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GE drove the American century, so it burned out



They came from dozens of luxury sedans, black ubers and slim helicopters. As they did every August,

General Electric


GE -0.69%

Chief executives set down on a hilltop over the Hudson River for their annual leadership meeting.

Just an hour's drive from New York City or a short flight from Boston, Crotonville, NY, is home to GE's management academy, known to throw out and cultivate a cadres of leaders as the company as its most valuable product.

Crotonville is where Jack Welch, GE's former leader for greater lives than before, held talks in The Pit, a large submerged auditorium where he trained the future CEOs for companies such as

Boeing

and

Home Depot
.

Welch restored and expanded the campus during the two decades that ran GE.

Opened in 1

956, the property is 60 hectares of a half-conference center, a half-way retreat. Behind a guardhouse is a mixture of low-rise brick houses, classrooms and restaurants, a stone's throw with a fireplace, hiking trails and a helicopter course.

Welch and other GE bosses would visit almost every month to direct programs for middle managers, customers and managers from other companies who wanted to learn the GE leadership team. For the 300,000 people working at GE, a trip to Crotonville is an eager wish and a valued achievement.

This pilgrimage in August 2017 was different. The stock price had been slumping, and longtime CEO Jeff Immelt had just stepped down after a frustrating midfielder of 16 years. The new boss, John Flannery, had started a month-long review of every corner of America's last major industrial conglomerate.

On that summer afternoon the auditorium shouted with whisper of what was ahead. No one doubted the 125-year-old company's ability to rise again. It always had.

Jeff Bornstein then began to talk.

Gruff, 52-year-old CFO had lost his job in the past, but was committed to continuing to help the new CEO to navigate the company's complicated structure.

  GE drove the American century when it burned out

Bornstein launched an admonition: Run the company as if you own it. Be the leaders General Electric bred you to be. You should all be responsible for every divination and every goal missed.

"I love this company," he said. Then he stopped and took his breath deeply and racketed. He started again and stopped again. Jeff Bornstein, Shark Fishing, Nicotine Rubber Chomping, Weightlifting CFO, Gray.

A Maine native Bornstein had come to GE after college, eventually serving as CFO of GE Capital, where he helped to ward off the worst damage to the financial crisis.

His rivals in the company found him stupid to a mistake, willing to tamper or cushion in public and private. He served as a counterweight to Immel's relentless optimism, and his finances led him to respect for Wall Street.

If this guy is fighting back tears, something must be seriously wrong. In the first six months of 2017, GE had hardly earned any of the $ 12 billion in cash it projected for the year. It will need at least $ 8 billion to cover the dividend it had promised shareholders.

Stock and index performance since 1980

Stock and index development since 1980

Stock and index development since 1980

Share and index performance since 1980

Leadership meeting usually left leaders refreshed, assured that the foundation of GEs Success was not power turbines or jet engines as much as the people in that room, leaders who were busy in Crotonville who thought they could enter any industry, anywhere and dominate it.

Now, when they broke out after Bornton's talk, many shocks and confusion felt. The calculation had been a long time and it was far from over. GE had defined and survived the American century, with great navigation of depression, world war and globalization of business. Even when things were at its worst, its belief in its history and its skill made it feel titanic and invisible. And yet, invisible GE took on quick water.

This article is based on many interviews with dozens of people who are directly involved in these events. They include current and former board members, senior executives and employees at GE's headquarters and in their various business units, as well as bankers and advisors employed by the company, investors in the shares, customers for their products and business analysts who assessed the performance.

The reporting also reflects internal GE communications and documents, including email, slideshows and videos. Publicly available securities, court records, transcripts of meetings and previous journal articles were also used. The journal reached out to the individuals in this article and offered them the opportunity to comment.

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ENGINE ROOM

General Electric Co. helped invent the world as we know it: wired, plugged in and turned on. GE was born by Thomas Alva Edison's ingenuity and John Pierpont Morning's stamina, GE built the dynamos that generated the power, the wires that brought it and the light bulbs that burned it.

To keep flow and profits flowing day and night, GE linked streets with streetcars and cities with locomotives. It soon filled up kitchens with stoves and toasters, living rooms with radios and TV, bath with curling iron and toothbrushes and utility room with washer and dryer.

The modern GE was built by Jack Welch, the youngest CEO and chairman of the company story when he took over in 1981. He drove it for 20 years, the rare CEO, who was also a household name, praised his strategic and operational mastery.

Welch, short, sharp and volatile, had an intense blend and a reedy ditch that betrayed his blue-shield Massachusetts roots. He was forced to set goals and beat them. A chemical engineer at workout, he once blew the ceiling from a GE plant.

He expressed contempt for GE's bureaucracy from the earliest days there and later served the nickname "Neutron Jack." He eliminated about 100,000 jobs in his early years as CEO and insisted that managers burn the 10 percent of athletes each year who failed to improve, in a process known as "rank and yank." GE's financial performance was so eye-catching that the strategy was imitated through American business.

"Solve it, close it or sell it" "was a favorite slogan. Welch wanted to get out of all businesses where GE was not the market leader.

  Jack Welch" title = "Jack Welch

Jack Welch


Photo:

Brooks Kraft / Corbis

In its peak, General Electric was the valuable company in the US worth nearly $ 600 billion in August 2000. That year, GE's third of a million employees operated 150 factories in the US and another 176 in 34 other countries. The pension plan covered 485 000 people. With almost 10 billion outstanding shares, GE was also one of the most owned shares. The company paid dividends of over 600,000 accounts, from individual investors to large funds that earned millions.

GE had moved in and out of business since 1892: aircraft engines, plastics, guns, computers, MRI machines, oil field drill bits, water treatment units, television shows, movies, credit cards and insurance. The big machines were always GE's striking heart. But there was a will to expand into growing businesses and throw weaker ones that helped make the rare conglomerate survive the mass eradication of its rivals.

The GE's success under Welch's government was that it served more like a collection of businesses under the protection of a giant bank. As the financial sector began to run more of the US economy, GE Capital, the company's financial arm, driven more of the company's growth. At its height, Capital accounted for more than half of GE's profits. It competed with the largest banks in the country, competed with Wall Street for the brightest M.B.A.s and employed hundreds of bankers.

Images:

GE hired hundreds of thousands of people. Some of them reflect on their jobs and how the company changed.

GE Capital sucked into debt and spat out money. Created in the first half of last century to help people buy home appliances, it now financed fast food franchises, power plants and suburbs McMansions, and rented rail tankers, office buildings and airplanes. The industrial backbone of the company gave GE a AAA credit rating that allowed it to borrow money cheaply, giving it an advantage over the banks, which was on deposits. Cash flows went to the headquarters where it ran the development of new jet engines and dividends for shareholders.

Capital also gave General Electric's chief executives a practical, deep bucket of financial spackle that would smooth the crackdowns in quarterly earnings reports and keep Wall Street happy. Sometimes it meant having a half-parking on the final evening, or selling a stake in a power plant to buy it back after the quarter closed.

