General Electric (NYSE:GE) has jettisoned CEO John Flannery and GE stock holders are rejoicing. The press release announcing the change barely mentioned Flannery, and the shares reacted with a 15% gain in the pre-market, opening for trade Oct. 1 at $13.
The new CEO is former lead director Larry Culp, who had settled into a sinecure lecturing at Harvard Business School on corporate strategy. Culp was replaced as GE’s lead director by former American Airlines (NYSE:AAL) CEO Thomas Horton.
Flannery had taken over from Jeff Immelt in June 2017. That press release included effusive praise for Immelt “transforming” GE, and a quote from him. Along with the new hire, GE said it would take a $23 billion “impairment charge” on its power unit. The company’s fall began with Immelt’s purchase of the French engine company Alstom in 2015, which he called its “best deal in a century” at the time.
However, GE’s board was not happy with the slow pace of change under John Flannery. Can Larry Culp do what Flannery couldn’t?
Flannery had been given the unenviable task of fixing what Immelt broke, a “transformation” from the financial-and-entertainment giant built by Jack Welch into a faltering industrial conglomerate making engines, oil rigs and healthcare equipment.
Flannery responded to the financial crisis by halving the GE dividend and breaking General Electric into pieces, selling what he could and refocusing GE on the power unit. That proved his undoing, as concerns that its gas turbine blades were breaking were apparently the final straw for the board. The turbines apparently have an “oxidation issue” that means they may not last as advertised to customers.
The turbine troubles were also the last straw for many GE shareholders. The problem was announced in the middle of September and, within two weeks, a successor had been recruited and Flannery was out the door. The company was worth less than $100 billion at the end of September, less than half what it was worth when Flannery was appointed from GE Healthcare.
GE had announced in June it would look to sell GE Healthcare to focus on power and aviation. While Flannery announced these two major re-organizations of the company, he was criticized for not moving quickly enough. It is now possible those plans may be revisited.
The New Guy
Culp is a true outsider, having been CEO of Danaher (NYSE:DHR) from 2000 to 2014. There, according to GE’s press release, “he led the highly successful transformation of the company from an industrial manufacturer into a leading science and technology company,” increasing its market cap five-fold. This hints at Culp’s strategy.
Culp is quoted in the press release calling GE “fundamentally strong” and promising to deleverage the balance sheet. He also said he will work on “opportunities for continued board renewal,” an indication that more board members may soon be replaced. The current 11-member board consists almost entirely of outsiders, with three from financial companies and only one from technology, Cognizant (NASDAQ:CTSH) CEO Francisco D’Souza.
Culp, a 1990 graduate of Harvard Business School, was profiled by the school’s magazine in 2017. He helped integrate industrial testing company Fluke into Danaher before becoming its COO, then CEO after the man who hired him, George Sherman, retired.
When Culp left Danaher at age 51, after 14 years in charge, he said he wanted to seek new challenges “outside the C-suite.”
That’s because at Danaher, Culp had turned an industrial company into a healthcare company, and it’s hope for that kind of transformation that is behind the stock’s rise in the pre-market. Immelt had moved GE headquarters from Stamford, Connecticut to Boston, and if Culp can turn it around, that may prove to have been the best thing he ever did.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing, he owned no shares in companies mentioned in this article.