THE FEELING OF fragile détente between GE and Trian that had filled the boardroom a year earlier didn’t last long. The hedge fund had bought into Immelt’s investment thesis that GE was changing its structure and that it was only a matter of time before the market woke up to the company’s transformation. But after years of being categorized as a diversified financial services company rather than a pure industrial—a branding that Welch resisted—it wasn’t so easy for GE or its shareholders to change gears.
For Trian, GE was an investment, not a partnership. They did not have the same approach as the GE board, which was seemingly content to swallow whatever explanation it was fed by Immelt. It didn’t matter that Immelt and Ed Garden had known each other decades earlier.
Garden knew that Immelt was smart. He’d gone to Harvard Business School and had the familiar marks of achievement that all of the members of this fraternity of corporate success tended to share. But Garden trusted no one—he wanted to see results, and he wasn’t one to make the same mistake twice.
Immelt had already been given the benefit of the doubt when Trian tied up billions of dollars in GE stock and claimed no seat on the board in exchange, as it usually would have. Trian was clear from the start, however, that it would be keeping a close eye on its investment.
Moreover, Trian had its own investors. They expected results, and this was the biggest bet the fund had ever made.
A year after the initial Trian investment, GE was behind on its financial targets and the stock wasn’t moving. Garden and Trian viewed the missed targets as not just disappointing but insulting. Garden took it personally. Trian’s big public endorsement had boosted Immelt and suggested that the fund would remain an investor in the stock for years. For GE to fail to hold up its end of the bargain in the first year was shocking.
In the fall of 2016, an increasingly impatient Garden traveled to Boston to see Jeff Bornstein at his six-level $13 million townhouse in Boston’s Back Bay. Like many on Wall Street, Garden saw Bornstein as more of a straight shooter than Immelt. Bornstein had come up through the world of finance. The two men spoke the same language. Immelt had been well served by his ability to spin inspiring visions of the future, but Trian didn’t want a politician or a seer right now. Garden wanted the cold-hearted calculation of a banker.
Visiting Bornstein, Garden made it clear that if GE’s performance didn’t improve, Trian would ask for a seat on the board. The two men got along, but there was also an unspoken tension between them. Garden didn’t shy from a fight, and as an activist, he was comfortable with the implicit confrontation that his very presence represented.
Bornstein had a similar view. He was at the top of the financial structure of GE, which was its own kingdom. His decisions could move markets, and he had been central to steering GE Capital through the crisis. He really only answered to Immelt, and who knew? He might even run the place someday.
As the meeting went on, Garden’s complaints didn’t sit well with Bornstein. GE’s size plus its influence in Washington and around the world gave it tentacles into all corners of society. That meant that it didn’t have to bend to anyone. And company lifers like Bornstein were sure to their bones that they knew better how to manage a complex beast like GE than any shortsighted activist. Bornstein was also deeply wary of the tactics that Garden and Peltz wanted GE to use to goose the stock price, especially taking on even more debt to buy back more shares. “If they want to do that,” he muttered at one point, “they’ll have to find a new CFO.”
But Trian was willing to stage a public battle, which GE wanted to avoid. Even if Bornstein was up for the challenge, Immelt wouldn’t have it. An activist fight could send Immelt into retirement, leaving him on the outside while the shoots of GE’s rebirth were just breaking through the soil.
GE’s fear of a public fight gave Trian just the leverage it needed.
Bornstein and Garden started to work out a compromise. GE doubled its cost-cutting goals and tied more of its executive bonuses to profits in its core industrial units, which was where Trian wanted the company to focus. Having hard numbers for targets also eliminated any debate on how to measure success.
Some parts of the agreement weren’t made public. But the bottom line was that if GE didn’t get back on track, Trian would push for a board seat or management changes or both. Both men understood that “management changes” meant defenestrations, including of Bornstein himself, even if many within the company thought that the CFO still was on track to succeed Immelt.