First of all, it was never about speed. I keep reading that the board of General Electric (GE) was unhappy with the speed with which John Flannery was running GE.
It was about the charges, the unexpected charges that, quite frankly, shouldn't have been unexpected.
When John Flannery inherited General Electric, I called for the financial equivalent of a Truth and Reconciliation Commission to deal with the mistakes of Jeff Immelt, the previous CEO. I said it was necessary to attack the errors by the previous CEO root and branch, because they were that grave.
It was an open secret that the problems at GE were grave. All you had to do was read the research. If you just read the research of Steve Tusa at JPMorgan, who was on to Immelt and the wayward nature of his buy-high-sell-low philosophy, then you would be able to address how bad things really were -- and are.
Let's take long-term care. This was long an asterisk to the ridiculously opaque financials. GE had offloaded insurance to Genworth Financial (GNW) -- but kept the liabilities to these stubborn policies, where middle aged people paid a pittance for long-term care at home during a period when life expectancy was a heck of a lot shorter and in-home care was much much cheaper.
I explained this to GE both before and after the transition, simply because my late father had one of these policies: For a very small amount of money, he was able to have live-in health for a very long time, something if you priced out was worth about 20 times what you paid EACH YEAR! How many smart people took this stuff? It was the equivalent of the movie Poltergeist, where they moved the grave stones but they kept the bodies.
It didn't need to be anecdotal. Manulife (MFC) and AIG (AIG) suffered from the same woes. Their only hopes were that a loved one was so incapacitated that he or she wouldn't be able to tell their children that they had taken the policies. It really was like beating the dealer if you were able.
Yet I don't think that Immelt or Flannery understood the obvious consequences of this -- consequences that would have been imprinted upon them if they had a parent that had taken this kind of policy.
That's why the $22.2 billion charge for the asterisk was so impossible to fathom. A Truth and Reconciliation Commission would have figured that out, for certain.
Then there's Alstom's energy business -- bought at the high for the century because it involved shelling out $13.5 billion for a French company, no less, meaning lay-offs could be well-nigh impossible. Immelt called it a "significant step in GE's transformation" -- except it was a transformation toward an industry that was vanishing before his eyes in the more than a year that it took to close the deal. This is a deal that Flannery was involved in, so it was hard to admit that much of the deal needed to be written down by the time it closed. I have seen these kinds of write-downs -- but only when there is fraud, not really bad business judgment.
But that is precisely what it was.
Instead of building up aerospace or health care, both of which are in secular growth, Immelt had doubled down on an industry that, because of alternative energy, was in secular decline. No shock, Immelt did the same to oil and gas, too, doubling down when oil ran to $100.
So when Flannery didn't immediately take the big charge, the one that is now necessary, he couldn't keep his job. Once again, it wasn't the speed, but the size and the shock.
Why did all of this happen? Because of a strange fixation in American business to refuse to look at what went wrong. It's almost considered a sin to go back and examine what the predecessor did wrong -- if you are from the organization.
Larry Culp isn't from the organization, so he is free to take all the charges needed, cut the dividend and do a $100 million share offering to help fix the balance sheet. That was almost impossible for someone inside to do. What does Culp, from Danaher (DHR) , care?
So, those were the real issues. The board was in the dark, clueless to how bad things were because no one examined the Immelt era -- because they didn't want to hurt Jeff's feelings. Yeah, you got that right, his feelings. It would look bad for a company that doesn't like to trash anyone. When I would deal with the PR people from this company, I was harassed about how I wanted to look back.
But the truth is, without a look-back, this is what happens. Yes, it would have hurt Jeff's feelings, but it would have saved Flannery's job -- and maybe the company itself.
Now Culp is going to take Flannery's ill-considered plan and dump health care when he should double down on it -- something he should know, because he did that at Danaher. If he had the money, he should also buy the businesses that United Technologies (UTX) has to divest to close the Rockwell Collins (COL) deal, to bulk up that business.
But power? You can't shut it, there are some very good service contracts. But you can sell it -- and that's what needs to be done. You don't throw good money after bad. Oil and gas? Who knows. It isn't the right time to sell. Let oil go higher. Maybe then you can get a good price. However it does have to go.
So, because of hurt feelings, because of hubris, the tough actions still won't be taken unless Culp reverses the plan.
I bet he does.
Now, it is too late for truth and reconciliation. But they don't give a damn about the feelings of the CEO that they just unceremoniously dumped.
Once they do, then the stock's a buy. But not until then.
