WSJ – How Jeffrey Immelt’s ‘Success Theater’ Masked the Rot at GE

https://www.wsj.com/articles/how-jeffrey-immelts-success-theater-masked-the-rot-at-ge-1519231067

https://www.washingtonpost.com/news/on-leadership/wp/2018/02/22/a-lesson-from-ge-the-power-of-telling-hard-truths-and-the-peril-of-avoiding-them/?utm_term=.163098e3a5f9

Executives and management hate to hear “bad news” or actual aspects of being able to realistically achieve a goal (engineers especially hate being over optimistic)

  • Immelt, the longtime boss at General Electric was a polished presenter
  • “This is a strong, very strong company,” Mr. Immelt said at the event last May.
  • GE’s precipitous fall, following years of treading water while the overall economy grew, was exacerbated, some insiders say, by what they call “success theater.”
  • Immelt and his top deputies projected an optimism about GE’s business and its future that didn’t always match the reality of its operations or its markets
  • culture of confidence trickled down the ranks – unreachable financial targets, mistimed bets on markets and sometimes poor decisions on how to deploy cash
  • “The history of GE is to selectively only provide positive information,” saidDeutsche Bank– credibility gap between what they say and the reality of what is to come
  • “GE itself has never been a culture where people can say, ‘I can’t.’ ”
  • GE once had the highest market value of any U.S. corporation – alumni have gone on to run companies such asBoeing and Chrysler
  • GE’s board didn’t realize the depth of problems in the biggest division, GE Power, until months after directors had replaced Immelt
  • Immelt didn’t like hearing bad news – and didn’t like delivering bad news, either.
  • “GE’s customers, investors and employees want us to focus on the future. We are building a stronger, simpler GE,” Flannery (current GE CEO)
  • Immelt’s predecessor, Jack Welch, delivered steady profit growth and sent shares soaring in the 1980s and ’90s by striking deals and aggressively slashing costs and jobs
    • Welch also built up a huge lending business called GE Capital that for years generated outsize profits—but nearly sank the company during the financial crisis
  • During his tenure, Immelt ramped up research spending and hired thousands of programmers to develop software for the machinery GE makes.
    • Results were strong at two of GE’s big units, aviation and health care (medical equipment).
    • sales and profits slumped at the enlarged oil and power units, creating serious problems
  • wasn’t until a meeting in September that the board learned the depths of the problems at the GE Power division, which accounts for 30% of GE’s approximately $122 billion in annual revenue
  • Immelt’s optimism was part of the problem

 

  • The Economist theorized that GE’s financial information is “fantastically muddled.”
  • Bloomberg Businessweek cover storychronicled the risks its GE Capital business had long presented and where ambitious efforts never paid off
  • Barron’s cover last weekend warnedinvestors that the already battered stock could drop 10 percent more
  • Wall Street Journal placed the blame for the “rot at GE” – a history of selectively positive projections, a culture of overconfidence and a disinterest in hearing or delivering bad news –  “has never been a culture where people can say, ‘I can’t.’ “
  • shines a light on a problem endemic to corporate America, leadership experts say. People naturally avoid conflict and fear delivering bad news. But in professional workplaces where a can-do attitude is valued above all else, and fears about job security remain common, getting unvarnished feedback and speaking candidly can be especially hard
  • every organization you’re a part of, there’s a challenge to being forthright and honest.”
  • easy for a sense of overconfidence to creep in – “It’s the mind-set of invulnerability that iconic companies create — that we are a special entity,”
  • prestige can create a “social distance” between the CEO and direct reports, even if they make efforts to improve personal relationships
  • “People tend to not want to tell them the bad stuff,” – “They become starstruck; they’re less likely to want to speak up and say negative things.”
  • how can leaders avoid a culture of “success theater?” – model the behavior, being realistic about goals and forecasts and candid when things go wrong. – host town halls where employees can speak up with criticism, structuring them so bad news can flow to the top
  • reward people for bringing up bad news
  • Intel founder Andy Grove once advised “embrace the discomfort,” explaining that “you’ve got to make it more uncomfortable for people to say nothing than to say something.”

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