Many Capital Veterans relished their reputation as mavericks and cowboys, especially compared to their staid Wall Street rivals. They loved the story that Capital's CEO, Gary Wendt, rented a caravan and drove across Eastern Europe in the early 1990s, and still bought sleepy banks as the post-communist era emerged. The rest of the decade saw explosive growth, which helped drive Jack Welch's fame in orbit.

With shares trading over $ 150 at the beginning of 2000, Welch split 3-for-1 split. It would turn out to be a high tide. GE shares retired in their last year after a failed rivalry

Honeywell

and popping off the dot-com bubble. Nevertheless, GE shares traded 40 times revenue when Welch retired in 2001, more than double where it had historically. And much of these earnings come from deep inside the capital, not the company's factories.

Disaster struck immediately after Welch again. The September 11 terrorist attacks – four days after his handpicked successor, Jeff Immelt, took over Hammered GE's insurance business and due to the airline industry. Immelt began to revolutionize the Welch portfolio, sell by the plastic division and most insurance lines. He did not take out the loans in Capital, which represented 38% of GE's revenues in 2008.

When the financial crisis hit, Capital fell back to earth, GE's share price and Immelt took it. The stock was as low as $ 6.66 in March 2009. General Electric was on the verge of collapse. The market for short-term loans, GE Capitals lifeblood, had frozen, and there was little in the way of deposits to fall again. The Federal Reserve went in to rescue it after an emergency from Immelt.

Following this, GE was not considered as its other industrial companies – large, slow businesses that could forecast the demand for their hulking machines over decades. Instead, the near-death experience taught investors to think of GE as a bank, a share always exposed to another economic collapse.

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Federal Reserve Bank Guardians moved into a series of offices in Capital Capital, just off Merritt Parkway in Norwalk, Conn. They swung in meetings, D Etails demanded lending activities that Capital Staff worried about the regulators did not understand or respected.

Immelt pulled his teeth on the name Caroline Frawley, leader of the Fed teams who patrolled the device that spun out almost half of GE's profits.

"That woman," he said at one point, "will not tell me how to run this company." He would be free to invest billions in developing a new jet engine without worrying about the government looking over his shoulder.

When the restoration slouched into the beginning of this decade, a handful of top ranked leaders here and there, always discreetly, to argue their most obvious problem. GE could not live without GE Capital, still so big that it was essentially the nation's seventh largest bank. But investors could not live with GE Capital and its terrible risk of injury.

What about GE Jack Welch no longer built?

GE can harvest billions from selling Capitals businesses, as well as the property, mortgages and other assets it owned, but that would create a huge tax bill. More importantly, the company will need a plan to replace the earnings capital that was brought into each quarter.

Crack in the performance of the company's industry lines – its power turbines, jet engines, locomotives and MRI machines – would now be easy to see, some leaders worried, without the capital's cash to cover the weak quarters and pay the profitable yield. The dividend, which doubles billions of dollars to shareholders, is one reason why GE was owned by so many, with about 43% of the shares of individual investors.

It was difficult to see how the puzzles could be done to fit. Immelt and Bornstein, CEO, called Big Jeff and CFO like Little Jeff, and a small group of trusted lieutenants, met.

Immelt worried more about her heritage. He often reminded people that he kept the ship floating after September 11 and the financial crisis. But he also talked that his ability to ride a shining blood ended the day Lehman Brothers went bankrupt in September 2008.

Whittling away at Capital was not enough. Immelt, caught in Welch's long shadow, needed a bold move to shock his company out of the doldrums who had bothered his service. It was time for GE to be rediscovered again.

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GOAL AND DEAL

Jeff Immelt was on his way to the Olympic Games in Russia in February 2014 when GE jet made a stop in Paris for dinner. He had an invitation from Patrick Kron, his counterpart in the demanding French industrial conglomerate

Alstom
SA

.

Kron was looking for a savior. Alstom, a manufacturer of trains, railway equipment, power turbines and generators, ran into insolvency, registered the business at a loss just to keep money in the door. The beleaguered CEO had already eaten with the CEO of GE's archive,

Siemens
AG

. In Immelt, Kron found a man to destroy for a big deal.

Just a few months earlier, the word had gone to the merger teams embedded in each of GE's industrial units: The headquarters want your biggest goals.

Alstom was One of the expensive agreements Immelt focused on when the two CEOs talked at night in Paris. After dinner in France, Immelt stopped in Helsinki to assess another goal, Wartsila, a Finnish builder of marine engines, oil and gas equipment and power plants. Another potential agreement, called Project Lion, came from GE's oil and gas unit. Nevertheless, not long after the restaurant bill was paid, momentum for a bid on Alstom was built. The only question was how much Immelt would be willing to pay.

Some GE Board members and advisors were cautious. Immelt's willingness to complete a blockbuster reflected his usual optimism, a move that had led him to pay too much, and a successor warned the board before picking him as CEO.

Hardworking and affable, Immelt was six-foot-4 with a man of gray hair swept back from the temples. He moved easily through crowds and obsessed with a practitioner's practiced eye contact. He was quick to chuckle and usually had a joke to tell, although often he had already told.

Earlier colleagues compared him to Bill Clinton because of his magnetic ability to focus on a room. He sounded like a leader. He was a natural seller.

Immelt, a native Ohio who played football in Dartmouth, joined GE from Harvard Business School. He changed jobs often, worked in the plastic division before finally driving the healthcare system. Immelt was 44 years old when he won a blower and public success contest set up by Welch, knocking out two men who would later lead Home Depot, Chrysler, 3M and Boeing.

  Jeff Immelt "title =" Jeff Immelt

Jeff Immelt


Photo:

David Paul Morris / Bloomberg News

Welch advised him to cut his own way, and Immelt's decision was to take a milder thank you. Welch was known to put his arm around a leader who just missed his number, telling him that he loved him and if it happened again he was out. Immelt could lean on leaders and their subiors as hard, cajoling and challenging, but he resisted disagreement by applauding optimistic news.

Welch, the engineer, was likely to quiz a leader on details – why are the numbers down on your plant Where Immelt participated in wider strokes. He embraced his background in sales. A presentation at any GE meeting was called "a pitch", and ideas for new businesses were "imaginary breakthrough." Decisions had to match the company's history and where it should.

Immelt was so confident in GE's managerial excellence that he projected a sunny vision for the future of the company that did not always match reality. He was aware of the challenges, but he wished his people would feel like they were playing for a winning team. It often left Immelt, with the words of a GE insider, trying to market out of a mathematical problem.

For the month or after dinner with Kron, a team of GE fusion specialists set out to try to make the math for the Alstom agreement.

Leaders at GE Power knew Alstom well after giving it an appraising sniff two years earlier. They found a company so reluctant to take a run: Alstom had more money than the market understood, too many employees and French law made it difficult to lay off workers and sell assets.

