Jeff Immelt

Jeff Immelt’s memoir of 16 years at the helm of General Electric “Hot Seat: What I Learned Leading a Great American Company” reads like an extended lecture for his Stanford business school students.

What to do and what not to running a conglomerate, and GE was and still is an enormous conglomerate.

It is at times a painful read as Immelt recounts his first months running GE what it was like to scramble after the 9/11 attacks for a company that was essentially financing the entire US airline industry to support its production of jet turbines.

Then there was the fallout from the 2008 financial services debacle when GE suddenly found itself not only depending on government guarantees of its assets but also found its financial services wing, GE Capital, in the crosshairs of financial regulators.

In the end Immelt was turfed largely as a result of the decline value of GE shares.

Immelt tells us, for example, that he

- Didn’t invest in water purification because he perceived it was a universal right and therefore could never be profitable. Reading in between the lines it sounded like he was saying the company should only invest in stuff where people wouldn’t notice the company’s large profit margins.

- Was leary of owning Universal Studios theme parks because you had to go back and get new customers every year and because the low wage employees were ripe for unionization. It was as if GE only wanted to own products that locked in customers and didn’t believe in a fair wage for unskilled workers.

Immelt never tells why he wanted the job. Was it the millions in compensation? Was it because he wanted to be or be bigger than his legendary predecessor, Jack Welch? Was it because he knew the big moves Welch made would ultimately drag down the company?

While Immelt does not shy away from some serious score-settling, he goes pretty lightly on Welch.

I learned that after he helped handpick a successor Welch fired all the other candidates for the top job to prevent an Ides of March scenario. It seems a bit odd in a company that really needed endless supplies of executive leadership. (I later learned that the Ottoman emperors slaughtered their siblings once the royal successions were settled.)

Reading this book sure didn’t make me yearn for taking the job myself. In Immelt’s words volatility, uncertainty, complexity, ambiguity are all new challenges that leaders of today can expect.

Then there are activist shareholders with really deep pockets, different regulatory bodies in every political jurisdiction (and there are a lot of them where GE does business), a hair-trigger business press always on the hunt for the smell of scandal, and the millions of miles of air travel to coordinate, motivate, train, and promote subordinates.

He learned that GE made products that couldn’t fail; but fear of failure made creativity (and innovation) impossible under many scenarios. He asked himself if he was willing to experiment, fail, pivot, refocus, realign, and learn in the name of progress.

Like I say, it was a painful read. I run a much, much smaller business and the older I get the more painful the executive decisions become. I sweat over the livelihood of just a handful of people. Doing the same for 300,000 people boggles the mind.

I was most intrigued by the events triggering the sell off of $300 billion in the assets of GE Capital. For years GE had fed off the benefits of its rare triple-A credit rating in the bond markets. They could always borrow at rock-bottom interest rates and loan seemingly endless amounts to industry. It formed the majority of GE’s profits and surplus cash flow in those years.

For a while — under Jack Welch — investors loved it and repaid the company with a 30x P/E, or Price-to-Earnings ratio.

But massive disruptions to the economy could put GE Capital in the category of a “Too Big to Fail” company and Immelt’s top advisers realized the jig was up. Like so many of the banks, GE Capital did not keep enough equity to cover a sudden surge in bad loans. And the board hated having to hire thousands of employees just to feed the regulators with reports. So they sold off its airline fleet financing arm, and its leveraged borrowing division, and more.

Whoever bought these assets — and Canadians figure big in this part of the story — didn’t have the scrutiny GE Capital was now facing and we never find out if they cleaned up the company’s lending practices. It sounded to me that GE shed the risk, but we didn’t. That ought to keep bank regulators up at night.

We are also left pondering the age old business school question about the rationale of big conglomerates. Do they really add value to the businesses they occupy?

What is a conglomerate? It’s a collection of unaffiliated businesses incorporated under a single owner, or single group of shareholders. They get started by trying to control the upstream or downstream businesses upon which their core business depends.

Or, they figure since they do such a good job they try absorb other businesses around them that do the same or similar things.

Eventually they get into businesses that have nothing to do with their core business because they can.

It seems like Immelt was on a crusade to prove the GE umbrella justified its holdings, the difficulties to innovating and the difficulties in coordinating notwithstanding. While one arm of the conglomerate was innovating on energy, other parts of it were polluting the landscape or making it easier for the airlines and presumably the energy industry to ruin the planet.

If I were to guess Immelt’s view it would be that the strength of the conglomerate is in its ability to feed parts of it in weak cycles. No business is always profitable, and no management team always gets it right.

In a conglomerate, the businesses in the strong part of the cycle save those in a weak cycle. And those using advanced practices share with those using weak practices.

This is how we keep peoples’ jobs in bad times. By sharing the wealth.

One could argue that this is what debt or equity is for, to help protect us when we are not capable of sustaining ourselves. Maybe the overhead of the conglomerate isn’t worth it to support weak businesses.

Immelt uses a variety of justifications like we’re the people people rely on to get safely from Point A to Point B in an airplane. Or, we’re the descendants of Thomas Edison who revolutionized society with electric lights. Or we’re really good people just helping people. Or, we’re really kick-ass businessmen (and sometimes businesswomen).

History teaches us that the age of conglomerates is past. Private equity, vulture funds and the like now have the upper hand “unlocking value” by selling off assets not critical to the core business.

GE itself unloaded a pile of real estate and then bought back shares to gussy up its balance sheet to the shareholders. I don’t know this for sure, but my guess it leased back the real estate because it didn’t all of a sudden stop needing it. More hocus pocus for the stock markets.

In this environment jobs and loyalty to the company are no longer sacrosanct no matter what Immelt chooses to believe about himself.

Besides, the massive fortunes that were once made by the conglomerates can now be made by the information giants like amazon, google, facebook, and dozens of others.… (més)

A business memoir of a GE lifer taking over the CEO seat from another, much more prominent GE lifer. The book appears to be Immelt's attempt to set the record straight about what he achieved, but I felt less convinced of this at the end than on Page 1. Plenty of tea spilled about the many, many, many (seriously, I now think GE's biggest issue is the top heaviness) middle managers throughout the organization that Immelt liked, hated, or got rid of to extinguish threats to his own chair. It's a fast read, at least.… (més)