June 12, 2017 / 4:03 PM / 6 months ago

GE's CEO choice pushes the boundaries

NEW YORK (Reuters Breakingviews) - General Electric has seen the future: it is both stateless and globalist. With the anointment of John Flannery to succeed Jeffrey Immelt as chief executive, the $255 billion industrial titan appears to be doubling down on a strategy that transcends its American roots. Flannery has spent much of his career engineering growth abroad. He’s also no stranger to restructuring.

General Electric Chairman and CEO Jeffrey Immelt (C), Senior Vice President for Corporate Business Development John Flannery and Clara Gaymard (L), the head of GE France, leave after a meeting with French President to discuss the future of French engineering group Alstom at the Elysee Palace in Paris, May 28, 2014. REUTERS/Christian Hartmann

Despite the worldwide upheaval confronting chieftains of multinational companies, Flannery has been dealt a better hand. Immelt took over a GE addicted to finance, willing to prostitute the stellar credit ratings of its world-class manufacturing and engineering capabilities for a quick buck. Over his tenure, which started ominously on Sept. 11, 2001, Immelt did wean the company off $260 billion of financial assets, but only after the crisis forced his hand. He also divested appliances, plastics and media.

For all this reimagining of GE, which included moving the headquarters to Boston and a plunge into the industrial internet, Immelt has been dogged by a poorly performing stock. GE returned $143 billion in dividends to shareholders under his stewardship, but the shares also have tumbled by some 30 percent.

Although Flannery most recently has been running the company’s subscale healthcare division, he has pranced across GE’s landscape. His corporate bio begins in evaluating risk for leveraged buyouts. Since then, it has been a global grand tour, running businesses across Asia and in India and Argentina. This is evidence of how GE’s growth resides in places where thirst for power, transportation, energy and healthcare – all of which GE’s products aim to sate – will be in greater demand, even as Immelt professed last year that protectionist tendencies worldwide means “companies must navigate the world on their own.”

The Allman Brothers fan will have the difficult task of reassuring executives running GE’s divisions, many of whom probably fancied themselves Immelt’s rightful successor, that their future is peachy. Immelt’s ascension to replace Jack Welch led to defections. Flannery also will need to reassure shareholders, including Nelson Peltz’s Trian, whose arrival probably greased the skids for his appointment.

To satisfy these and other constituents, Flannery may have to mine the more radical elements of Immelt’s strategy. A merger and spinoff of the oil and gas division with Baker Hughes, for example, creates a separate and listed enterprise where GE calls the shots. That blueprint could have wider application. As the company embarks on localizing geographically, it also could become more of a federation operationally. In that sense, Immelt’s murky legacy may be dependent on Flannery.


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