Alstom's problems did not have I'm gone, but now the shares were cheaper, and Immelt looked forward to a deal that fits perfectly with his vision for transforming the company. GE would essentially switch Capital, the cash engine that was no longer sensible, for a new one that could cut profits every quarter in a reliable manner as industrial companies would.

At the time of GE's 2014 Shareholder's meeting in April, Alma's leaders flew to a hotel near the Chicago room to talk. To the horror of some GE involved in the bid, from the € 30 share that the power division department already thought was too high at around € 34, or almost $ 47. Immelt and Kron met with one-on-one, and the deal team realized that the game was over. The princes had shaken hands.

Immelt knew that Alstom had problems, but hoped to showcase the leadership powers that GE prided for. The French company had a large collection of power plants that GE would run more efficiently and a flabby global workforce that GE would cut.

The news of the deal leaked hours after the shareholders meeting was over. The $ 17 billion worth, the acquisition will be GE's biggest ever and the first move in the one-two combination that Immelt thought would revive his company and set his legacy.

  A horizontal neon light used to act as a horizontal rule [19659027] PIVOTEN </h6>
<p>  Jeff Immelt was all smiling when he took the stage to August's annual Crotonville leadership break. </p>
<p>  His first PowerPoint slide was titled "GE Pivot." Alstom promised "huge upside with strong performance", read another projected on the auditorium's big screen. "Unique and historical opportunity for high returns." </p>
<div data-layout=

  GE drove the American century, so it burned out

In Immelts view, this was a chance to corner the market to illuminate the unlit corners of the earth. He believed to break competitors for gas-fired power turbines like Germany's Siemens and Japan's Mitsubishi, and win bids for building power plants across the Middle East, Africa and South Asia. Today, the agreement was sensible for other GE leaders because they believed the company could push more profits from the older coal power plants Alstom operated in Europe and Asia.

The visions of the present and the future were both fundamentally incorrect.

As the GE research department was preparing the white box heralding "The Age of Gas", the world entered a perennial decline in the demand for new gas power plants and the power that made them profitable.

Opposition from the French government – blindsided as news about the deal leaked in April – reduced to completing it to a creep. GE's negotiating group continued to accept more expensive concessions demanded by regulators on both sides of the Atlantic as 2014 blended into 2015.

Under pressure from the US Justice Department, GE agreed that an Alstom unit would be serviced by turbines made by competitors .

GE came to Europeans, and GE agreed to dump Alstom's ever-expanding program to build a state-of-the-art gas turbine equivalent to GE's flagship model. This technology was transferred to Spain's Ansaldo, which potentially opened the door for more serious competition since the company is 40% owned by the Chinese. And European and Alstom officials triumphed GE's attempt to review the company's order book: a black box with immense risk since the French company had been lowballing bids just to keep the sale.

In mid 2015, the admissions threatened GE's logic for the acquisition. The company hired litigators at one point, ready to fight for regulators, or even to help eradicate GE from the agreement, if Immelt and his senior executives decided that it was no longer sensible.

A band of skeptics in GE Power's hopeless deal would collapse. When advisors determined that the concessions for approval of the agreement could have grown costly enough to trigger a provision that allows GE to get out, some in the Power business quietly celebrated and trusted each other that they assumed that management would leave the deal.

But Immelt and his circle of nearest counselors would have done it. It included Steve Bolze, the man who drove it and hoped one day to drive all General Electric.

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EXIT

In spring 2015, GE Capital's chief, Keith Sherin, went into a colleague's office at the division's headquarters in Norwalk to share the company's most tightly secret secret .

"We're going to de-SIFI," said the boss.

The mystifying bit of regulation jargon can only mean one thing: they sold GE Capital. Immelts' recovery of GE went into the next phase.

Following the financial crisis in 2008, Capital was considered a major player in the banking system to be designated as a "systematically important financial institution" and forced to accept more intrusive regulation as Immelt so despised. Over the years GE Capital had shrunk slowly, but not fast enough for investors.

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Getting out from under the Fed's thumb would GE sell $ 216 billion of financial asset real estate, railway cars, mortgage lending and lending activities that served medium-sized businesses and provided venture capital. In addition to what had already spun, Capital Business's $ 310 billion would be cut and spread across the US financial system. It would leave a $ 100 billion stump that included the lease agreement and some industrial leasing operations intended to increase GE's power and oil and gas activities.

When done, less than 10% of GE's total revenues will come from the finance engine that Jack Welch had built.

Somebody hit Capital as an over-correction to both the markets and the skeptical regulators of Fed. Someone worried how the company would manage when most of GE Capital was gone.

"What shall we do with cash?" The other chief officer asked after Sherin broke the news.

"We will work it out," said Sherin, thinking of thousands of hours and hundreds of people it would take to withdraw. Immelt had picked Sherin, who had been financial director of the entire company, to run Capital after the financial crisis .

Their idea was to use the proceeds of selling most of Capital to buy back GE shares, counteract the loss of Capital's revenue.

The company made the plan public on April 10, almost a year after The Alstom agreement leaked to the press and decided to act quickly to sell most of the business. Despite some private concerns in Norwalk, the plan was widely supported by other GE employees, the board and, more importantly, investors.

Billions Nelson Peltz, who runs Trian Fund Management, an activist investment company feared by leaders of struggling companies, called to congratulate Immelt on the pivot right after the announcement.

In response, the GE President Peltz said: "We would like to have you in the warehouse. "

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CRAZY IN POWER

Things were starting to come together for Jeff Immelt as 2015 was wearing. That summer he sat behind a desk in the Crotonville auditorium and watched Steve Bolze cue up the PowerPoint slides as part of Growth Playbook, a cruel annual survey of GE's eight business leaders.

At the event, GE would hamper targets for sales and profits, and the underlying assumptions for the financial estimates it would give investors.

It had been a few months since the plan to sell GE Capital had been announced and Bolze, the director of GE Power, agreed to the completion of the Alstom agreement.

  Steve Bolze "title =" Steve Bolze

Steve Bolze


Photo:

Jason Alden / Bloomberg News

Already leading GE's biggest sales activity, Bolze, 52 years old and square jawed, was succeeding in Immelt, and he would add a huge new global portfolio of power plants and thousands of workers to his fiefdom.

Moving through the slides, Bolze came to the proposed annual sales growth in power business: 5%.

There was ample reason for skepticism. Kraft had struggled to meet goals, and sales had not grown fast this year. The global investment in new gas fired power plants was declining. Energy efficiency was on its way up. This meant that future earnings from the highly profitable service contracts GE had signed, were likely to fall, or at least grow less rapidly. Global Gross Domestic Product, a reliable power market proxy, was below 4%.

It was a roaming assumption that called for interrogation, the very point of the formal review. As the room looked at, Immelt desk in front of him gave a safe blow.

"Great next page," he said.

