reinsurance business, an early hole that forced him to curtail capital spending and reinvestment in growth early in his tenure.
Then there was the 2008 financial crisis, in which GE Capital -- one of the company’s biggest moneymakers by that time, accounting for roughly half its net income -- turned into a liability. Heymann said real estate investments prompted Immelt to get "caught at the wrong place at the wrong time," exacerbating the tough conditions he'd inherited. "He worked through a lot of challenges," he said. "He never had a chance to have the wind at his back when the road was flat."
"In many ways financial services has been the biggest [negative] dynamic on the company," Immelt said.
At one point, GE went hat in hand to investor Warren Buffett, who lent the company $3 billion in the depths of the crisis on terms that were very beneficial to Berkshire Hathaway. General Electric paid the money back in 2011, including a $300 million bonus, plus accrued and unpaid dividends.
GE's competitors faced the same sort of head winds, and Honeywell, run by a former GE executive, David Cote, has thrived.
Immelt has made dramatic changes to GE's business, not only through completing $260 billion in asset sales for GE Capital over the past two years, but in taking on big acquisitions and divesting out of businesses such as GE Appliances, NBC Universal and GE Plastics. Immelt said the company's industrial businesses -- as diverse as locomotives, complex highly technical health care devices, oil fields services and turbine manufacturing -- "have done phenomenally well over the last 15 years."
"He leaves a solid company with an honorable, ethical reputation," Farr said. "He worked hard and did well. He gets very high marks from me.”
Flannery, 55, has been at GE since 1987 and led the acquisition of Alstom, the largest industrial acquisition in the company’s history. During his tenure leading GE Healthcare, the company said, he has increased organic revenue by 5 percent.
"It's fair to say none of us are happy with the price right now and want to move that up," Flannery said.
Ultimately his success will be viewed on his ability to appease shareholders and put the stock price back on an upward arc, something Immelt was simply unable to do.
“You can’t say it was greedy, obnoxious, impatient shareholders," Feinseth said. "They gave him 16 years.”