Peter Drucker, the man credited with the invention of management said, “If the Gods want to destroy you, they grant you 20 years of success.” There are many who have failed to heed this advice and stayed too long in post and ended their tenure being remembered for their failures rather than their successes.
If you are lucky as a leader you will leave a legacy that endures long after you have moved on to pastures new. Just over a year before I took over the top job at BMMI Jack Welch, the CEO of General Electric (GE), retired having served as CEO for 19 years.
He was someone who I looked up to and what he considered as important when it came to delivering exceptional results. Jack died back in March this year and this got me wondering what sort of legacy he left in GE.
GE’s financial success during Welch’s tenure as CEO is not debatable: the company’s share price rose four times faster than the overall market. GE’s market cap was $14 billion when Welch took over. When he stepped down, the company was worth $400bn.
Jack Welch was undeniably an accomplished executive. He worked quickly and nimbly, learning from the outdated habits of his predecessors to innovate new business tactics. He ensured GE delivered on its commitment to customers. His energy sparked a sense of urgency in those he interacted with, and his corporate ethos, “fix it, close it, or sell it”, exemplified the unshakeable confidence and decision-making that Harvard Business Review attributes to the most skilled CEOs and leaders.
What has become increasingly clear over time was the importance of GE Capital, the finance arm of the business, when it came to delivering profits. GE could borrow cheaply due to the AAA credit rating the company had but eventually it was GE Capital that dragged the company down.
Not long after taking over from Jack Welch his successor Jeff Immelt was forced to show that GE was playing by the book when the Enron financial scandal broke. Immelt fought hard to dispel perceptions of risk that weighed on the GE share price before finally moving away from financial services in order to reinvigorate the industrial heart of GE; aircraft engines, health care and power turbines.
The sale of GE Capital in 2015 provided short relief for investors before the disastrous $10bn acquisition of the French power and grid competitor Alstom that same year. This was Immelt’s biggest mistake and ever since the acquisition the power business has been problematic.
Fast forward to today and it seems so many events are conspiring to make things for GE ever more difficult. The growing move towards greener energy is problematic for the power business and since the Covid-19 pandemic spread across the world the aircraft engine arm of GE looks increasingly worrisome.
The second quarter results released last month included cash outflow of $2.1bn from the industrial operations which caused the company’s share price to fall by five per cent. The troubles for the aviation business worsened as the pandemic brought global air travel to a virtual halt. GE makes engines for Boeing and Airbus and had already been reeling from the grounding of Boeing’s 737 MAX planes.
It seems Jack should have ‘stuck to the knitting’ option by doing what GE was good at and taking the right actions to make sure events did not wear down a 128-year-old business.
Gordon is the former president and chief
executive of BMMI. He can be reached at gordonboyle@hotmail.com