Immelt can be tough on leaders in their own way in these orientations, but it was not usually to be too optimistic. "Where's the guy I used to know?" Would he ask a submarine who told him. Immelts goals could not be met. When the mood was angry, the tone was changed. "Your people," Immelt said, "will not be bad enough."

Then they stretched out. This was particularly true in Power after the Alstom agreement was terminated in November 2015. Immediately pressured for market share at all costs, leading to less than lucrative agreements. They also used funding from the foundation of GE Capital to help increase customer demand.

Already in a decline in equipment sales and competition from renewable energy, leaders in Power required to interact with Alstom, the greatest effort of its kind in GE history.

During 2016, the teams in Power were combed through the portfolio of service contracts, each representing payments from power generators to maintain turbines GE, sold them. Of design, these contracts were smooth. A technological innovation that improved the performance of a turbine blade or extended number of hours between maintenance interruptions had to be accounted for.

GE groups began offering discounted turbine upgrades to customers in exchange for extending the term of the contract as far as 2050. Managers cleared existing contracts for ways to change underlying assumptions, such as the rate of overhaul, to increase profitability.

GE Power even sold its claims – the bills its customers owe over time – to GE Capital to generate short-term cash flow. The unit gave customers discounts on their service contracts, and reduced their overall value as opposed to negotiations that led the company to bill the customers before.

Accounting methods were legal if aggressive, GE leaders assured each other. But it also meant that the surplus was mainly on paper. Selve sjelden var en ny fortjenestevolum som drev i døren.

Bolze-teamet opererte i en tradisjon som strakte seg minst like langt tilbake som Jack Welchs herlighetsdag, men omfanget av den aggressive kontraktsregnskapet var langt større. 19659006]Worry was starting to grow inside Power by the end of 2016. Management&#39;s expectations about the sales growth and profit they should be able to hit didn&#39;t reflect the dim reality of the market, team members told Bolze and Paul McElhinney, the head of the unit that administered the service contracts.

The complaints were common among lower-level executives, but when raised to leaders like McElhinney, they were stopped cold.

“Steve&#39;s our guy,” McElhinney said in one meeting. If Bolze was elevated to CEO, those behind him in Power would rise too. “Get on board,” he said. “We have to make the numbers.”

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ENTER TRIAN

The seed Jeff Immelt sowed with his invitation to Nelson Peltz bore fruit in the fall of 2015. Trian Fund Management disclosed it had been secretly buying up GE shares, amassing a stake worth $2.5 billion that made it one of GE’s 10 largest shareholders.

Some outsiders saw Immelt inviting in a disruptive investor like Peltz as a sign of confidence, but it was also a defensive strategy. Other activists were circling GE.

Activist investors are usually bad news for managers. The pools of shares they control provide a fulcrum for prying loose board seats, management changes and the sale of businesses.

Nelson Peltz" title="Nelson Peltz

Nelson Peltz


Photo:

        Mike Blake/Reuters
          

Trian wasn’t calling for a breakup or CEO change, though, as it had at lumbering companies including

            DuPont

      and Kraft. It wasn’t even seeking a seat on GE’s board, whose 18 high-powered members were loyal to Immelt, as it had at Family Dollar,

            Ingersoll-Rand
            ,

      Mondelez International and PepsiCo.

Rather, the influential hedge fund was coming forward with what amounted to a high-profile endorsement of Immelt’s strategy.

Trian’s co-founders, Peltz and his son-in-law Ed Garden, took care to say this was a partnership with GE and its brass. The duo traveled to GE’s Fairfield headquarters on a Sunday afternoon to explain their thinking. They sat alongside Immelt and Jeff Bornstein, the GE chief financial officer, under oils and watercolors, many of them the spoils of Jack Welch’s ill-starred purchase of the brokerage Kidder-Peabody.

“It’s not something you want to break up,” Peltz said inside the wood-paneled boardroom. “It’s something you want to keep taking care of.”

Trian didn’t like to be called an activist investor, even though it helped revolutionize that corner of the investing world, preferring to be called an engaged shareholder. While it built a reputation as a conglomerate killer, it had found a conglomerate it liked in GE.

GE Powered the American Century—Then It Burned Out

An 80-page white paper that Trian released with its investment was titled “Transformation Underway…But Nobody Cares.” It argued GE’s stock, then around $25, could reach $40 to $45 by the end of 2017. It praised the Alstom deal and pushed GE to borrow more so it could repurchase another $20 billion in stock.

Running the GE relationship fell to Garden, a 57-year-old, hard-charging financier who knew both Immelt and Bornstein. In fact, Garden’s brother had been a college buddy of Immelt.

Garden, a lean man fond of clear-rim eyeglasses, was the calmer side of the partnership with Peltz. He had little problem speaking his mind, though, making clear Trian helped fix companies—and also break them up.

Ed Garden" title="Ed Garden

Ed Garden


Photo:

        Michael Nagle/Bloomberg News
          

It didn’t take more than a few months for the good feelings to sour. Trian said at the outset it would be watching GE’s performance. A year after the initial investment, GE was behind on financial targets and the stock wasn’t moving.

In the fall of 2016, an increasingly impatient Garden went to see Bornstein at his six-level, $13 million townhouse in Boston’s Back Bay. Garden said if the performance didn’t improve, Trian might ask for a seat on the board. The threat of a public battle, which GE wanted to avoid, gave Trian the leverage it needed.

The two men started to work out a compromise. GE doubled its cost-cutting goals and tied more of its executive bonuses to profits at its core industrial units.

Some parts of the agreement weren’t public. If GE didn’t get back on track, Trian would push a board seat or management changes. Both men understood that could include Bornstein himself, a man many within the company thought had the best chance to succeed Immelt.

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TROUBLE IN SARASOTA

Jeff Immelt wasn’t backing down on GE’s strategy or direction. The company was a market leader, it validated trends and set the tone for other companies. It didn’t run away from problems.

After President Trump’s election and threat to pull the U.S. out of multinational trade deals, Immelt used his annual letter to shareholders in February 2017 to remind them that GE was bigger than any one country.

“We don’t need trade deals, because we have a superior global footprint,” he wrote. “We see many giving up on globalization; that means more for us.”

During a time when many companies were trying to avoid attention from the new president, Immelt didn’t shy away when Trump’s deregulation agenda conflicted with GE’s stance on climate change.

“No matter how it unfolds, it doesn’t change what GE believes,” he wrote in a note to employees in March 2017.

GE was still on the muscle, hunting for big deals. A team in the aviation division had worked with bankers to put together a proposal to buy aerospace rival Rockwell Collins in late 2016. The deal pitch, worth more than $15 billion, reached Immelt in early 2017. He scuttled it. Instead, GE kept repurchasing stock, spending more than $3 billion in first four months of 2017.

GE Power, the unit that led all others in sales, was the centerpiece of Immelt’s new GE. But there were only so many service contracts to be renegotiated.

