{"id":21634,"date":"2021-01-12T12:05:07","date_gmt":"2021-01-12T12:05:07","guid":{"rendered":"https:\/\/www.ceo-na.com\/?p=21634"},"modified":"2021-01-12T18:43:03","modified_gmt":"2021-01-12T18:43:03","slug":"turning-a-giant-around","status":"publish","type":"post","link":"http:\/\/servidor-mxigen1.com\/ceona-antiguo\/executive-interviews\/turning-a-giant-around\/","title":{"rendered":"The giant cannot stop"},"content":{"rendered":"

General Electric\u2019s board extended CEO Larry Culp\u2019s contract by two years amid the pandemic.<\/p>\n

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Despite the pandemic has upended his plan to turn around the ailing industrial giant, there is still future for Larry Culp at General Electric (GE), as he will lead the company through at least August 2024 with the option for a one-year extension after that, the company said in a regulatory\u00a0filing<\/a>. The board also revised how Culp would be compensated, making it easier for him to take home as much as $230 million at the end of his contract.<\/p>\n

Long before the pandemic, when H. Lawrence, aka \u201cLarry,\u201d Culp took over as CEO of General Electric (GE) in October\u2014the first ever company outsider to take on the role\u2014he faced no small challenge: turn around one of the historic giants of US industry, which had seen its stock price fall by two thirds between 2016 and 2018 amid a corporate meltdown like few in recent memory. Yet Culp has performed this kind of heroic feat before. Over the course of fourteen years as CEO of Danaher Corporation, he quintupled revenue at the global science and technology conglomerate and won praise for his business philosophy and shrewd eye for acquisitions. In 2014, Culp was named one of the Top 50 CEOs in the world by Harvard Business Review.<\/p>\n

\u201cHe\u2019s an outsider, and maybe it\u2019s going to take an outsider to come in and fix this thing,\u201d Scott Davis, an analyst with Melius Research, told Bloomberg upon Culp\u2019s appointment at GE.<\/p>\n

Operating in the healthcare, energy, and finance sectors, among others, GE is the eighteenth largest company in the US with global revenue of $121.6 billion in 2018. Incorporated in Boston 127 years ago, it is also an American icon. Yet amid accusations of poor capital allocation, culture, and management, the once-profitable conglomerate has gained a reputation as a wounded giant\u2014albeit one with enormous potential for recovery.<\/p>\n

Culp\u2019s appointment certainly sparked renewed optimism. Shares in the company rose by an impressive 7.1% upon news he had accepted the offer to take the helm\u2014 their most impressive rally in nine years\u2014 while GE recently announced that profit from continuing operations more than tripled in 2018.<\/p>\n<\/div>

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A MAN WITH A PLAN<\/b><\/h3>\n

Born in Washington, DC, in 1964, Larry Culp graduated from Washington College and the Harvard Business School before joining Danaher in 1990. \u201cIt is hard to refute Larry Culp\u2019s track record and accomplishments at Danaher,\u201d Steve Winoker, an analyst at UBS Group AG, said in a note to clients upon the former\u2019s appointment at GE. \u201cHigh performance culture and strategy were hallmarks of the company.\u201d<\/p>\n

Culp turned things around at Danaher Corporation in large part by employing the legendary Toyota Production System (TPS), founded on the principles of long-term philosophy, respect for staff and partners, and minimizing waste. Applying the process at almost every level from HR to R&D, Culp would rechristen TPS \u201cThe Danaher Business System\u201d; more recently, it has become known more widely as Lean Production. Yet always modest, Culp himself has termed the philosophy \u201ccommon sense, vigorously applied.\u201d<\/p>\n

Danaher\u2019s market capitalization grew from $9.7 billion to $50 billion under thirteen years of Culp\u2019s leadership, which saw the deployment of some $25 billion in capital as he steadily expanded the company into healthcare and environmental businesses. He also grew revenues, with 2009 representing the only negative year of sales growth while he was in charge. Shares rose by 400% during his tenure.<\/p>\n

