IN AUGUST 2017, the top GE executives descended on Crotonville for their annual leadership gathering.
Many visited the campus at various times during the year, taking classes and teaching classes. There they mingled with middle managers, customers, and executives from other companies who wanted to learn the GE leadership magic. The summer leadership meetings usually left executives refreshed and reassured that the foundation of GE’s success was not merely power turbines or jet engines so much as the people in that room—the managers groomed in Crotonville who believed that they could enter any industry, anywhere, and dominate it.
In 2017, the annual pilgrimage was different. The stock price had been slumping, and many in the company were still trying to get a picture of the future of GE in the wake of Immelt’s sixteen years at the helm. Flannery, they knew, had started a months-long review of every corner of the company, and the company’s uncertain state had made a lot of people nervous.
On that summer afternoon, the auditorium buzzed with whispers about what lay ahead. Regardless of the uncertainty, no one doubted the 125-year-old company’s ability to rise again. It always had.
Flannery addressed the group, laying out many details of the company’s operations that he was finding out for the first time. In stark and jarring contrast to Immelt’s shining positivity and predictable pep talks, Flannery said that the state of the company was bad and the future was probably worse. Immelt had never given a speech that portrayed the company as facing danger, or even dire challenges. But it wasn’t Flannery and his sobering comments that the attendees would remember later about that day.
Next came Jeff Bornstein, who many had once thought would be CEO someday. He had been a counterbalance to Immelt and was generally respected by Wall Street. Many in the room felt comforted that he had committed to GE and to helping Flannery navigate the job.
Now Bornstein launched into an exhortation: Run the company like you own it. Be the leaders General Electric bred you to be. You should all be accountable for every prediction made and every target missed.
“I love this company,” he said. Then he stopped and took a breath, deep and halting. He started up, and stopped again. Jeff Bornstein, the muscled, nicotine-gum-chomping, weightlifting, hard-driving CFO, was . . . crying.
The reaction in the room was confused and inconsistent. Some thanked Bornstein for his passion, while others left the bizarre scene wary. If this guy was fighting back tears, something must be seriously wrong. The group shuffled out in shock and confusion. Flannery and Bornstein had hammered away at some of GE’s intractable bad habits, but there had been no bombshells revealed. Still, stress and strain had reduced one of their toughest tough guys to tears. The moment would linger in the minds of GE people for years—a revelation, in retrospect. That was the moment many of them realized GE was taking on water, and that no one knew how bad it was going to get.
Investors by now were braced for the company to cut profit forecasts and possibly reduce its dividend, despite promises by GE that the payout was safe. For some, shrinking the dividend would have come as a positive move because it would alleviate cash fears and signal that management was taking aggressive action at last.
Flannery agreed, but thought he needed more time. He simply didn’t have all the information he needed.
If Immelt was known for his vaulting optimism, Flannery soon became known for his indecision and endless analysis. Few decisions, even major ones, were final. A critical strategic move, like the separation of a major division, could be made, only to be reassessed at any time. Flannery’s style was quickly grating on top executives who worked with him.
The complexity of GE and its problems required true commitment to decisions; otherwise the process would get bogged down. Searching for flaws in his own reasoning, Flannery regularly sought input from outsiders. But an abundance of feedback prevented any path forward from looking crystal clear, and the result was more indecision. Flannery was always conferring with the board and openly encouraging debate. Some directors grew frustrated.
Those on the board who worried about Flannery and his lack of experience running the company found comfort in the slate of advisers who were sticking around. Company veterans John Rice and Beth Comstock, both vice chairs, could lend a guiding hand, and Jeff Bornstein, the freshly minted vice chair, served essentially as a partner to Flannery. But as summer turned to fall in 2017, that network was quickly purged.
On the outside looking in, Immelt had chosen not to stick around for the new CEO to dismantle what he had left behind rather than risk a standoff with Trian. Immelt stepped down as chairman in October, months earlier than expected. He broke, at last, with the company and Flannery, and the board.
Flannery started making big changes at the top of the company. He started with those advisers who were high-ranking veterans of the Immelt era. Comstock and Rice were shown the door.
Comstock would later say that Flannery personally fired her and that she was shocked by that. But Comstock had already told people that she had long wanted to leave and stayed only at Immelt’s request. Beth was distancing herself. And Flannery wanted to run the business without worrying about fitting the strategy into a story line or selling that story to the public. He was closing the GE Store.
Even after Flannery said goodbye to Immelt and fired his holdovers, his third move was the most stunning. It became public in a late Friday regulatory filing to the government.
