There’s no doubt there will be many in the local market watching the implosion of US industrial giant General Electric with a certain grim fascination.

On Monday night, the company dumped its chief executive of just 14 months, John Flannery, and replaced him with Larry Culp, who will hold the CEO and chairman roles.

Culp is the first outsider appointed to lead the business in its 126-year history. Only 14 CEOs have ever run the place, which says all you need to know about why Flannery’s sudden departure is such a major event

While GE has always had extensive operations in this country, the company’s impact has always had a much longer reach than that.

While GE has always extensive operations in this country, the company's impact has always had a much longer reach than that.
While GE has always extensive operations in this country, the company’s impact has always had a much longer reach than that.


This was an empire that seemed impregnable, and stood for everything great about business – a company that had grown up alongside the US economy, but had always managed to move with the times and innovate. The vaunted “GE Way” developed by former GE chief Jack Welch became so ubiquitous that every second Power Point presentation included a pithy quote from it once upon a time.


Less than three years ago, GE was worth $US310 billion; on Monday night its market value hovered just about $US100 billion ($139 billion). By way of comparison, Apple’s market value has increased to $US1.1 trillion from $US651 million over that period.

Flannery’s attempts to turn around the business – cutting costs by grounding the corporate jet fleet, selling off and shrinking business units and slashing its dividend in half to steady the ship – were not enough to offset the troubles in its power division, which has taken series of hits in recent years.

Indeed, along with announcing Culp’s appointment, and warning that it will fall short of guidance when it reports its earnings later this month, GE announced that it would take a $US23 billion charge on the value of goodwill in its power business, effectively writing that down to zero.

It is this incredible impairment that should provide the most immediate lesson to Australian leaders and managers.

GE naturally tried to minimise the impact of this write-down (which is worth $32 billion in our local currency) by describing it as non-cash item.

It’s a common strategy all over the world, and one regularly seen in Australia, to the chagrin of many institutional investors, including Matt Williams at Airlie Funds Management and Paul Skamvougeras at Perpetual. Because while there might not be shareholder cash changing hands now, there certainly was before.

The power problems can be traced directly back to GE’s $US10.3 billion acquisition of the power business of French Group Alstom in 2015. The deal greatly increased GE’s exposure to gas, coal and nuclear power, and added employees and operations at a time that GE was trying to cut costs.

While the deal was done under previous chief executive Jeff Immelt, the departing Flannery was in charge of M&A at the time.

The sheer size of the charge taken by GE on Monday night makes it impossible to ignore. Its likely impact on the company’s credit rating will ensure it’s never forgotten.

But the $US23 billion charge should be a reminder to local investors to closely watch any impairment described as non-cash.

These are signposts of past mistakes made – of capital mis-allocated, of bonuses paid that shouldn’t have been, of time and resources and cash wasted.

Flannery has been made accountable at GE, but it’s rare that anyone ever takes the fall. Investors shouldn’t be believe that these non-cash items are non-events.

Just finally, if Australian investors can take solace from one part of the GE disaster it’s the fact that Culp would never have been handed the dual roles of chief executive and chairman if this was an Australian company.

If there’s ever a group that needs an independent chair, surely this is it.

James Thomson

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