Upon taking over at GE, Culp reportedly told staff that \u201ceverything is on the table\u201d with a view to reviving the fallen industrial giant. Yet the problems facing the company in 2019 are considerable. Put simply, GE is in a very different starting position than Danaher was in terms of balance sheet and cash challenges.<\/p>\n<\/div>

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A WOUNDED GIANT<\/b><\/h3>\n

Interestingly, Culp was promoted to CEO at Danaher the same year that Jeff Immelt started his 16-year tenure at GE. A look at the price charts of their stocks during those years tells a story about the careers of both men.<\/p>\n

In fairness, Immelt\u2019s tenure got off to an unimaginably tough start; it began just four days before 9\/11. Airplanes, one of them powered by GE engines, crashed into the World Trade Center towers, which were insured by GE Capital. Air travel demand contracted violently, hobbling GE\u2019s business as the world\u2019s largest lessor of planes.<\/p>\n

In the coming years, Immelt did hundreds of deals, once claiming to be the only CEO to have ever bought and sold over $100 billion of companies. Among those deals were some big winners (Enron\u2019s wind turbine manufacturing assets, for example), but also significant losers (GE Capital and GE Homeland Security.) Indeed, when asked to explain how GE landed itself in crisis, the most common answer given by analysts, customers, vendors, competitors, and former executives and directors has generally been \u201ccapital allocation.\u201d<\/p>\n

Management of human capital and culture have also been cited as contributors to GE\u2019s woes. After he took over as CEO in August 2017, John Flannery clearly wasn\u2019t happy with the team he inherited. Between Immelt\u2019s exit and the first six months of Flannery\u2019s year in charge, the CFO (who was also a vice chair), two of the three other vice chairs, the head of the largest business, various other executives, and half the board of directors exited the scene.<\/p>\n

Flannery took charge vowing to trim GE down to three core businesses, but he lasted in the role little over a year. A year ago, the company announced it would spin off its healthcare division, separate out its interest in its Baker Hughes energy business, and take additional steps to shrink GE Capital in a landmark breakup.<\/p>\n<\/div>

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REVIVING FORTUNES<\/b><\/h3>\n

Larry Culp was thus brought into the CEO role at GE to carry out a rescue mission, and the initial signs have been positive. In a conference call with analysts to promote GE\u2019s annual report in April, he announced that along with increased profits in its aviation, energy, and healthcare units, negative cash flow from industrial business was $1.2 billion, much less than the $2.16 billion outflow that analysts, on average, were expecting. Shares rose by 5% at the news.<\/p>\n

\u201cWe saw progress in the first quarter as we continued to execute on our priorities to improve our financial position,\u201d Culp told analysts, while cautioning that the company faced a \u201cmultiyear transformation\u201d. \u201cOne quarter is a data point, not a trend,\u201d he warned.<\/p>\n

Profit margins contracted at GE\u2019s aviation, power and renewable energy businesses, the three core units that GE plans to retain as it proceeds with the aforementioned breakup. For example, while the Boston-based conglomerate stuck to its full-year financial forecast, Culp noted \u201cnew risk\u201d from Boeing Co\u2019s 737 MAX jet, for which GE manufactures engines with partner Safran SA of France.<\/p>\n<\/div>

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The model was grounded worldwide last month after a second fatal accident in less than five months.<\/p>\n

Yet GE has also made several important moves during the first quarter of this year, announcing the sale of its BioPharma business to Culp\u2019s old firm Danaher for $20 billion, completing the merger of GE Transportation and passenger rail company Wabtec, and seeing its HA gas turbine technology selected for the 485-MW Long Ridge Energy Generation LLC Project in Hannibal, Ohio, which is set to begin construction later this year.<\/p>\n

\u201cI am encouraged by the improvements we are making inside GE,\u201d Culp said in the conference call. \u201cWe continue to focus on reducing leverage and improving the underlying performance of our businesses to create long-term value for our customers, employees, and shareholders.\u201d<\/p>\n<\/div>

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