Lights Out by two experienced business reporters, Thomas Gryta and Ted Mann, is subtitled Pride, Delusion and the Fall of General Electric. That about sums it up. I’m quite sure that everyone reading this review is aware of GE to one degree or another. The company was founded from the experimental work of Thomas Edison in 1892. Their products included light bulbs, home appliances, power-generating turbines, locomotives, jet engines, medical equipment, and much more. GE was one of the original members of the Dow Jones Industrial Average and stayed part of the Dow for over 120 years.
General Electric was famous for its management training, which was considered to be the best extant. In 2000, GE was the second biggest company by market capitalization in the U.S., second only to Microsoft.
At the end of the 20th century, Jack Welch ran the company for 20 years, becoming a legend. Fortune named him the “Manager of the Century.” He increased the market cap from $14 billion to $410 billion during his tenure.
This book begins right at the end of Welch’s reign and the transition to his handpicked successor, Jeff Immelt, who would lead GE for 16 years. The problem for Immelt was following in the footsteps of a legend. During Welch’s tenure, GE made its numbers, maintained its dividend, and was in the portfolios of institutions and individuals alike, especially retirees who liked a company that paid dividends like a utility but traded at multiples like the industrial behemoth it was.
Immelt soon found that following Jack Welch was going to be even harder than he imagined. Welch’s management style was fear and intimidation. The descriptions of how he treated people reminded me of Ferdinand Piëch, when he was CEO of Volkswagen. Using fear and intimidation at VW, Piëch caused ‘diesel-gate’ and VW paid billions in fines. Using fear and intimidation at GE, Welch caused accounting manipulation second only to Enron. While Enron’s practices were clearly illegal, GE’s were aggressive, maybe illegal and certainly manipulative.
When Immelt discovered this, rather than coming clean, he resolved to continue the earnings and dividends by any means possible. At one point, the jet engines division, while showing strong profits, ran out of money. They had negative cash flow while manipulating their GAAP income through accounting shenanigans. At another point, GE’s dividend payment exceeded the company’s free cash flow. They were borrowing to pay the dividend. No, this is not sustainable.
Immelt tried to produce results by buying and selling companies at a frantic pace. But he tended to pay too much for acquisitions, followed fads, got into industries late, and, well, it generally didn’t work out very well. He left after 16 years at the helm after the board and the market lost confidence in him. During the year after Immelt’s departure, the company lost $140 billion of market capitalization.
There is so much more. I mean, really a lot of detail and interesting stuff that I can’t begin to get into in this short review. But if you have an interest, this is a book I can strongly recommend. It’s about 335 pages spread over about 60 chapters, so each chapter is bite sized. I’d read two or three each night. It is very interesting what went on.
There is plenty of blame to go around here. Immelt gets most of the blame these days, and probably deserves it. Jack Welch gets little of the blame but deserves to get a bunch of it. The GE board deserves a big portion of the blame as well, as they were completely asleep at the switch. Company-wide hubris is another reason for GE’s failure. And some of the blame goes to circumstances beyond anyone’s control.
The book ends in late 2017. Too bad it didn’t cover a bit more, as GE got their stock price back up in 2021. But they did it via a one-for-eight reverse split!
It is a fascinating story of how the mighty are fallen, with terrific writing. I recommend it but if you don’t want to read the whole thing, I do have nine pages of reading notes I’m happy to share. Just hit respond and I’ll send them to you.
No comments yet.