The company revealed the weakness hidden inside the unit that April with a single, startling figure: GE’s industrial businesses were sending $1.6 billion more out the door in the first quarter than was coming in, about $1 billion worse than it had projected. The result raised red flags about aggressive accounting and whether the company could make its goals.

Most of the shortfall came from its service contracts, which should have been the source of the easiest profits. Instead, the heart of the industrial business was hollow. And its failure was about to tip the entire company into crisis.

Immelt only had a month before the Electric Products Group conference, a sort of national convention for the industrial fraternity. As the head of the biggest U.S. conglomerate, the GE chief was traditionally the star attraction, holding court and giving the keynote presentation to close the three-day meeting.

If you bought $100 worth of GE stock in

the beginning of 1980, it would be

$10,670.59

at its Aug. 28, 2000 peak.

Today it would be

$2,269.51.

GE’s shares were down 11% so far that year, missing out on a broad market rally that had seen the S&P 500 climb more than 6%. Investors openly wondered if Immelt would stick by his 2018 profit target of $2 a share. Senior executives were perplexed about the long-held target, and Jeff Bornstein, the CFO who had given his word to Trian at risk of his job, advised against sticking to it.

Immelt was an accomplished presenter, his ability to navigate a deck of PowerPoint slides honed over the decades. This year was different. The confident, affable salesman ready with a smile and a joke wasn’t himself as he faced a skeptical audience inside the ballroom of the Longboat Key Resort in Sarasota, Fla.

He was shaky, racing through the highlights of his slides. On the last one, he defended the company’s 2018 profit goal. På en måte. If the oil and gas markets didn’t improve, he said, the $2 target for 2018 would be a reach, and the company would have to cut even more costs.

Immelt, with his eye on the future, believed the next CEO would eventually have to reset the goal, and Immelt thought cutting the target twice would be bad for investors and the company.

The crowd buzzed with confusion. Barclays analyst Scott Davis asked bluntly if Immelt was backing the target.

“It’s going to be in the range, Scott,” Immelt said. “If we wanted to take it off the page, we would have taken it off the page. We didn’t want to.”

The questions didn’t get better. Is the Alstom deal not working? Can the power division improve its cash flow? Would the company consider spinning off the health-care division that Immelt had once run?

Immelt, as he had before, argued that investors had GE all wrong, mispricing a stock that should have been above $30 a share. The aviation business was booming, outpacing competitors with its newest model. The once-troubled health unit was on the upswing. The oil-and-gas business, which had suffered through sliding crude prices, was riding a rebound.

“It’s not crap. It’s pretty good, really,” Immelt said of his company’s financial performance.

When the grilling was over, Immelt wasted no time getting out of Sarasota. In less than an hour he was aboard a GE jet. Immelt, his credibility wounded with Wall Street, limped through the rest of the week as frustrated investors called seeking clarity on the state of the company.

Trian, which had recently projected that GE could actually exceed the 2018 goal Immelt had waffled on, made it clear it was going to push for a seat on the board.

All of a sudden, a question that Immelt had batted away with little more than a joke during the questioning in Florida seemed significant.

“Hate to put you on the spot,” said Steve Tusa, an analyst from

            JP Morgan Chase

      & Co. who had been telling investors to sell GE shares, “but I’d like to get any update on succession planning, potential time. I know you just can’t bear the thought of not coming down to Sarasota.”

A horizontal neon light used to act as a horizontal rule

AFTER IMMELT

Only a dozen men had led General Electric to this point in its history. Many spent a decade in the role. Jack Welch spent two.

Jeff Immelt was in his 16th year. He had tried everything to revive the stock, but in the days after his struggles in Sarasota, he realized he had lost the confidence of investors, especially Trian. Without that, the optimist saw little chance he could lead a turnaround.

Immelt decided it was time for a change, and he wanted to do it without being pushed.

GE didn’t take replacing its CEO lightly. When Immelt competed for the top job, candidates were moved around, performance was measured, the list was narrowed and those passed over often left. Corporate governance experts praised it at the time as the very model of a modern chief-executive succession.

The process left Immelt with a sour taste. For years he was clear he wanted his own successor picked in a less public contest, and was true to his word.

The board years earlier had quietly set a target of late 2017 for a new CEO to take over and identified four GE men as possible successors: Bornstein, the finance chief; Bolze, the head of the power division; John Flannery, the leader of the health-care unit; and Lorenzo Simonelli, boss of the oil-and-gas business.

Jeff Bornstein" title="Jeff Bornstein

Jeff Bornstein


Photo:

        Adam Glanzman for The Wall Street Journal
          

In May 2017, around the same time of Immelt’s disastrous performance at the conference, the board called the candidates to New York to audition. But by that time, the secret race had already been won. Flannery was the unofficial heir apparent.

Simonelli, seen at 45 as too young for the main job, was ticketed to run the public company that resulted from the merger of GE’s oil-and-gas unit and oil-field service company

            Baker Hughes
            .

      

Bolze, whose team at Power had stretched so far in hopes of riding his coattails, was out. Not only was his unit the sclerotic heart of GE’s struggles, but Bolze, who had occasionally clashed with Immelt, was seen early in the process as a poor fit as CEO.

Bornstein hadn’t run a GE business unit before, and Immelt and the board felt he could be a better partner to a successful candidate, if he would agree to stay on.

The process was shrouded in secrecy up until the end. After Immelt informed the board of his intention to step down, a small staff worked out of human-resources chief Susan Peters’ apartment to write the press release and other materials for the announcements.

A 30-year GE veteran, Flannery had yet to be told he had won the job. On Friday, June 9, less than three weeks after the Sarasota conference, Flannery got a call. Immelt was out. He was in.

Bald and bespectacled, Flannery was nothing like Immelt. He was soft-spoken and analytical. More accountant than salesman, he lacked Immelt’s booming presence and charisma.

Flannery was Trian’s ideal successor, a balm for its frustrations with Immelt. He had an investor’s mind-set, crunched numbers naturally and was obsessed with the cash businesses produced.

John Flannery" title="John Flannery

John Flannery


Photo:

        Christopher Goodney/Bloomberg News
          

Flannery, whose father was president of a small Connecticut bank, spent most of his years at GE Capital after getting his M.B.A. from Wharton. He worked in risk management, private equity and eventually rose to be the head of mergers and acquisitions. He had spent years imagining a more streamlined GE and was bewildered by its inability to meet cost-cutting targets.

For some, that made him dry. For others, including the GE board, he was just what GE needed. He knew of Immelt’s flaws and wanted to change the culture to encourage debate and focus. Some of Immelt’s signature endeavors and buzzwords evaporated when Flannery ascended.

It was tempting to cast him as the anti-Jeff, but he was instrumental in the Alstom deal, arguing it would be a valuable asset.

Flannery was also a GE die-hard, just as his predecessor and his rivals for the job. Flannery told associates after taking over that he kept a “f— you list” bearing the names of those who had done GE wrong, especially those who left the company.

