Coverage: GE gives board seat to activist investor

General Electric Co. has added a top executive from Trian Partners to its board as new CEO John Flannery remaps the manufacturing conglomerate’s strategy amid pressure from the activist investor to boost returns.

James Langford and Ronald Orol of TheStreet.com had the news:

Ed Garden, the Trian chief investment officer who worked with DowDupont CEO Ed Breen to combine two chemical giants and break them up, joined Boston-based GE’s board on Monday, Oct. 9. He has previously described Flannery, who succeeded longtime CEO Jeffrey Immelt on Aug. 1, as “part of the solution” at GE.

“I am excited to work with John and the rest of the board in the same way that I’ve worked at other companies,” said Garden, whose appointment was announced only a day before Procter & Gamble Co. investors conclude a vote on his firm’s proxy fight to install CEO Nelson Peltz at the consumer-products giant. “I am disappointed by the recent performance of GE’s stock, but I continue to believe that GE represents an attractive long-term investment opportunity with significant upside.”

Garden replaces Robert Lane, the former Deere & Co. CEO who is leaving GE’s board for health reasons. The change was announced just days after GE disclosed that Immelt would step down as chairman nearly three months early and that three vice chairs, including CFO Jeff Bornstein, would retire at year’s end.

Svea Herbst-Bayliss and Rachit Vats of Reuters reported that GE is under pressure due to a falling stock price:

Four months ago, GE said longtime CEO Jeff Immelt would step down and that John Flannery, a 30-year company veteran who had run its healthcare business, would succeed him.

The company’s lackluster stock performance was seen to have prompted Immelt’s departure, which came months before analysts had expected, but the shares have continued to fall. They were down 3 percent in Monday morning trading.

“Like other GE shareholders, I am disappointed by the recent performance of GE’s stock,” Garden said in a statement. “But I continue to believe that GE represents an attractive long-term investment opportunity with significant upside.”

The most recent wave of executive departures was announced last week and includes Chief Financial Officer Jeffrey Bornstein. Jamie Miller, CEO of GE Transportation, will become CFO next month.

Although Trian is an activist investor that demands change at companies, it is also known for working behind the scenes with management to improve performance. It rarely pushes out a CEO the way some other activists do, and it often sticks around, often for years, as transformations occur.

Ed Crooks and Lindsay Fortado of The Financial Times reported that Trian will push for cost cuts:

The appointment gives Trian, which has an 0.82 per cent stake in GE, more influence to push for further cost cuts. GE is the largest US manufacturer, with a market capitalisation of about $210bn.

The accommodation with Trian is the latest example of shareholder activism forcing change at some of the biggest US companies. The firm is also battling Procter & Gamble for a board seat in what has become the largest ever proxy fight in the US.

Nelson Peltz, Trian’s chief executive, has a record as one of the less confrontational activist investors, generally preferring to seek board seats in order to influence a company, rather than challenging its management openly.

Trian first took a stake in GE in 2015, and began pushing for cost reductions and increased borrowing to raise earnings, echoing general dissatisfaction among GE shareholders.