Conglomerate Watch: Immelt find it tough to follow Jack Welsh’s act

GE’s CEO Jeffrey Immelt finds it difficult to convince markets that his new strategy will deliver value as his predecessor did.
Two articles in the Financial Times highlight how important it is for CEO to communicate effectively to financial analysts whose recommendation drive the stock price of a firm. Here are excerpts from the informative articles.

GE redoubles efforts to woo investors.

Francesco Guerrera in New York, 25 February 2007, Financial Times (FT.Com)

GE’s shares have underperformed the market by more than 20 per cent since Jeffrey Immelt took overfrom Jack Welch as chairman and chief executive in 2001. The sluggish performance has surprised GE insiders because the company met its financial targets, sold low-margin operations and expanded faster-growing businesses. General Electric is to redouble efforts to woo investors and bolster its underperforming share price after admitting it has so far failed to persuade the market that its sprawling business can deliver sustained profit increases.The investor relations offensive, centred on the theme “invest and deliver”, will attempt to allay fears over GE’s “quality of earnings” - the perception that recent results were flattered by tax rates and one-off items. Executives say the shares’ poor performance is partly due to the company’s failure to persuade investors it can achieve consistent quarterly profit growth. “Jeff and I can do a better job of explaining our performance quarter by quarter,” Keith Sherin, chief financial officer told the Financial Times. “What’s the difference between Jeff and Jack? Jeff introduced the growth playbook,” said Nicole Parent,an analyst at Credit Suisse. “When you have growth and your stock price doesn’t move, investors ask questions, but management is acutely aware of what it has to do.” GE also plans to take analysts to research centres in New York state, Shanghai, Bangalore and Munich, which are charged with producing new products and technologies. The move could dispel fears that GE’s size will eventually slow its profit growth by highlighting its investments in research and development.

Share price keeps Immelt in Welch’s shadow.
Francesco Guerrera in New York, 25 February 2007, Financial Times (FT.Com)

As long as the share price underwhelms, it will be tough for the 50-year-old executive to come out of the overbearing shadow of his predecessor Jack Welch. Mr Welch’s own brand of ruthless cost and employee cutting, daring acquisitions and self-promotion contributed to a 38-fold rise in GE’s shares during his two decades at the helm. Since Mr Immelt got the top job the shares have failed to respond to his strategy of refocusing GE on high-growth industries in order to increase profits and revenues. “Jack made GE into a financial institution with a manufacturing arm and Jeff is taking it back to the core,” says William Rothschild, a former GE corporate strategist and the author of The Secret to GE’s Success. “But he has to show he has picked the right shots. He is still earning his stripes.” Investors’ willingness to give Mr Immelt time - nobody on Wall Street has yet called for his head - is partly driven by their respect for a personality and management style that are near-polar opposites of the “imperial CEO” qualities epitomised by Mr Welch.