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A SHORT HONEYMOON

John Flannery didn’t waste any time. Even before he was supposed to officially start as CEO in August, he launched a review of each business unit, scuttled a futuristic building planned for the new Boston headquarters, and grounded the fleet of corporate jets that Immelt had used so extravagantly that he had a spare plane follow him around the world. Each Friday, even if Flannery was on business overseas, he answered employee questions in a recorded video, helping to boost spirits.

He also made a pilgrimage to Nantucket to see Jack Welch, then 81, who has a house there. Some expected Flannery to be more like Welch and less like Immelt; in the aviation division some workers were walking around chanting “Jack is back.” The enthusiasm was double-edged, an endorsement of Flannery and a rebuke of Immelt.

The honeymoon didn’t last long. Flannery was expected to make things better, but he revealed in his first conference call in July that he wouldn’t lay out his strategy until November. Investors used to Immelt’s optimism were left mired in uncertainty. GE’s stock dropped nearly 3%, to $25.91 a share.

Flannery soon learned that things were worse inside GE Power than he had known. The service contracts tweaked when Steve Bolze was in the running for CEO made earnings look better on paper, but delayed money coming in. Factories were holding a glut of expensive inventory because the division had prepared for growth into a market that was collapsing, tying up more cash.

The mess in Power led to the abrupt departures of key GE veterans, a move some inside the company worried would leave the rookie CEO short of experienced hands to help revive GE’s fortunes.

Bolze had left soon after losing the CEO competition. The secrecy of the succession race meant there wasn’t another leader ready to step in at Power. It was still integrating the company’s largest-ever acquisition and about to enter one of the biggest-ever slumps in the power-generation market.

Immelt, who had stayed on as chairman, didn’t stick around for the new CEO to dismantle what he had built. He left the company where he had spent most of his life in October, months earlier than expected. A few days later, Flannery nudged out Immelt’s top lieutenants, marketing chief Beth Comstock and international business head John Rice.

As the board was gathering in October for a monthly meeting, Flannery stepped into the room to make an announcement: Bornstein, the company’s hard-nosed CFO, was resigning. Bornstein himself later came in to explain his decision. They were likely to have to offer Trian a seat on the board. Leaving now might spare directors some conflict between Trian and management. Bornstein would depart along with Comstock and Rice.

It blindsided several directors, leaving them disappointed the board hadn’t been consulted. They felt they could have persuaded Bornstein to stay on. The CFO’s resignation caused more worry from investors. GE announced Bornstein’s departure after the market closed on a humdrum Friday.

The next big news wasn’t long in coming, and this time it involved addition instead of subtraction. That Monday, GE named Trian’s Ed Garden to its board, a move months in the making after the company failed to hit the targets Bornstein had agreed to in his Back Bay townhouse. Investors drove down GE stock almost 4% to $23.43 by the time the market closed.

Flannery and the board, wanting to avoid a proxy fight, added Garden without opposition. Some directors welcomed the new voice, even if Garden could prove abrasive at times, while others on the board were blunt in declaring their distaste for him.

Garden was fond of reminding them all that Trian had lost hundreds of millions of dollars on their watch. Now, he had a direct say in decisions and access to all of GE’s financial secrets.

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THE ANTI-JEFF

If Jeff Immelt was known for his vaulting optimism, John Flannery quickly became known for his boundless brooding.

Few decisions, even major ones, were final as he devised the strategy he promised to unveil in November. Flannery relentlessly sought input from outsiders, searching for flaws in his reasoning. The feedback meant a decision, like selling off a division, could be reassessed at any time.

He repeatedly conferred with the board and encouraged debate. Under Flannery, the board or its committees had dozens of meetings and conference calls. In just one year, they got together in one way or another 50 times.

Flannery felt more analysis and scrutiny was exactly what GE needed. Too often, the company under Immelt had made major decisions about how to spend its cash without enough rigor. And because of GE’s decentralized structure, Flannery felt he needed time to better understand the disparate units despite his three decades working at GE.

The whole process, invigorating at first after Immelt’s dislike of dissent, quickly became grating to the top executives.

GE Powered the American Century—Then It Burned Out

By the time the third-quarter results came in October, the stock was below $25 and losing ground. GE warned that full-year cash flow from its industrial businesses would now be $7 billion, a shadow of the earlier guidance of $12 billion. The loss was almost entirely from the troubled Power division.

With the November date for releasing his strategy to investors rushing toward him, Flannery was forced to stop agonizing, even though his plan remained a work in progress.

Hours before several hundred investors, analysts and reporters packed into a large wood-paneled meeting room in Midtown Manhattan on Nov. 13, GE disclosed it would cut its dividend in half.

Some of Flannery’s explanation was familiar—he blamed the previous management of GE Power—and some of it was new and unnerving. “We’ve been paying a dividend in excess of our free cash flow for a number of years now,” he said.

In the dry language of accounting in which he was so fluent, Flannery was declaring a pillar of Immelt’s pivot had failed: GE had been sending money out the door to repurchase its stock and pay dividends but wasn’t bringing in enough from its regular operations to cover them. It wasn’t sustainable. Buybacks and dividends are generally paid out of leftover funds.

Flannery warned it would take years to fix some of the company’s businesses and laid out a future for three core markets—power, aviation and health care—while planning to jettison smaller divisions, such as transportation and lighting.

Despite the wait, there was no radical restructuring, and just as it had after Flannery spoke in June and in October, the stock fell. Shares drifted below $20.

Deep inside the disappointing three-hour presentation was a little-noticed warning from Jamie Miller, Jeff Bornstein’s replacement as chief financial officer: The ghost of an insurance business that investors thought the company had rid itself of years before would prevent GE Capital from sending the $3 billion it had promised to headquarters.

In 2004, GE spun off most of its insurance holdings into

            Genworth Financial
            ,

      and the remainder was largely sold to Swiss Reinsurance Co. two years later.

Top executives celebrated the move often in public statements. Immelt said that GE might not have survived the financial crisis if it hadn’t shed the insurance operations, an example he and his supporters used to demonstrate his astute deal timing.

But when GE spun off Genworth, there was a chunk of the business, long-term-care insurance, that lingered. Policies designed to cover expenses like nursing homes and assisted living had proved to be a disaster for insurers who had drastically underestimated the costs.

The bankers didn’t think the long-term-care business could be part of the Genworth spinoff. To make the deal more attractive, GE agreed to cover any losses. This insurance for insurers covered about 300,000 policies by early 2018, about 4% of all such policies written in the country. Incoming premiums weren’t covering payouts.

Two months after Miller flagged the $3 billion, it was clear the problem was a great deal larger. GE was preparing for it to be more than $6 billion and needed to come up with $15 billion in reserves regulators required it to have to cover possible costs in the future. The figure was gigantic. By comparison, even after the recent cut, GE’s annual dividend cost $4 billion.

