Home Depot founder Ken Langone went on the TV back in February and made one thing very clear: Whatever you might have to say about General Electric, make sure it isn’t a bad thing about the sainted Jack Welch. What’s going on with the General today, which is to say a lot of bad stuff that will lead to it being “busted up,” in Langone’s words, ain’t Neutron Jack’s fault.
Now, this is the kind of bald, defensive statement (Langone was on GE’s board for Welch’s last couple of years and since-savaged successor Jeff Immelt’s first few) that begs to be debunked, and along with it the narrative upon which it is premised, which is to say: Jack Welch was a fucking genius who never put a foot wrong at GE, and Jeff Immelt inherited the resulting perfect company and proceeded, with the help of GE’s board—among them a man named Ken Langone—to fuck it all up. This Joe Nocera is only too happy to do. Because as bad as the lavish executive retreats and company cars and empty corporate jets flying to and fro look when the stock is in the toilet, for a company that even at its lowest still brought in $122 BILLION in revenue last year, those sorts of things seem like drops in the bucket.
For most of Welch's tenure, GE's stock had a price-to-earnings ratio in the low teens. But in 2000, it reached 59. That number was unsustainable no matter who sat in the chief executive's chair…. Maybe you can say that Immelt shouldn't have been so reliant of GE Capital. But if you're going to make that argument, then don't you have to say the same about Welch?
Critics point out that the stock fell 25 percent during Immelt's 16 years. But when he took over, GE stock had a multiple of about 40. When he left it was still in the mid-20s. Do you know what Apple's multiple is? A little over 18. GE is not, and never was, a growth company, Jack Welch notwithstanding. It needed to return to a multiple more befitting a 126-year-old conglomerate that people own primarily for the dividend. That, in large part, is what's been happening.
Also, just sayin’, but GE’s stock performance during Welch’s last year at the helm look a lot like the stock during Immelt’s last year. Worse, in fact. But did you hear Jeff Immelt waltz into 30 Rock and start shitting all over his predecessor? No, John Flannery, you did not.
The stock began dropping precipitously even before Welch stepped down. And…. it kept dropping for next year and a half, falling nearly 50 percent…. What the Ken Langones of the world won't acknowledge is that their man Jack had the wind at his back. And Immelt didn't….
The stock is now around $13.50, down from $30 when he took over. Let's suppose that it doubles over the next year. (It won't, but just suppose.) That would make it a $27 stock. Would that mean that Flannery did a good job reviving the stock? Or would it mean that he remains an underperformer because the stock is still lower than when Immelt left? If it's the latter, then maybe then he'll understand what it was like to be Jeff Immelt.
Don’t Blame Jeff Immelt for GE’s Stock Woes [Bloomberg]