On the surface, you would expect General Electric to be turning in good business results. Most of their divisions are very strong players in their industries, for example GE Aviation, GE Healthcare, GE Power, and GE Oil and Gas.
The latest GE quarterly financial results were a disaster. Revenue was flat versus a year ago and earnings per share came in at $.13, versus $.30 a year ago. Surprisingly, GE investors have been putting up with this now for a decade. In fact, GE’s share price ten years ago was in the $39 range, while today it is around $26. By comparison, the S&P 500 Index was in the 1,275 range ten years ago but is around 2,470 today. The sad reality is that GE investors would have been far better off simply putting their dollars into an S&P 500 Index Fund.
Much has been written about what is wrong with this company. After reading all of that, as well as the current dialogue related to the quarterly results, three major issues emerge:
No High Impact Product Initiatives – While the company has had several major reorganizations and has initiated major shrinkage efforts, spinning off GE Finance and GE Appliances, it has had no genuine product excitement.
Financial Focus vs. Customer Focus – For example, the incoming CEO recently commented that “I was out last week and we saw about 100 different financial analysts and portfolio managers, and we will be doing more of that over the next couple of months.” Consistent with the past CEO, the new individual seems to have no focus on customers. As one financial analyst put it, the new CEO “has already raised my suspicion that not much will change.”
Weak Board of Directors – The board is too large, with 18 people, and appears to buy the notion that GE is basically a large bureaucratic financial conglomerate. Even worse, the new CEO will also be made Chairman within a few months. This is surprising, given that “best practice” is widely viewed as having the CEO not be the Chairman, allowing the board to have greater chance of demanding dramatic action.
Stepping back, it seems the GE management team views the company as simply a financial portfolio to be managed, instead of individual businesses that need to win in the marketplace. Executives at high levels in General Electric likely strive to manage the conglomerate, rather than sticking with their operating division and make it a raging success.
While many articles have been written about the possibility someday of splitting General Electric up into its industrial components, it never happens. I personally believe it should be split, thus providing the kind of intense focus you get by having an operating division totally on its own. In that situation the leader knows that there is only one thing that is important; providing winning products that excite consumers in order to grow the business. Nothing else matters. To me, that’s the secret of unlocking what is obviously huge potential in those various GE divisions.