The company won a waiver from regulators to allow it to build up the reserve over seven years rather than all at once. The numbers were dire enough, though, that GE held a special call for investors in January 2018, only days before it was scheduled to release earnings.

During the call, Flannery, who had promised in November that his review had left no stone unturned, said that he would spend some time—again—looking at options for all of the business units. He carefully avoided using the words “break up,” but that’s how it was interpreted: The GE lifer was considering dissolving the conglomerate. Investors he hoped to placate were unimpressed. GE shares fell almost 3% to $18.21.

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THE BEST PEOPLE

The General Electric board of directors had long been one of the world’s most prestigious corporate appointments.

When Flannery took over as chairman from Immelt, the members included a dozen current or former CEOs, the dean of New York University’s business school and a former chairman of the Securities and Exchange Commission.

The 17 independent directors got a mix of cash, stock and other perks worth more than $300,000 a year, and they also could receive up to $30,000 worth of GE products in any three-year period. The company also matched directors’ gifts to charity. Upon leaving the board, a director could direct $1 million in GE money to a charity.

For 36 years under Immelt and Welch, the board had largely followed the chairman’s lead. One newcomer under Welch was so surprised by the lack of debate that the director asked a more senior colleague, “What is the role of a GE board member?”

“Applause,” the older director answered.

Immelt, like many CEOs who are also their company’s chairmen, made sure his board was aligned with him. In 2016, he pushed out Sandy Warner, a 24-year GE director and the former CEO of JP Morgan, after the two had clashed over Immelt’s succession.

Warner thought it should be sped up, and that Steve Bolze, head of GE Power, was likely the man for the job. Immelt, dissatisfied with how Bolze was running Power, felt he had to force Warner off the board to torpedo Bolze.

Warner appealed to fellow directors in a closed session. Would they at least allow a debate on whether it was time to replace the CEO? The board stuck with Jeff Immelt, and Sandy Warner walked away for good. GE told investors in a securities filing he left because of new term limits and didn’t disclose the dispute.

The Federal Reserve, when it was supervising the company, had urged the board to push back more on Immelt. The CEO often made it a point to go around the board table to ensure everyone had a chance to comment on a strategic decision. Directors rarely challenged him. To Immelt, it was proof he solicited input and encouraged debate.

Flannery had committed to revamping and shrinking the board after investors criticized its oversight of Immelt.

Board meetings at GE were an elaborate production. With 18 directors and another dozen regular attendees, the room was packed, and the agenda was, too. The plan being implemented in the first part of 2018 called for the board’s size to be cut to 12. Half of the current directors would leave and three new ones would be added.

Just like previous CEOs, Flannery wanted to make the board his own, but he wanted more than a rubber stamp for his decisions. He wanted an active debate. It was one of the reasons he welcomed the inclusion of Trian’s Ed Garden.

He also sought out Larry Culp, the former CEO of smaller conglomerate Danaher Corp. In the 14 years Culp ran the company known for its dental implants and medical devices, he had earned a reputation for tough deal-making and careful spending.

Danaher shares surged during his tenure, and he had retired at 52 years old after making more than $300 million. The company sometimes came up at GE board meetings as an example of a more functional conglomerate.

Before Culp joined the board in April, an adviser warned Flannery that Culp would be the man to replace him atop GE if things soured. Flannery said he didn’t care; he needed the best people to help him right the listing ship.

A horizontal neon light used to act as a horizontal rule

BACK TO SARASOTA

Before he was named the boss, John Flannery had enjoyed a reputation inside of GE for being a calm, confident leader who had revived GE’s health-care business.

Folks liked to point to how he handled a presentation to 700 company bigwigs at GE’s annual global management retreat in Boca Raton, Fla., in January 2015. It was a big deal to be chosen to talk at the company’s ultimate networking event, and the presentations took weeks to prepare.

Flannery showed up for his without PowerPoint slides and wowed the audience with his quiet confidence and command.

Three years later, it was clear that being CEO of GE wasn’t the same as presenting at Boca, especially when everyone was looking to you to save the company. Flannery was building a new reputation. He lacked self-confidence and sometimes flew off the handle. He could get flustered in high-pressure situations, and GE’s stock price dropped anytime he opened his mouth.

The Electric Products Group conference was fast approaching in May in Sarasota, the setting for Immelt’s last stand a year earlier.

Flannery’s handlers were prepping him to avoid another setback. They had a long sheet of possible questions and appropriate answers. They did mock sessions and asked him the same questions in many different ways, so he could always steer to the best response.

Once on stage, the preparation couldn’t hide Flannery’s all-too-familiar message. The power business faced years of struggle and major changes at the conglomerate would take time to show results.

When pressed, Flannery declined to commit to GE’s dividend for 2019. He gave the answer as a finance expert. The dividend will reflect the ability of the existing portfolio to pay it, so it may change with the portfolio. If a company sold half its businesses, it couldn’t pay the same dividend.

GE Powered the American Century—Then It Burned Out

The transparency was unusual. The CEO playbook called for him to stand by his commitment to the dividend, until he didn’t. Flannery also defended his methodical approach to his latest review of the company’s businesses.

“So being deliberate and then moving when things make sense as opposed to moving just because somebody wants us to is just not my style,” he told the crowd. “So, I get that people want faster. I’m managing in a broader sense.”

Flannery had spoken, and the stock had fallen 7%.

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THE BREAK UP

It was a measure of the challenges facing John Flannery that when GE was dumped from the Dow Jones Industrial Average in June, he had bigger things on his mind.

An original member of the index, GE had been continuously part of the Dow since 1907. It was replaced by

            Walgreens Boots Alliance
             Inc.,

      a drugstore chain with a market capitalization half as big as GE’s.

It was a blow to GE’s battered rank-and-file. Being dropped from the most widely cited stock index meant they no longer worked at one of America’s 30 most prestigious companies.

Date peaked: Aug. 28, 2000

Market capitalization

of industrial companies,

in billions

Date peaked: Aug. 28, 2000

Market capitalization

of industrial companies,

in billions

Date peaked: Aug. 28, 2000

Market capitalization

of industrial companies,

in billions

Market capitalization of industrial companies, in billions

Date peaked: Aug. 28, 2000

Flannery was too busy to lament a move he saw as inevitable. In a week, he was going to unveil a plan to break up the company spawned by Edison and Morgan, and made and remade by Welch, Immelt and 10 other men before him. The moment weighed on the GE veteran with the enemies’ list in his head.

The preparations were intense. Investment bankers, crisis PR consultants and other advisers were brought in to finish the plan and help Flannery construct a message he would deliver in a surprise announcement June 26.

He presented a plan that many expected back in November. GE would spin off its health-care division, sell its stake in oil-field supply company Baker Hughes, cut its debt and streamline its sprawling corporate structure. The stub of GE Capital was all that remained unresolved.