As the board was gathering in October for a monthly meeting, Flannery stepped into the room to make an announcement: Bornstein was resigning. Bornstein himself later came in to explain his decision. GE would probably have to offer Trian a seat on the board. His departure before that happened might spare directors some conflict between Trian and management. Bornstein would leave GE along with Comstock and Rice.
This resignation blindsided several directors, who were disappointed that the board hadn’t been consulted. They felt that they could have persuaded Bornstein to stay on. Investors were also worried by the CFO’s resignation. In previous corporate meltdowns, the sudden resignation of the CFO was usually a bad sign that hinted at deep problems.
The next big move came on the following Monday: GE named Trian’s Ed Garden to its board, giving the activist a direct say in decisions and access to its financial details. The move, stemming from GE’s failure to hit the agreed cost-cutting and performance targets, was the same deal hatched in Bornstein’s Back Bay townhouse months before. GE’s failure to hit its targets had finally let a wolf in the door.
Flannery and the board wanted to avoid the distraction of a potential proxy fight, and no directors opposed Garden’s selection. Some welcomed the new voice into the discussion, even if Garden could be abrasive at times, while others on the board bluntly declared their distaste for the activist. He was fond of telling the group that Trian had lost $1 billion on their watch. James Tisch, the longtime director who ran Loews Corporation, bought $54 million in stock partly to rebut Garden’s exhortations that the board didn’t have skin in the game.
Now on the inside, Garden was in a familiar role for him and his Trian colleagues. The GE investment was perhaps the only time that the fund had invested in a business without obtaining a seat on the board of directors. In most of Trian’s investments, they played the role of “highly engaged shareowners.” Garden and Peltz liked to say that they brought a private equity mind-set to the public markets—reviewing numbers alongside management, second-guessing decisions, and setting strategy.
Immelt and some of the more entrenched directors scoffed at letting Trian on the board. Once Garden took his board seat, there were open arguments and plenty of tension. In his first board meeting, he dressed down a junior executive who was giving a presentation. Some of the directors respected his intelligence and experience and valued his opinion, but seethed at his communication methods. They felt that he talked down to colleagues, and his view of them as ineffective was insulting. It also was becoming clear that a lot of directors would lose their seats.
Other directors warmly welcomed Garden, even if he was a complicated character. He could be blunt and gruff, but he was there to help solve the numerous problems facing the company. Trian had already lost a lot of money trusting GE leadership. These directors recognized that pushing the board in new directions was Garden’s job. As the company collapsed and the stock dropped, Garden personified the frustration and anger directed at the company by all investors.
With some directors sleeping during board meetings and some seeming more interested in the corporate jet and other perks, many on the board recognized that it had become dysfunctional and were eager for Trian’s presence. Wall Street agreed. “Nelson Peltz is a genius,” tweeted Josh Brown, the financial adviser and investment pundit. “When he asks for a board seat, you give it to him and say thank you for helping.”
In Immelt’s absence and with new challenges looming, some directors were ready to move on. For example, Lowell McAdam, the sixty-one-year-old chairman and CEO of Verizon, was having concerns about remaining on the GE board. McAdam had run a tight ship at Verizon and shown an unceasing ability to find cost savings in the operations. He was a Cornell-educated engineer and had served six years in the US Navy. McAdam had taken a GE board seat as he began to think about stepping back from Verizon and his years of nonstop work. And a GE directorship was still considered an enviable sinecure. McAdam had been honored and excited to join the conglomerate. As a car collector and general lover of machines, he was intrigued by GE’s heavy industry.
But the experiences of his short stint sent him running. The board was openly dysfunctional, problems at the company were deep and troubling, and serving GE in this hectic period was more time-consuming than he had bargained for. The GE board typically huddled a dozen times a year. Under Flannery, it convened nearly fifty times.
When it became clear that Flannery was going to shrink the board, McAdam saw his opportunity to step down. He had a company to run. He wasn’t sure what was going to happen to GE.
Garden, meanwhile, wasn’t coming onto the board alone. This was Trian’s biggest investment ever, and it had an entire staff devoted to the GE operation, including an analyst who essentially spent all his time on GE.
They ripped every layer of the onion apart once they were inside, with few limits. Being on the board gave Trian substantially more insight into the company, but it also presented limitations: now considered insiders under securities law, Trian would be prohibited from acting on any nonpublic information it obtained by being on the board. Ed Garden had the raw numbers he needed about GE’s inner workings. But now his hands were tied.