General Electric Co. announced Monday that chief executive officer Jeffrey Immelt would step down after 16 years of running the conglomerate, and he will be replaced by longtime GE executive John Flannery.
Jon Chesto of the Boston Globe had the news:
It was no secret that Immelt had his eyes on retirement and on finding a successor. GE watchers had been paying close attention for the past two years for signs of who would emerge as his replacement, and Immelt was under pressure from some investors to increase the company’s stock price and profitability.
But the timing of the news was unexpected: Immelt has worked to become known in Boston’s business circles, and bought a home in the Back Bay last year, just before the move.
Jack Brennan, GE’s lead independent director, told employees on Monday that the change reflects a transition plan that had long been in the works.
“We started talking about this five years ago and narrowed down on the summer of 2017 as being the best time [for a transition], best for GE and best for Jeff,” Brennan said.
Flannery, a Red Sox fan who named his dog after Mookie Betts, will move to Boston from the Chicago area. A spokeswoman for GE said the company isn’t wavering from its plans to construct a three-building, $200 million headquarters campus in Fort Point during the next two years.
Jena McGregor and Thomas Heath of The Washington Post reported that GE’s stock has underperformed:
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.
Christopher Helman of Forbes reported that GE’s stock rose on the news:
Investors today cheered General Electric’s decision to move on from CEO Jeff Immelt after 16 unfulfilling years. It was “not a trivial decision,” said Immelt in a video conference this morning. The new CEO is Jeff Flannery, 55, most recently the head of GE’s healthcare unit. It was “absolutely the right time to do it,” Immelt said. Investors might wish he had done it sooner. Shares of GE were up 4% at midday.
Immelt is unloved by investors, and for good reason. GE shares were at $40 when he took over in September 2001. Today they’re at just $29. Over the past 10 years GE is down a cumulative 22% while the S&P 500 has gained 58%. He’s been on “worst CEO” lists for years. Underwhelming first-quarter results capped off a tough tenure.
Nelson Peltz and his Trian Fund Management was an especially voiciferous critic who has pushed GE in recent years to do more to simplify and streamline its industrial businesses. Immelt was deferential to GE’s shareholders in his comments during a video conference today. “I always knew my name wasn’t over the door. You owned the company,” he said, looking almost teary-eyed. A Trian spokeswoman had no comment on GE today. The fund in the past has lauded Immelt’s efforts to overhaul GE, but has insisted there is much more to be done.
The incoming CEO, Flannery, said this morning that he’s going to lead a “deep review with a sense of urgency and come back in the fall with a broader set of recommendations.” Flannery started at GE Capital in 1987, worked on LBOs and ran GE’s workout group. In 2013 he became head of corporate business development and spearheaded the $13.5 billion Alstom acquisition and the sale of GE Applicances, for $5.4 billion, to Haier. “Clearly there’s areas we need to improve on. No one’s happy with the stock price right now. … We know we can do better,” said Flannery.