Larry Culp" title="Larry Culp

Larry Culp


Photo:

        Clint Spaulding/Patrick McMullan
          

Almost as an afterthought, it was announced that Larry Culp had been elevated to lead director, replacing Jack Brennan, the former CEO of giant mutual-fund company Vanguard Group.

Culp had the kind of successful industrial pedigree that investors, including Trian, wanted steering the board. Some directors thought GE should abandon its tradition of having the CEO also serve as chairman. Having a strong lead director was a good compromise.

Culp grabbed the reins in the summer board meetings, drilling the new CEO on questions about the power business, scolding Flannery in front of directors for not knowing such nitty-gritty details as inventory levels. Given the sprawl of GE, few expected Flannery to have them at the ready.

In his previous life at the much smaller Danaher, Culp was known for immersing himself in its various companies. Rather than bringing executives to headquarters for reviews, he would travel to their offices and walk the factory floors.

For some on the board, the dressing down revealed a bigger problem. Flannery lacked the experience to juggle the steady flow of crises while also running the company that he was still learning about. Flannery felt he was bringing scrutiny to major issues, like how to best spend GE’s money, that were previously glossed over.

But there was also a group on the board who already wanted to consider pushing Flannery out. They were worried he wasn’t up to the job, and GE had no room for error. Even a normally manageable problem could mean disaster.

It came from the blades in GE Power’s newest line of heavy-duty gas turbines. They were failing.

            Exelon
            ,

      a big utility, was forced to shut two power plants in Texas for repairs. GE would need to fix dozens of other turbines it had sold. That promised to damp already weak sales and drive up maintenance costs in the struggling unit. GE was counting on that turbine to battle rivals such as Siemens.

Share of revenue by segment

2018 through third quarter

Share of revenue by segment

2018 through third quarter

Share of revenue by segment

2018 through third quarter

Share of revenue by segment

2018 through third quarter

There was more. GE was on pace to miss its cash-flow targets and would have to take a charge of more than $20 billion to write off the value of previous acquisitions, including Alstom. Flannery briefed directors in a conference call on Wednesday, Sept. 26.

By the end of the weekend, Flannery was out, fired after 14 months, the shortest stay at the top in GE’s long history. The new boss was Larry Culp.

Culp hadn’t been looking for the job when he joined the board, and didn’t accept it lightly. He had retired three years before and was spending much of his time working with his alma mater, Maryland’s Washington College, sitting on corporate boards and working as a senior adviser to Bain Capital, the private-equity firm.

He saw opportunity, though, and thought he would be a good fit. After all, he had 14 years of experience as a CEO and was only 55. Unlike Flannery, he acted decisively, slashing the GE dividend again within his first weeks on the job, leaving investors to collect a token 1 cent per share each quarter.

Like Flannery, he still planned to dismantle the company, now beset by investigations, lawsuits and waning confidence that it could pay its debts.

Federal criminal and civil investigators were looking into the ways GE Power had modified service contracts to wring out more short-term profits. They were probing how GE Capital disclosed its continuing liability for long-term-care insurance, as well as write-off Alstom and other deals.

Shareholders accused the company of defrauding them, citing the power contracts and insurance liability in their lawsuits. GE has denied the allegations. And GE, once the owner of credit almost as good as the U.S. government, saw rating agencies drop the grades on its once-golden bonds.

GE Powered the American Century—Then It Burned Out

Like Flannery, when Culp spoke the stock sank. In a fidgety TV interview in November, he said the power business had yet to hit bottom. He declined to set new financial targets. GE’s stock soon fell below $7 for the first time since the financial crisis.

The collapse has been so complete that there is little left to lose. JP Morgan analyst Steve Tusa, who led the pack in arguing that GE was harboring serious problems, removed his sell rating on the stock this week. GE’s biggest skeptic still thinks the businesses are broken but the risks are now known. The stock climbed back above $7 on Thursday, but is down more than 50% for the year and nearly 90% from its 2000 zenith.

As far and as hard as the fall looked to those on the outside, it felt even farther and harder to those who had been on the inside, the true-believers like Jack Welch and Jeff Immelt and John Flannery, GE men through and through. Today as they try to reconcile how a company valued at nearly $600 billion 18 years ago is now worth a tenth of that, they can’t help but feel the deep sting of the slights of history.

Since being forced out, Flannery has kept his distance from GE. The 56-year-old set out on a six-week road trip with his wife, a journey he long dreamed of taking but couldn’t fit into his three decades of climbing to the top of General Electric. He was crisscrossing the American landscape that not long ago he was cruising above in business jets.

Flannery is unrepentant about refusing to be rushed into plotting a better course for the company he loved. He had unearthed serious problems, every decision was heavy, affecting thousands of factory jobs or a lonely retiree waiting for a dividend check. In exile, he remains certain that there was no quick fix no matter how much investors and the board wanted one.

Immelt, now 62, divides his time between Silicon Valley, where he joined a venture-capital firm and sits on the boards of four of its startups, and Watertown, Mass., where he serves as chairman of Athenahealth Inc., a medical-software company. In a sun-filled office in the rehabilitated brick factories of an old arsenal complex, Immelt is doing what he told colleagues he wanted to do after leaving GE: work with young, growing tech companies.

But the anguished way he left the company to which he’d devoted his life remains fresh. He feels misunderstood and unfairly portrayed. He has quipped to some in Silicon Valley that he takes solace in the fact that no one there watches CNBC or reads The Wall Street Journal.

Immelt sees his tenure as Sisyphean, a battle against gravity as he tried to break the company free of its dependence on Capital only to reveal unseen weakness in the power business that was supposed to be GE’s strength.

“The notion of plugging financial services and industrial companies together, maybe it was a good idea at a point in time, but it is a uniquely bad idea now,” Immelt said this week.

Welch, now 83, has slowed from his relentless peak, but was a ubiquitous presence on Nantucket this summer, never hiding his disdain for the man he chose to succeed him. He fumed about operational failures in the power business, and the execution of the pivot. Welch readily greeted old acquaintances with a grimace about the latest news of the company, saying he gave himself an A for the operation of his old shop, and an F for his choice of successor.

“I’m terribly disappointed. I expected so much more,” he said this week. “I made the best choice I thought I could make, and it didn’t turn out right.”

The old chairman isn’t sure the powerhouse of his time can be revived, but he hopes that Larry Culp can “build a new GE.”

To Flannery, Immelt, Welch and the others schooled in Crotonville, Larry Culp’s ascension punctured a deep and abiding conviction: General Electric made the greatest managers in the world, who could run anything better than anyone else. When the company they loved needed them most, though, the heirs to Edison’s ingenuity had run out of ideas.

In the cruelest of codas, the last CEO of America’s last great industrial conglomerate would be an outsider.

A horizontal neon light used to act as a horizontal rule

Write to Thomas Gryta at thomas.gryta@wsj.com and Ted Mann at ted.mann@wsj.com

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