General Electric has ousted CEO John Flannery, a 30-year veteran, putting its faith in an outsider to turn the industrial sector giant around.
It came as a surprise to analysts when General Electric announced on October 1 that it had dismissed John Flannery, who had been with the company for three decades and was only appointed CEO in August 2017. GE’s CEOs have traditionally had long tenures: Jack Welch was at the helm for 20 years, and Flannery’s predecessor Jeffrey R. Immelt held the top executive role for 16 years. The sudden ouster in Flannery’s case signals the critical degree of GE’s troubles.
Charged with leading GE’s turnaround, Flannery pledged to rethink the business “with speed, urgency and no constraints.” He slashed expenses and developed a plan to sell off several of the conglomerate’s businesses. As GE’s losses persisted, its board ran out of patience. “Flannery was the best internal, pragmatic candidate for the job, but this board wasn’t waiting long to see how he did,” said analyst Nicholas Heymann of William Blair & Company.
“Flannery seemed a smart, common-sense guy, but he was an insider”, said Scott Davis, Chief Executive of financial analysis firm Melius Research. “And as an insider, he was slow to make the difficult decisions,” such as letting more of his former colleagues go in order to cut expenses.
The board voted to replace GE’s top executive with Lawrence Culp, a board member since April. Culp is the former CEO of a lesser-known industrial conglomerate, Washington DC-based Danaher. “During his tenure he led the highly successful transformation of the company from an industrial manufacturer into a leading science and technology company”, GE stated in a release, adding that Danaher’s market cap and revenues grew five-fold while Culp was CEO, from 2000 to 2014.
Analysts expect more forceful actions from Culp, but his statement, in which he described GE as “a fundamentally strong company”, indicated no intention of changing the company’s turnaround strategy. He was on the board and approved the plan when Flannery presented it in June. It calls for shedding the industrial conglomerate’s oil and gas, healthcare and rail locomotive businesses, and focusing on jet engines, electric power generators and wind turbines, which together accounted for 60% of GE’s $122 billion in revenue last year.
There have, however, been repeated signs that GE’s power division is a weak link. For more than a year, it has dragged down GE’s profit performance and stock price, the New York Times reports. The company said this month that it will fall short of its earnings guidance for the year and write down the value of its power generation business by about $23 billion. Analysts saw this as a lack of confidence that the power business is on track for recovery.
Within the industrial sector, GE is certainly not alone in its struggles with a weak market for power generators, as energy-efficiency programs and growing interest in renewable energy sources continue to depress demand.
