IT HAD TAKEN TWO corporate jets to take Jeff Immelt around the world.
For much of his career, the famously globetrotting chief executive often had an empty business jet follow his GE-owned Bombardier or Gulfstream to far-flung destinations, just in case there was a mechanical issue that could lead to delays.
The spare planes started flying early in Immelt’s tenure and continued to follow him in his travels into the months before his resignation. It was an unprecedented and highly unusual practice. Even heads of state didn’t get such treatment, not because they were less important, but because it just wasn’t practical. In case of emergency, there would always be other jets available on the ground.
This GE practice was kept quiet, and not even the board knew about it; the board only approved the budget and didn’t get an itemized description of the corporate jet operations. It wasn’t a secret that Immelt traveled constantly, so it had never been surprising that it cost millions to ferry him around.
Immelt initially denied knowledge of this two-plane operation, but then pivoted to say that he found out about it in 2014, when the practice stopped. But the practice didn’t stop. Flight records revealed the well-worn pattern of the two jets often following the same path with itineraries only minutes apart. The secrecy betrayed the notion that it was a practical decision.
At small airports that catered to private jets, like those in Westchester and the Hudson Valley, members of GE flight operations knew to keep quiet about the planes. The airports didn’t have terminals but rather little buildings that had some seats and a restroom, with maybe a TV playing. During layovers and maintenance checks, when flight crews could easily mingle, GE crews had specific orders not to use certain terminology and not to talk openly about the two planes. They were also directed not to leave the planes too close to each other on the tarmac.
The extra plane’s flight manifest sometimes listed “Robert Jeffries” or “Jeffrey Roberts” as the passenger on the second plane. A member of the flight team once earned a reprimand from superiors by openly referring to the extra plane as a “shadow plane.”
Despite the confusion and finger-pointing that set in when the practice became public, the message had been clear for years: it would be detrimental to everyone at GE if the practice of the CEO traveling with two planes became public. Some warned that the practice was wasteful and reckless. According to one person, CFO Keith Sherin confronted Immelt about the practice. The CEO brushed him off.
Early in Immelt’s tenure, GE flew spare jets when he traveled around the country, but it later stopped doing so on the CEO’s domestic flights. On some trips, however, both overseas and domestic, the company would pay for charter jets to stand by at different destinations.
There were close calls. In September 2010, an anonymous Montana political blogger wrote that two GE jets flew into Butte, Montana, delivering Immelt to an economic summit hosted by then-senator Max Baucus. The blogger saw no apparent reason for the multiple jets, given the small GE delegation present at the meeting. He talked to airport staff, who said that the second jet was an extra, empty plane. Upon inquiring at the company, the blogger was told by a GE spokesman that the board required the CEO to use corporate jets for security reasons and that the claim of “some sort of ‘chase plane’ scenario is wrong.” The blogger’s report didn’t gain any wider traction.
A few years later, the two-planes issue came up again, this time in a whistleblower letter to the board. Although the complaint was addressed to the entire group, the board never received it. Instead, the complaint was reviewed by an executive committee that included human resources head Susan Peters, Jeff Bornstein, and general counsel Brackett Denniston. The committee recommended changes, including using locally chartered planes as backups instead of flying two GE-owned planes. The committee reported its findings to independent director Sandy Warner.
But now, as Flannery took the reins, this practice had become a big problem. Shortly after Immelt stepped down as chairman, the Wall Street Journal published an article about his practice of traveling with two planes. GE and Immelt scrambled to offer evolving stories about the details of the extra jet, leaking their explanation to press outlets with claims that the Journal’s coverage wasn’t accurate or fair. In the end, they insisted that the practice had stopped in 2014. But again, flight records and other corroboration showed that it had continued until just months before Immelt left, as the Journal detailed in a subsequent story.
The rest of the board didn’t learn of the practice until the Journal report in October 2017. Shocked by the news, the board launched an internal investigation, but Immelt stuck to his shifting story. The practice had been set up by the corporate air team, and he insisted that he had barely even talked to the managers of that group during his time as CEO.
The facts still refused to line up with the explanation. People who were closely involved in the CEO’s travel said that Immelt was very particular when it came to the planes, with clear preferences about which plane he would use. He was intimately aware of how the organization worked. In the negotiations with officials in Boston over GE moving its headquarters to that city, maintaining quick access to the GE jets was a priority for Immelt.
Data showed that the double-jet trips continued until just months before the practice was exposed. A few months earlier, in March 2017, two GE-owned Bombardier Global Express jets took off from Boston within nineteen minutes of each other and flew to Anchorage, Alaska, according to government flight records reviewed by the Journal. One plane stayed in Anchorage for more than five days, while the other flew on to South Korea and China. Immelt made a very public visit to a Chinese factory during the trip. His plane returned to Anchorage on March 17, and within ninety minutes of his arrival, the records showed, both planes left Alaska to return to the East Coast.
The practice was also in place during times when GE was under investor pressure to cut spending and boost profits. Experts told the Journal that the extra plane added about $250,000 to the cost of a round-the-world trip. The large jets are the size of a regional airliner and typically configured to seat ten to fourteen passengers.
GE’s board did require the CEO to fly on the company’s aircraft for both business and personal use, for security reasons. Many large companies have similar policies. And while the use of a private jet, or two, may seem unnecessary, it can be very useful for an executive who needs to get somewhere in a hurry and not waste time. Walmart founder Sam Walton was famous for flying his own plane to get around to the company’s stores.
