By Thomas Gryta and Joann S. Lublin
John Flannery, the leader of General Electric Co. for just 2 1/2
months, has already begun dismantling the legacy of his
predecessor, including the planes.
For much of Jeff Immelt's 16-year run atop one of the world's
largest conglomerates, an empty business jet followed his GE-owned
plane on some trips to destinations around the world, according to
people familiar with the matter. The two jets sometimes parked far
apart so they wouldn't attract attention, and flight crews were
told to not openly discuss the empty plane, the people said.
The second plane was a spare in case Mr. Immelt's jet had
mechanical problems. A GE spokeswoman said that "two planes were
used on limited occasions for business-critical or security
purposes." Mr. Immelt didn't respond to requests for comment.
When Mr. Flannery took over on Aug. 1, one of his first
belt-tightening moves was to ground GE's entire fleet of six
business jets, and that's just the beginning.
Next month, Mr. Flannery is expected to unveil the results of a
strategic review that includes thousands of corporate-level job
cuts and scaling back of GE's global structure, people familiar
with the matter said.
The new CEO is shutting down research centers in Shanghai,
Munich and Rio de Janeiro, shifting some of their engineering work
into individual business units, the people said. The retrenchment
will leave GE, which spent more than $5 billion on research and
development last year, with just two global research sites, located
in Niskayuna, N.Y., and Bangalore, India.
Asked about the looming changes, the GE spokeswoman said: "The
company will continue to have an intense focus on our global
operations and customer base," noting that the company gets 70% of
its revenue from outside the U.S.
The company is expected to report quarterly results on Friday
that include hefty restructuring charges related to the changes,
according to analysts.
Mr. Flannery, a GE lifer who is 56 years old, made clear when he
was named Mr. Immelt's successor that he was open to wrenching
changes. Some of the restructuring moves under way suggest the
company could be in worse shape than many outsiders previously
thought.
GE is under intense pressure to cut costs and end a stock-price
slide that includes a decline of more than 25% this year, erasing
nearly $80 billion in value. At the same time, the broader stock
market has hit records.
Investors are bracing for the Boston company to cut profit
forecasts and possibly reduce its dividend, despite promises by GE
that the payout is safe. "The dividend remains a top priority," the
GE spokeswoman said.
Martin Sankey, a senior research analyst at mutual-fund giant
Neuberger Berman who has followed GE since the 1980s, said it "has
gone off the rails" in managing costs. The mutual-fund firm owns
about 2.4 million shares of GE, according to a spokesman.
Profit margins at GE's business segments are close to
competitors in those sectors, Mr. Sankey said, but the consolidated
margins of the entire company lag behind other conglomerates. GE's
gross margin was 21.3% last year, compared with 29.9% at Siemens AG
and 27.9% at United Technologies Corp.
Mr. Flannery has told people there are "no sacred cows" in his
strategic review. GE has operations in more than 180 countries and
is one of the biggest makers of jet engines, power-plant turbines
and MRI machines. He made a similar vow several years ago when he
led the deal-making team that moved to shrink GE Capital and sell
GE Appliances. He spent most of his career in GE's finance unit and
took over GE Healthcare in 2014.
"Good intentions and hard work count for something -- but in the
end the only real scorecard is what were the results of all that,"
he wrote in a letter to employees on his first day as CEO.
Including dividends, GE's stock gained 8.2% with Mr. Immelt at the
helm, compared with a 213% rise in the S&P 500.
In March, Mr. Immelt pledged to cut $2 billion from the
company's annual industrial expenses over two years, while tying
part of executive bonuses to that target. It was a concession to
activist investor Trian Fund Management LP, which bought a large
stake in GE in 2015 and grew frustrated with the company's
turnaround progress.
Until his departure, Mr. Immelt continued to invest in marketing
and digital efforts, hiring thousands of software programmers in
recent years. He announced plans to relocate GE's headquarters to
Boston from Fairfield, Conn., partly to be closer to younger
workers and software talent.
After taking over, Mr. Flannery delayed part of the headquarters
project, a futuristic, 12-story glass tower on the Boston
waterfront with a veil of solar panels on its roof. Earlier this
month, he agreed to give a Trian executive one of GE's board seats
rather than risk losing a proxy fight.
Trian's representative hasn't attended a board meeting yet, and
Trian has had no direct say in the moves by the new CEO, according
to people familiar with the matter.
In recent weeks, when the heads of GE's major businesses
presented their 2018 budget plans and projections, Mr. Flannery
sent some executives back to redo the numbers with deeper cuts,
said people familiar with the process. Three top lieutenants to Mr.
Immelt are leaving at year's end.
Mr. Flannery recently told people at GE headquarters the company
will be more open about its problems and that his turnaround
efforts will be best measured by the company's share price.
Mr. Flannery has been answering employee questions in an
internal video that goes out every Friday. He recently responded to
a question about top executives getting company cars by disclosing
that he was killing the program, according to people familiar with
the matter.
The perk was started by Jack Welch, who ran the company for two
decades, and benefited about 125 executives. Under his successor,
Mr. Immelt, the company-car program was extended to roughly 700
executives.
GE's new chief also is canceling an annual three-day,
invitation-only retreat to the Boca Raton Resort & Club, a
networking event for GE leaders scattered around the globe, who
spent afternoons in Florida golfing and fishing, people familiar
with the matter said. On the final evening, the CEO doled
sought-after internal awards.
Mr. Flannery plans to replace the event with a slimmed-down
version in January in Boston, which will be attended by fewer
participants. Besides saving money, a former GE executive said, the
winter event will deliver a message from the new boss: "There's no
time for sunshine."
--Ted Mann contributed to this article.
(END) Dow Jones Newswires
October 18, 2017 15:24 ET (19:24 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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