Open Letter To Larry Culp, GE’s New CEO
Dear Mr. Culp,
I wish you the best in your new challenge. This Motley Fool article about your background is encouraging.
Why am I writing this?
During the Jack Welch era, GE contracted with my training company, Value Selling. GE’s needs were different. Jack’s vision was clear. Each business was required to grow market share and improve their profit margins – even if they sold commodity products.
Professor Noel Tichy defined corporate culture as – “The unwritten norms, beliefs and values that define appropriate behavior.” Our challenge was to assist with changing the culture of the sales force from order takers to consultants; part of the inner circle of profit improvers for their major customers.
Several clients funded a research project. I researched their top salespeople. What did these elite performers do that set them apart? I was amazed; it made little difference whether they sold high tech products or commodities, or where they fit in the distribution channel, conceptually they were all doing the same thing.
We built a new training program for GE. Salespeople and managers were taught to interact at the highest levels of management and function as customer profit improvers.
It was almost comical. A competitor would offer a price concession. The GE team would meet with the top management and ask, “What’s your biggest problem?” We heard things like health care costs or implementing quality improvement programs. GE leveraged their resources, brought in workout teams to help their clients improve their productivity and profits. In turn, GE held their pricing and EARNED a larger share of their business.
My GE contact was promoted to a top marketing job in an operating division. In the first year, his team increased sales by 40% and improved gross profit margin by around 2%. Their products were generally no better than the competition. GE EARNED their position by helping their customers improve their profitability.
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A recent Carrier Journal article, “General Electric’s downward spiral continues to slam retirees” quotes retired employee, Jerry Payton:
“We were a bunch of cocky people back then. We were the best. We had the best CEO. It was like being on the Alabama football team.”
As a GE contractor, I too felt proud to be associated with the company. The sales teams I worked with had a sincere and genuine concern for their customers. Helping their customers grow profitably was how GE grew their business.
Things began to change
When the Jeffrey Immelt transition began, the corporate level began to exert more control on the operating businesses. Personal compensation plans and short-term thinking took priority over long-term results. They began bullying vendors.
GE finance dragged out vendor payments, freeing up billions in working capital by not paying their bills on time. In one situation GE was buying several million each month from a vendor and arbitrarily began paying them in 90 days. A manager/friend I worked with pushed back. The vendor was also their customer – buying twice as much from GE each month. GE finance didn’t listen; soon the vendor was paying GE in 90 days. My friend received bad performance reviews through no fault of his own.
Despite the emphasis on higher sales and gross profit margins, at the end of each quarter customers were offered huge discounts to move orders forward so the business could “make their numbers”. Customers learned to hold back orders, knowing GE would make price concessions. Millions of gross profit dollars were lost while bonuses were paid rewarding short-term thinking.
GE ignored a fundamental premise, “All things being equal, you should buy the lowest price.” When a seller matches a competitive price, they are telling the customer “all things are equal!” A high-value seller matching the lowest bid prices in the market is a recipe for disaster.
Corporate demanded cost cuts with full knowledge it would hurt GE’s ability to serve the customer. I heard countless stories about divisional pushback falling on deaf ears.
Many field managers were part of their client’s inner circle of confidants. They had built true partnerships with GE. One friend continued to push back and finally accepted early retirement. Rumor was he was labeled “not a team player.” Many excellent executives moved on to great careers with other companies.
Sad, but true
While I never met Jack Welch, I followed him on Twitter – until the day I commented, “Jack I find it sad that Jeff Immelt destroyed everything you built in five years.” I got kicked off the Twitter feed in a matter of minutes.
The Immelt Legacy
GE was part of the Dow Jones index for over a century, but not anymore.
GE’s former excellent bond rating is now in the cellar.
MarketWatch outlines GE’s questionable accounting practices.
MarketWatch also quotes Danielle DiMartino Booth, “5 companies that spent lavishly on stock buybacks while pension funding lagged.” GE made the list of the five worst offenders.
It was reported that GE’s pension shortfall was approximately $29 billion. How “offensive” was the stock buyback?
CNN Money reports, “GE’s $24 billion buyback boondoggle.”
“If only former CEO Jeff Immelt hadn’t gone on a $24 billion spending spree in 2016 and 2017 to buy back GE’s (GE) stock – at what turned out to be extremely high prices.
Using a combination of debt and cash, GE spent $2.6 billion last year on stock buybacks – at an average price of $19.65….
GE’s buybacks were much worse in 2016. It spent $21.4 billion at an average price of $30.30….”
