The Trouble With GE

I have to admit that I took a certain amount of satisfaction from today’s announcement that General Electric had suffered a first quarter drop in net income that forced them to restate their projected earnings for all of 2008, a state of affairs that led to a drop of about 12% (and counting) in GE’s stock price.  See, I worked for GE for quite a while, and while I was handsomely compensated and loved the name recognition they brought to my resume, I was also pretty happy the day they announced that our branch of the company was being sold, employees and all.

From the perspective of a mid-level grunt like me, today’s announcement was virtually inevitable.  GE is a company rife with severe problems, ones you don’t get to hear about much due to their exceptional PR activities.  Spin is everything at GE, so even when bad news is announced, it’s usually masked as something else, or coupled with a pile of feel-good blurbs that make you miss the troubling bit altogether.  But trust me, just because the light in your fridge works and there’s a cute digital baby elephant dancing on your screen during the Super Bowl, doesn’t mean GE is the world’s only problem-fee company.

From my perspective, the biggest of these problems with GE was the ladder-climbing leadership culture they fostered.  Executives who want to get ahead are openly encouraged to skip from job to job every 12 to 18 months.  They are sent to leadership seminars, where they network with other remorseless climbers and reinforce the notion that the way to get ahead at GE is to take a highly visible job (or make the job you already have as visible as possible), do something incredibly splashy (whether it needs to be done or not), ceaselessly publicize that splashy thing, and take the next promotional opportunity as soon as possible.

Preferably all of this should happen before your splashy accomplishment is revealed to be nothing more than smoke and mirrors, a pretty paint job over rotting timbers that are still in need of replacement.  Just not by you.  By the time this is discovered, you’re already in your next job, several hundred miles from the scene of the crime.

This culture is pervasive in GE, and as a result, the next person in that vacated role has incentive to do the exact same thing.  He figures out quickly enough that the real problems weren’t solved by the last guy, but rather than stand up and deliver that message – something that he realizes no one in a leadership role above him cares to hear – he follows form and slaps another coat of pretty paint on the crumbling infrastructure.  And so it goes.  Rinse and repeat.

Now, anyone with a brain in their head knows that this isn’t a sustainable practice.  Eventually, the rotten wood is going to collapse, and there aren’t enough coats of problem-obscuring paint to prevent that.  When this collapse point is imminent, that’s when GE typically sells off that chunk of the company and buys some shiny new company with the proceeds.

They did it with my own company, which was their insurance subsidiary for over twenty years.  Despite having a near-complete lack of knowledge about the insurance industry, GE arrogantly thought that their normal managerial practices would work here just fine.  The problem is that they completely missed the boat when it came to recognizing that insurance is perhaps the most heavily regulated business in the world.  You can’t just take the pile of cash you’re sitting on and throw it at any investment you want, or use it as a backstop to some of your other businesses which aren’t performing as well.  The feds and every state insurance department simply won’t allow it.

Yet that’s what GE tried to do anyway.  They determined the minimum amount of reserves they were required to retain, and stripped away everything else so the corporation as a whole could claim a profit each year, when the reality was that much of that “profit” was reserve money they had been sitting on for years that they just conveniently released when annual results needed to be reported.

Of course, all of this came back to bite GE in the butt a few years ago, when the habit of under-reserving their losses resulted in the need to re-inject billions of dollars into their insurance operations to cover losses.  (For a really good summary of this sad story, see this article from Barron’s.)  Once that was finally cleaned up, they sold the company.

Well, not every smart businessperson on the earth works at GE.  Those working elsewhere eventually wised up, and now it’s not as easy for GE to reinvent their image and hide their old problems by selling off the chunks of the company that they mismanaged.  The result was today’s announcement, as the poor economy and GE’s past mismanagement finally caught up with them.

I feel bad for all of GE’s stockholders, who have been duped for years into thinking that GE is a model of management.  Those inside the company have always known better.  As soon as there wasn’t a meatball on my pay stub, I sold off every last share of GE stock I ever owned.

And I’ve never regretted it.


4 thoughts on “The Trouble With GE

  1. I cannot agree with you more. I was a former auditor at ge as well as in their sales leadership program. The culture you describe is so pervasive its scary band in hindisight leaving and liquidating my “equity” in the co. Is the best decision I made financially. Talk about lack of performance since ’01 the stock price has fallen 46percent.

  2. I guess it was just as well you guys got out when you did. An attitude like that would have certainly been destructive and only continue to tear at the fabric of a company known for its stability and financial whereithal. A company, may I remind you, that has been feeding your mouths over the years that you were there. Yesirree, it’s nice to see that you are enjoying your “equity ” position that was built on the hard work of all the rest of us…you know, those years when times were good and you weren’t bellyaching about the stock price and those nice bonuses I’m sure you took down. There is no escaping that others are failing, but GE is still around, prepared to weather the storm. This, too, will pass. I guess I should be thankful that guys like you abandoned the ship. Wonder where you may be now. Lehman? AIG? Merril Lynch?

  3. Ummm, Coop, try to confine your comments to issues you know about, because it’s pretty clear you know zilch about this one.

    Since you didn’t catch it the first time, let me say it again…”us guys” didn’t “get out”, we were sold. No one here “abandoned ship”, we were abandoned, but not before GE raped the financial statement and reputation of a great company through their complete mismanagement, all in the name of propping up their underperforming other businesses to dupe shareholders and achieve the appearance of ongoing financial strength.

    And my “equity” position at GE was a joke. I joined the company in late 1999, and the stock essentially flatlined right at that point. My first day on the job the adjusted close of GE stock was 34.42. The day I left, almost 7 years later, it was 31.71. That’s right, for nearly seven years I LOST MONEY ON GE, almost 8% of every penny I ever invested in it, and that doesn’t even include the opportunity cost of not investing that money elsewhere, which I had limited opportunity to do because ALL of GE’s 401(k) investment options were heavily tied to GE stock. Hell, if I had pegged that money to the Dow index as a whole it would have appreciated nearly 6% in that time, and that included a recession. Since that time the stock has dropped another 33%, and yet, if GE’s spin doctors are to be believed, WE were the problem. So much for being a company known for its “stability and financial whereithal [sic]”.

    As far as guessing where I am now, you must not be much of a rocket scientist. It says right there in my post that I was employed by GE’s insurance subsidiary, which they sold in 2006. I’m still there. And, by the way, in the two years since the sale, my net bonus dollars have amounted to TWELVE times the bonus money I collected in seven years at GE.

    In other words, your company fosters a me-first, superficial leadership style, has been an investment sinkhole for nearly a decade AND underpays its staff. But you go right on being proud of the work you’re doing there. You seem to be exactly the kind of person who will rise far and fast at GE. In fact, Coop, since I can see that your name is actually Ralph Coppola and you submitted this comment from your GE email address during a time when most people are working, maybe it’s time you woke up and realized that you might be part of that company’s problem.

  4. Pingback: I.Write » Blog Archive » Read it, it’s good for you

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