When Jack Welch handed charge of GE to Jeff Immelt in 2001, GE’s share price was $480. Today it is $80. Immelt, who was sacked in 2017 after destroying 80% of its shareholder value, claims that Welch handed him a “bag of shit”. Several commentators disagree – they see Immelt as the primary protagonist in the rapid destruction of what was 20 years ago, the world’s mightiest company. For example, in their outstanding book “Lessons from the Titan”, Scott Davis, Carter Copeland & Rob Wertheimer, have a whole chapter on how Immelt’s incompetence & hubris wrecked GE. In case you don’t have time to read the book, you should listen to this Business Breakdown podcast in which Josh Aguilar takes apart Immelt in the space of 40 minutes of devastating commentary. As a parable on how the arrogance & incompetence of one man can wreck decades of hard work, Aguilar’s take on GE should be compulsory listening for CEOs.
Aguilar identifies three central drivers of GE’s downfall:
Aguilar says the central learning from GE’s decline is that a conglomerate is only worth having if the CEO of the conglomerate can allocate capital better than the stockmarket. If he cannot – and Immelt couldn’t – the logic behind having the conglomerate falls away (implying that the conglomerate should be dismantled). The same point can be made for almost every listed conglomerate in India – given that almost all of them are run by mediocre capital allocators.
Towards the end of the podcast, Josh makes a very interesting point when he says that some CEOs are so arrogant that they cannot see the downside risk; you would want companies which you invest in to have an “intellectual corporate environment” where executives do not get beaten up by the boss for presenting the bear case of a specific capital allocation initiative.
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