The Tech Column: GE, Immelt and the Challenges of ‘Legacy’

The Tech Column is a weekly collection of stories, interviews, notes, news and more about the manufacturing tech world, published most Friday mornings here on IW.com. Have a story you think should be shared? Send an email to [email protected] or tweet @MattLaWell.

Those among us who have scaled the ladders of success, who have gathered the largest fortunes, who have notched the greatest accomplishments and will be remembered as history, those folks are often criticized for failures. And perhaps they should be.

They are also often criticized for successes. And perhaps they should be.

General Electric announced Monday morning that Jeff Immelt will step down after nearly 16 years in its top spot. He has a little less than seven weeks remaining as CEO, a little less than seven months remaining as chairman. John Flannery, the head of GE Healthcare, will succeed him in both positions.

The news did not come as a surprise, though perhaps the exact date and time did. After months of criticism from Trian Fund Management — which scooped up about 1% of all GE stock, $2.5 billion worth, in October 2015 — Immelt’s years, months, weeks and days in charge were numbered. Trian demanded more return on its investment, of course, and this week, numerous analysts and media outlets pointed quickly to the value of the company’s stock as the reason for his resignation (or his ouster, if you pay heed to some talking heads).

In the short term, GE stock has been relatively stagnant and disappointing. In the long term, while its value has more than quadrupled from its most recent nadir during the financial crisis, it has performed more poorly than any of the other 29 DJIA components since September 2000 and has lagged behind the rest of the S&P 500 by about 75 percentage points. Those are rough numbers for any investor to consider.

This is the end, this right now. We can discuss what Immelt has done — his success, his fortune, his accomplishments — but just like sports trades cannot really be evaluated until years after players are shipped from one team to another, CEO legacies cannot be measured fully until all their decisions either pay off or fall flat.

The legacy Immelt leaves behind — the real health of GE and its ability to remain the leading digital industrial company — that will be discussed for years.

A lot of folks in the media like to mention that Immelt took control of GE on September 7, 2001, the Friday prior to a catastrophic tragedy. Heck, Immelt likes to mention that fact. During a dinner in March, just blocks from GE’s new headquarters in Boston, while discussing Donald Trump, health care, taxes and globalization, he mentioned his early days in charge, saying, “I spent the next three months in pure chaos. By Day 90, I could barely breathe.”

Imagine if he had just stepped down right then, after 90 days, overwhelmed by guiding a conglomerate through the aftermath of a terrorist attack, by navigating a path for the technological advances of the 21st century. How would we remember him then?

What if he had turned in his resignation some time during the financial crisis in late 2008 or the ensuing recession, or if he had just walked away, content with his accomplishments and happy to bask in the spoils of retirement, before shedding the conglomerate’s financial arm, or its appliances division? What would his legacy be?

Legacy is a funny word — in sports, in politics, in business, in life just in general. In his hit musical Hamilton, Lin-Manuel Miranda describes it as “planting seeds in a garden you never get to see.” Miranda took the longer view, a couple centuries of reflection and rumination working their way through his appreciation of our first treasury secretary. Not everybody is so lucky.

Will the seeds Immelt has planted over the last 16 years pay off for GE? Shareholders will talk about how the company’s stock dropped about 30% during Immelt’s time in charge. But with the passage of time, I think even they might see the new foundation he prepared for an old company.

Immelt built up the company’s presence in the oil and gas drilling market, then merged that division with Baker Hughes’. He made numerous acquisitions, perhaps none bigger than Alstom and its power business a couple years ago. He has reimagined GE for a new century, shelling out $4 billion just last year to develop analytical software, and another $2 billion on industrial additive manufacturing, according to Bloomberg. The company employs somewhere around 26,000 software developers writing code to enhance its products. He has reimagined GE as a manufacturer.

And if you look at numbers beyond stock price, he has helped triple annual sales for GE aviation to about $6 billion annually, with overall industrial sales checking in last year at $17.4 billion — up 185% from 2000 to 2016. (And if you do want to look at just share price, consider that GE paid out about $143 billion in dividends to shareholders since 2000 — more in 16 years than in the previous 108 years combined.)

During that same March dinner, Immelt fielded a question about what GE is today by discussing how much the company has changed. It no longer has a finger here, another there. “We were a conglomerate,” he said, “and now we’re a digital industrial company.

“The key thing is to keep trying to stay ahead. You go through these periods of change and you keep trying to stay ahead.”

Earlier this week, during a conference call with GE investors, Flannery said, “there (are) areas we need to improve on. … We know we can do better.” That’s true, at least financially. In terms of its structure and the industries where it’s really situated, Immelt seems to have left GE in a strong position. Only time, of course, will tell, but in hindsight, he could likely be praised far more than criticized.