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The Wall Street Journal – Embattled GE CEO Defends Strategy
Mr. Immelt has a “credibility problem,” Mr. Welch said on CNBC, a cable network owned by GE. Citing GE’s missed earnings forecast, he said: “Here’s the screw-up: You made a promise that you’d deliver this, and you missed three weeks later.” . . . . On his CNBC appearance, Mr. Welch said, “I’d be shocked beyond belief and I’d get a gun out and shoot him if he doesn’t make what he promised now.” But in an interview afterward, Mr. Welch defended the man he chose over two other candidates to replace him 6½ years ago. “He got his a- kicked because he said one thing and did another. That’s the first time. This guy has a hell of a track record,” he said.
Comment Jack Welch’s comments show once again that he thinks the measure of a good manager is one that meets the short-term wishes of Wall Street – even if it means accounting manipulation. Let us repeat our comments from Monday taken right from his book, Jack, Straight From the Gut (2001 edition):
Page 224
I was getting ready to leave the office for a long weekend on Thursday night, April 14, 1994, when Mike [Carpenter, Head of GE Capital] called with one of those phone calls you never want to get. “We’ve got a problem, Jack,” he said, We have a $350 million hole in a trader’s account the we can’t identify, and he’s disappeared.
Jack continues:
I didn’t yet know who Joseph Jett was, but over the next few days I would learn more then I cared to about him. Carpenter told me that Jett, who ran the firm’s government bond desk, had made a series of fictitious trades to inflate his own bonus. The phony trades artificially boosted Kidder’s reported income. To clean up the mess we would have to take what looked like a $350 million charge against our first quarter earnings.
The quarter had ended and Jack was given the bad news that GE was going to miss its numbers. What was Jack’s response?
The news from Mike made me sick: $350 million, I couldn’t believe it. It was overwhelming. I rushed to the bathroom, and my stomach emptied in awful spasms.
Let there be no surprise, the “GE culture” is all about beating the street’s quarterly estimates by a few cents. What makes the head of GE throw up? Products that kill? Laying off employees? Bad strategic decisions? Apparently not. What makes him throw up is missing street estimates by a few cents. His division heads understood this and would go to any length to prevent it from happening.
Page 225
That Sunday evening, I called 14 of GE’s business leaders to deliver the bad news and apologize to each of them for what had happened. I felt terrible, because this surprise would hit the stock and hurt every GE employee. I blame myself for the disaster.The previous year, 1993, when Jett’s phantom trades accounted for nearly a quarter of the profits made by Kidder’s fixed income group, Jett had been named Kidder’s “Man of the Year.” We had approved Mike’s request to give Jett a $9 million cash bonus, a huge award even for Kidder. Normally, I would have been all over this. I would have dug into how one person could have been so successful, and I would have insisted on meeting him.
The response of our business leaders to the crisis was typical of the GE culture. Even though the books had closed on the quarter, many immediately offered to pitch in to cover the Kidder gap. Some said the could find an extra $10 million, $20 million, and even $30 million from their businesses to offset the surprise.
Please re-read the last highlighted passage. It sure sounds like Jack just described SEC and FASB violations as an integral part of the GE culture. Isn’t this why we created Sarbanes Oxley in 2002, to stop such cheating?
Given what Jack wrote in his book and what he said yesterday, is he mad that GE did not “do what was necessary” to meet Wall Street’s wishes?