Mr. Immelt, with approval of the board, was guilty of allowing personal compensation plans to guide some short-term thinking. GE stock closed the year under $8/share. The loss on the buybacks is close to $18 billion.
|GE would be much better off today if the $24 billion had been used to properly fund the pension plan!|
And finally, Mr. Immelt failed in one of his most important duties. Good managers groom successors so there are many good candidates to choose from. GE, hiring you from the outside, is an admission of failure!
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Fixing the mess you inherited
Mr. Culp, my heart is with GE. Many friends are frightened. Not only have they suffered as GE stock plummeted, they are also very worried their pensions will be cut through no fault of their own.
I read your recent comments. You have a great sense of urgency to get the debt level down, analyze what businesses you want to keep and assets you need to sell.
Jack Welch said, “The challenge is like changing a tire while you are driving down the road.”
As a retiree, I write a newsletter for seniors and savers. It saddens me to tell my readers to avoid GE stocks/bonds.
Here is what I feel needs to be done to right the ship.
Run GE like you are the founder. I never recall Bill Gates or Steve Jobs being overly concerned about the quarterly mayhem surrounding Wall Street estimates. What is right for GE’s customers, employees and stockholders over the long haul? Screw the 90-day hysteria! Do the right thing and stockholders will be well rewarded.
Honor your commitments. While GE borrowed many billions of dollars, your pension commitments are also contractual/moral obligations. While it may be easier to weasel out of those commitments – honor them, you will be head and shoulders above the rest.
Put your customers first. No business remains successful without a good product and company – that treats their customers properly. Thrive on repeat business. EARN your keep. It is possible to sell commodity products at premium prices, GE proved it.
Compensate your people properly. Good compensation plans reward those who improve profits by doing what is right. Compensation plans fostering a culture of short-term thinking to make a bonus – at the expense of long-term profits – has the opposite effect. The $24 billion stock buyback is a perfect example – done at the highest level.
If you find short-term thinkers trying to capture bonuses for the wrong reasons, loudly fire them! GE’s culture must be changed!
Make your vision clear and easily understood. Once you have done your due-diligence, I’m sure you will put together a short-term plan to stop the bleeding, along with a long-term vision.
Unlike the once mighty Eastman Kodak or Sears, GE is not a one trick pony. Sell that vision to the board, stockholders and employees. Stick to the plan and ignore the quarterly Wall Street hype. A realistic, clearly understood plan will cause investors to flock back to GE.
Dare to be different! Much of my criticism of GE can be leveled at all of corporate America. Wasting billions in stock buybacks while the market is at all-time highs is ridiculous. Your competition is corporate America bidding for investors money. Lead the pack and money will follow.
Mr. Culp, you have a wonderful opportunity. You get to rebuild a great company and have resources to do so. How cool is that?
Build your plan, treat your customers, employees and owners fairly. People will be amazed at how quickly things will improve.
Our readers are baby-boomers and retirees. Today your stock is too risky for them. Sell us your vision and show us you can do it. I look forward to the day when GE can once again “be the best!”
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On The Lighter Side
I’m happy to report Northwestern won their bowl game on New Year’s Eve. It was an exciting, come-from-behind victory.
Last week we saw morning temperatures below freezing here in the Arizona valley, which is unusual. Covering up cactus plants with sheets in the dark of night can be a challenge.
NFL playoffs have started and it’s hard to believe, spring training baseball tickets go on sale next week.
Thanks again to all the readers who helped out by doing their Amazon shopping through the link on our website.
Good friend Bob O. shares some interesting observations about life:
- No one ever says, “It’s only a game!” when their team’s winning.
- Wouldn’t you know it! Brain cells come and brain cells go, but FAT cells live forever.
- I signed up for an exercise class and was told to wear loose fitting clothing. If I had any loose-fitting clothing, I wouldn’t need the doggone class!
And my favorite:
- Every day I beat my previous record of consecutive days I’ve stayed alive.
Until next time…
Dennis, Than you for your Letter. Good, but afraid too late advise… I left GE a year ago, and from my perspective the biggest problem there is the “old style” management team and their capability to deliver value, not numbers. Past 15 years forms a leadership team mostly concentrated on numbers, rather than Custmers and Values. Those who were capable to deliver already left company.
Thanks for taking the time to write. I hope that bringing in an outsider will rekindle much of what you referred to. If not, GE will turn into another typical Wall Street joke, dancing to the quarterly estimates while retirees and investors catch the flack.