In the letter he ultimately wrote to GE’s lead independent director, Jack Brennan, Immelt touted his success at the company and denied any awareness that he was accompanied by another plane in his travels.
For John Flannery, the two-planes controversy reflected what he already knew: GE wasn’t the company that most people imagined. Presiding over the sprawling operations as CEO was a mind-bogglingly complex job, and it was easy to get lost in the details.
He turned to a network of former GE executives and asked them to talk about their views of the company. Regardless of their opinion of Immelt, everyone was happy to help Flannery get the best shot at running GE. Flannery even went to see Jack Welch on Nantucket. Some expected Flannery to be more like Welch and less like Immelt. In the Aviation division, some workers responded to the news of Immelt’s replacement by chanting “Jack is back.” The enthusiasm was double-edged—an endorsement of Flannery and a rebuke of Immelt.
Before taking over, Flannery traveled around the company to review operations and meet people, following a playbook he had used when taking over the Healthcare business. An inventory of the operations, he believed, would allow him to reorganize in the most efficient way possible. The problem was that, with what he was discovering, he had less time to do that than he had thought.
He still wasn’t sure if Bornstein was aware of the problems at GE. The CFO was insisting that it was all news to him, but it was hard for Flannery and some others to believe that an imperial CFO like Bornstein, with his matrix of underbosses, hadn’t known what was happening. Given that Flannery needed to trust his partner, however, and given what he had seen of the company, he thought that it might not be that far-fetched that misbehavior had been taking place right under everyone’s noses.
The lack of cash was disconcerting enough. Aside from sizing up the divisions, Flannery spent the weeks leading up to his official start on August 1 meeting with dozens of major investors, and he heard their concerns too. For many, Flannery’s financial mind-set was comforting. Unconvincing company buzzwords, like “Predix” and “the GE Store,” had simply dropped out of these conversations. When investors said that they wanted Flannery to move quickly, he told them he would need four months.
The issue was that the structure of GE made it difficult to see every aspect of its businesses at once, a complaint dating back to the days of Welch. The company had also made a habit of rearranging its business units every eighteen to twenty-four months, making comparisons and deep analysis painfully difficult. As he tried to understand the other businesses that were part of this siloed structure, Flannery found that his three decades inside the company, even running one of the major industrial divisions, were not enough to make the workings of the whole intuitive—or its biggest problems obvious. Another reshuffling of the portfolio was under way—Power merging with the Energy Connections unit—meaning that the complexity and opacity would only increase as demand for GE equipment kept falling.
On top of that, Russell Stokes, the highly regarded executive who replaced Bolze atop Power, was also running the Energy Connections business and now would be handling both divisions. Stokes was given an impossible hand to play, and he essentially had a weekend to adjust to the overloaded mission.
Stokes, who had spent more than two decades at the company and previously ran the transportation division, grew up in Cleveland going to see GE’s Christmas lights at Nela Park. Like Flannery, he scowled at the typical flood of PowerPoint presentations that came with working at GE. He would tell people that a long presentation was a bad sign, usually indicating that the presenter was hiding something. A well-run business didn’t need a lot of slides, he said, just the facts.
Flannery hadn’t picked Stokes for the job, but he was now depending on him to help turn around Power. The two of them had seen eye-to-eye on the condition of the business. Bolze and his team had let inventory pile up, hoping the market would turn around and leave GE in a prime position to sell scores of turbines. But the power market was going in the other direction, and GE now had a lot of cash tied up in that inventory. The biggest problem was that a miscalculation on inventory couldn’t be easily or quickly reversed. GE, like its customers and its suppliers, planned its manufacturing out months in advance. Even now, long after the folly of Bolze’s investments was clear, it would take even longer to unwind the massive oversupply of turbines and parts that Power had accumulated.
Power was the biggest division, and especially in the wake of the Alstom deal, it simply had to succeed for GE to be healthy. The other divisions could help offset the issues, Flannery knew, but that left little room for error. And he sensed that slim margin was about to disappear.
Toward the end of July, GE reported its second-quarter financial results. The conference call with investors was awkward. Immelt was on the line along with Flannery and Bornstein. The executives were clear that the Power division faced shifting winds, demand would be down for the year, and it now expected a decline for 2018 too.
Immelt, with just ten days left as CEO, pushed back with his customary optimism. “We have pressure in Power and Oil & Gas, but we will outperform on structural cost-out,” he said, using the GE lingo for cutting fixed costs in a business. He mentioned the same idea later, only to be followed by Bornstein nudging back.
“There is both an opportunity and a necessity to restructure the cost structure of this business, given the market that we are operating in,” Bornstein said. The executives went back and forth as Immelt injected his optimistic view and others pushed back with a more measured view. Flannery noted that he would present his assessment in November.
In what seemed like a parting shot in his last appearance to investors, Immelt professed dedication to the dividend. He reminded investors that the worst day of his life had been the day he cut the dividend in the crisis. He said that GE prioritized the dividend, “whoever our CEO is.” Meanwhile, Flannery was coming to the exact opposite conclusion: GE wasn’t making enough cash to cover its dividend payments and hadn’t covered it in years. Immelt’s pivot wasn’t working. And GE couldn’t afford to keep shoveling billions out the door each quarter to investors, as much as they had come to depend on their dividend payouts.
Perhaps the most ominous moment of the earnings circus was what happened prior to the news. As the executives were preparing and rehearsing for the event, Jeff Bornstein spoke up to the investment relations team.
“Oh, we should mention the insurance review,” he said.
Flannery’s head immediately turned—insurance? GE had said that it sold all its insurance holdings long ago.