Bloomberg Businessweek - USA (2019-06-17)

G

E sharesgota nicelittlebumpwhenthecompany

announcedonApril 30thatit hadburnedonly$1.2 bil-

lionincashinthefirstquarter,a thirdofwhatmostanalysts

expected.“Nonewsis goodnews,I guess,intheeyesofsome

investors,”Culpsaidinanotherbriefphonechat.Infact,no

newshasbeenalmosttheonlygoodnewsthepasttwoyears,

astherat-a-tatofnegativerevelationspromptedinvestorsto

knock$150 billionoffGE’svalue,ormorethantheentiremar-

ketcapofNikeInc.orGeneralMotorsCo.

Thedescentbegandecadesago.GEpreserveditspublic

bearingasoneoftheworld’sgreatestcompaniespartly

becauseofitsname:EveryonewantedtobelieveinGeneral

Electric,makeroflightbulbsandjetengines,corporatechild

ofThomasEdison,keystoneof20thcen-

turyindustrialAmerica.Welchcoulddo

nowrongintheeyesofmostinvestorsand

businessmedia.

The reckoning also was deferred

becauseGE’squestionable accounting

andselectivedisclosuresmadeit almost

impossibleforshareholderstoseewhich

businessesweretrulythrivingandwhich

weren’t. The company pioneered the

euphemisticallynamedpracticeofearn-

ingsmanagement;it couldsella handful

ofassetsattheendofthequartertogive

earningsa boost.GEroutinelymetorbeatWallStreetexpec-

tations,whichofcoursejuicedshares.Furtherobscuringthe

picture, its in-house bank, GE Capital, was so vast that trou-

bled businesses such as long-term-care insurance or subprime

mortgages could fester without drawing much attention.

Cracks finally became visible under Immelt, who ran GE

much like Welch, constantly buying and selling companies.

When the 2008 financial crisis hit, GE almost collapsed.

Immelt cut the dividend for the first time since the Great

Depression. The SEC charged the company with misleading

investors, saying it “bent the accounting rules beyond the

breaking point.” GE paid $50 million to settle the case without

admitting fault, but it would no longer get a free pass when

fiddling with earnings.

By the time Nelson Peltz’s activist Trian Fund Management

disclosed it had bought a $2.5 billion stake in 2015—usually

not a good sign for top managers—Immelt had made two fate-

ful decisions that would help pave the way for Culp’s ascen-

sion. The first was GE’s $10.6 billion acquisition of the energy

business of France’s Alstom SA. A maker of natural gas power

turbines, Alstom had poor profitability as fossil fuels faced

growing competition from renewables, but the purchase bol-

stered GE’s position as the world’s largest maker of gas tur-

bines. The global market for those products was crashing

when GE closed the Alstom deal in late 2015.

Then, in selling the bulk of GE Capital, Immelt cashed in

on strong assets while hanging on to weak ones, such as the

long-term-care insurance business that last year forced GE to

set aside $15 billion to cover potential future losses. On the

dayinJune 2017 thatGEannouncedImmeltwouldretire,the

stockrose3.6%,itsbiggestone-dayjumpinalmosttwoyears.

GEveteranFlannery,oneoffourfinalistsinsidethecom-

panytosucceedImmelt,tookoverinAugust2017.Twoofthe

othercandidatesresignedbeforetheyearwasover.“Things

willnotstaythesame,”Flanneryvowed.Hewasright;things

worsenedasthepowerbusinesscontinuedtodeteriorateand

investorsinuredthemselvestohearingonebad-newsbomb-

shellafteranother.InvestorTrian,withitssizableGEstake

anda boardseat,grewconcernedaboutbothFlanneryand

theshallowbenchbehindhim,saysa sourcewhoisn’tautho-

rizedtospeakpublicly.

Earlylastyear,GEtooktheextraordinarystepofoverhaul-

ingitsboard,shrinkingit toa dozendirec-

torsfrom18.Flannerysoughtadviceon

newmembersfrom,amongothers,Kevin

Sharer,a GEalumnusandformerAmgen

Inc.CEO,whowasteachingatHarvard

BusinessSchool.Sharerravedabouthis

fellowHBSlecturerandgolf-fishing-and-

-skiingbuddy Culp.After Culp joined

theboard,hethrewhimselfintolearn-

ingeverythingaboutthegiantcompany,

evenvisitingfactories.Analystsbeganto

speculatethathe’dsoonbecomeCEO.

Sharersaystherewasnosuchplan,though

Flannery“knewverywellLarry’sbackgroundandhiscapa-

bility.”InoneofCulp’sfirstconversationswiththethen-CEO,

Flannery said he admired what Culp had done at Danaher.

Culp replied, “We were simply doing what we thought you

were doing.”

U

nless you’re a Danaher shareholder or a fan of Harvard

case studies, you probably don’t know much about the

company. It’s an oddly frequent focus of academic inquiry,

perhaps because its executives seem more willing to speak

with professors than the media, which Danaher tends to

ignore. The company didn’t respond to requests for inter-

views for this story.

Its headquarters are on the eighth floor of a glass build-

ing wedged between a federal credit union and an upscale

restaurant in the Washington, D.C., neighborhood of Foggy

Bottom. The name “Danaher” doesn’t appear on the build-

ing’s exterior. The company evolved from a real estate firm

that brothers Mitchell and Steven Rales founded in 1969. (It’s

named for a tributary of a Montana river they liked.) By the

mid-1980s, it had acquired hundreds of small and midsize

industrial companies.

Danaher was one of the first U.S. companies to adopt

Toyota Motor Corp.’s kaizen process of increasing produc-

tivity with tiny, continuous improvements. Its own version

is called the Danaher Business System, or DBS, which in

some ways resembles the Six Sigma quality-assurance reg-

imen Welch embraced in the 1990s. DBS relies heavily on

measurable facts, including not only profits and sales but

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Bloomberg Businessweek June 17, 2019

COURTESY GE

Culp