Walk, no run, to Larry Culp's annual letter to GE (GE) shareholders -- or at least his first annual letter -- because it is a culture shock of the ultimate measure. It's honest, it's forthright and it is the most un-GE piece of business I have ever seen.
First, a couple of things you need to know about GE: It was the most complex of companies, one where you could never really figure out how it was doing because the numbers were simply incomprehensible. I remember every time I looked at their financials, I had to search for a glossary because the company never used a single reporting technique that explained how the businesses were really doing. There were all of these after-tax and before-tax items and forms of earnings that were strictly GE-isms. No other company reported in similar fashion. It didn't matter when the company was winning, or at least looked like it was winning. You couldn't tell anyway.
I could never figure out how GE could get away with it, I could never figure out how there could be one set of reporting methods for GE and another set for the other companies in the S&P 500. Go back and look. I defy you to try to understand how each of the key divisions were doing. It looked like all of them, including the worst one, power, were doing terrifically. I swear if it weren't for the ultimate earnings per share guidance, the fabled $2 in 2018 promised by the former CEO Jeff Immelt, and the subsequent endless cuts that ended up in a $0.65 Love Canal of a year, you would have thought they were crushing it. You can only hide the real numbers for so long.
That's why I am stunned at the simplicity and straightforwardness of the reporting techniques. Instead of page after page of adjusted numbers that showed big wins for all division, there is one page -- ONE PAGE -- of how the divisions are doing. Get this: There turns out to be eight divisions of GE. There is a 16-word max description of each division followed by the titled of each subdivision and the number of employees in each. You can tell from the get go that Power, with 59,700 employees, and oil and gas, with 65,800 workers, are insanely overstaffed.
Then there are five lines under each division: Revenue, Profit/Loss, Margin Profit or Loss, orders and backlog, all presented in simple year-over-year comparisons. I am not kidding. Actual numbers. Culp became CEO in September of 2018. If would not surprise me if he had to work every day just to get these numbers, that's how absurd GE's alleged accounting was.
And the numbers show that Culp has his work cut out for him. The Power division is killing them.
But if he fixes Power, the new company -- and it does feel like a new company -- will be amazingly simple and, even better, amazingly good, simply because you know what you are getting and what you are getting is a fabulous aviation division with fantastic margins, a very good health care division -- a reminder of how good the deposed CEO John Flannery really was when he ran health care -- and then a bunch of flotsam and jetsam that must go or be shrunk to where they don't matter, if they do matter at all now. Flannery better be given some credit soon by Culp or it's just plain unfair. Of course, we know from Clint Eastwood in Unforgiven that "deserves got nothin' to do with it."
The best part of the new GE epistle? Of all things, there's a quote from Ernst Kraaji, a power leader, who wrote to Culp the following words: "The beginning of wisdom is to call things by their proper name." So true. And Culp follows up with another truism for the new GE: At times, doing so can be painful, but we are embracing our reality and executing the plan we have laid out to create value for our people, our customers and for you. Now it's more about what we do than what we say."
Could it be said better? I don't think so. You know what? After reading this golden nugget of honesty, wisdom, and truth and reconciliation, I think he pulls it off.