The Times - UK (2021-11-10)

36 2GM Wednesday November 10 2021 | the times

Business

Maybe Larry Culp, the chairman and
chief executive who has sanctioned
the break-up of what has been the
world’s greatest multinational indus-
trial conglomerate, has been re-reading
the bestselling books of Jack Welch.
After “Neutron Jack” ended his
much-lionised career as the boss of
General Electric, his tomes on manage-
ment, leadership and success spawned
a lexicon of phrases and mindsets,
much-mimicked in global boardrooms
and on corporate away days.
“Deal with the world as it is, not how
you’d like it to be,” was one. “Control
your destiny, or someone else will,” was
another. A third was: “If we wait for the
perfect answer, the world will pass us
by.”
At his most astringent, Welch’s man-
agement philosophy could be boiled
down to “fix it, close it or sell it”. All of
these are echoed in Culp’s decision to
break up GE into its three residual
positions in aviation, healthcare and
power systems.
The move comes as another Jack-ism
rings in the ears of executives around
the world: Welch’s belief that climate

The economy risks stagnation and
sticky inflation in future because of
persistent supply chain bottlenecks and
headwinds from Brexit, a leading think
tank has warned.
Inflation is on course to hit about
5 per cent next year, while the economy
looks set to grow by only 1.7 per cent in
2023 and by 1.3 per cent in 2024, after
rebounding by 6.9 per cent this year
and 4.7 per cent in 2022 following the
pandemic, the National Institute of
Economic and Social Research said.
In its autumn 2021 UK Economic
Outlook, the institute, which was
founded in 1938 and is Britain’s oldest
independent economic research group,

duce an immune response and should

be named on the “principal patent

application”. Moderna disagrees.

If the agency scientists are named on

the patent along with the Moderna

employees, the government could have

more say in which companies manu-

facture the vaccine. This in turn could

influence which countries get access.

The fight comes amid frustration in

Washington and elsewhere with Mod-

erna’s efforts to get its vaccine to poorer

countries.

Shares in the company closed down

$7.83, or 3.2 per cent, at $236.85 after

The New York Times reported the row.

Moderna locked in battle

over Covid vaccine patent

Robert Miller

UK ‘risks inflation and stagnation’

said: “The next few months are likely to

bring stuttering growth, rising inflation

and widening income inequalities to

the UK economy. Household incomes

will be painfully squeezed by a

combination of earnings growth lag-

ging inflation, rising interest rates and

tighter fiscal policy.”

Jagjit Chadha, 54, director of the

institute, said: “We may be faced with

economic stagnation. We believe that

short-run supply problems faced by the

UK will persist and are likely to be

exacerbated by Brexit.”

Reduced European Union immi-

gration and lower business investment

than would have been the case without

Brexit would also limit future growth

and productivity, the forecasts showed.

“We’re getting economic management

of the UK economy wrong,” Chadha

added, noting years of under-invest-

ment in training, housing and infra-

structure, especially outside London.

A further danger was a trade dispute

with the European Union, which could

be triggered within weeks over customs

arrangements for Northern Ireland,

the institute said. This would intensify

supply chain problems and would

weaken sterling, pushing up inflation

and increasing the chance that it

becomes entrenched, it said.

Businesses’ desire to rebuild profit

margins, as well as higher energy prices

and supply chain pressures, would push

inflation to 5 per cent in the second

quarter of next year, it warned.

Times Business Reporter

The future distribution of Moderna’s

coronavirus vaccine and potentially

billions of dollars of future profits could

be at stake in a dispute between the

drugs group and America’s national

medical research agency.

Moderna and the National Institutes

of Health disagree over which deserves

credit for inventing the central compo-

nent of the company’s Covid vaccine.

The agency says three scientists at its

Vaccine Research Center worked with

Moderna to design the genetic se-

quence that prompts the vaccine to pro-

Lightbulb moments

1889

Edison General

Electric company

formed ten years after

Thomas Edison

creates a lightbulb

filament that lasts for

1,200 hours

1918

Builds a record-capacity water-wheel

generator for Niagara Falls

1941

Builds the first

US jet engine,

the I-A

1957

Develops the J93,

the first engine to

operate at three

times the speed of

sound

1970

First afterburning

turbofan, the F101, is

selected to power the

US Air Force’s new B-1

Bomber

1981

Jack Welch

appointed chief

executive

2015

Enters the offshore

renewable energy industry

through the Alstom Energy

acquisition

1919

Supercharger makes its

maiden flight over McCook

Field in Dayton, Ohio

1949

Introduces the J47, which

becomes the world’s

most-produced jet engine

1965

Unveils TF39 turbofan

and wins contract from

the US Air Force to power

the C-5A Galaxy

1978

Delivers its first T700

engine to power

Sikorsky Black Hawk

helicopters

2001

Welch receives a then record

severance payment of $417 million

when he retired

2019

First deep

learning-based CT

image reconstruction

technology gains FDA

clearance

1896

Builds electrical

equipment for the

production of X-rays

Share price p

$400

350

300

250

200

150

100

50

0

2005 2010 2015 2020

9 3,

to

e

End of an era with break-up of GE

Continued from page 33

operational focus within each of the

companies, it said; provide the “strate-

gic and financial flexibility” to grow;

and broaden its investors by attracting

new shareholders interested in each

individual area of the business.

GE said it remained on track to re-

duce debt by more than $75 billion by

the end of this year, assuring investors it

was in a strong position to proceed with

its plan to separate into three “well-cap-

italised, investment-grade” groups.

The company believed that it had a

“responsibility to move with speed to

shape the future of flight, deliver

precision health and lead the energy

transition”, Culp, 58, added.

The separation process is expected to

generate a one-time charge of $2 bil-

lion, with operational costs and tax

costs of less than $500 million.

Wall Street analysts broadly wel-

comed the announcement yesterday.

Deane Dray, at RBC Capital Markets,

said that the break-up “makes strategic

sense” and could boost GE’s stock price

by as much as 20 per cent. There was

“attractive value to be unlocked”, he

told clients in a note. For long-time

observers, this will mark the

end of an era. Nicholas

Heymann, a veteran analyst

at William Blair, the invest-

ment bank, has been

following GE for almost

four decades. Culp, who has

led the company since

2018, had reshaped it “in

the format he believes can

generate the most value”,

Heymann told CNBC.

“He’s setting it up to grow,

as opposed to setting it up

to survive.”

Testing Neutron Jack’s style to destruction

The boss learnt from a

predecessor’s mantra of

‘fix it, close it or sell it’,

writes Robert Lea

tenure coincided with similar moves

around the globe from the break-up of

Siemens, GE’s European equivalent, to

lower-level disposals and realignments

at the likes of Ferguson/Wolseley,

Smiths Industries and Pennon, the

water and waste group.

General Electric was formed at the

end of the 19th century from the origi-

nal Thomas Edison light bulb company

and grew through the merger of com-

panies that were shaping the revolution

in electricity. In its time GE or its con-

stituents have been in the vanguard of

the development of television, the jet

engine, plastics and computing.

Culp’s rationale is to create three

separated businesses that will have

“greater focus, tailored capital alloca-

tion and strategic flexibility”. That it has

come about under the eyes of various

“barbarians at the gate” demanding

change suggests that investors

will want one of two

things for each GE busi-

ness: funded growth to

make them global

leaders; or a sale to rivals

that have the wherewith-

al. As Welch would have

put it, businesses control-

ling their own destiny or

ceding it to someone else.

ed itself of swathes of GE Capital, the

group’s financial services division,

which included mortgage lending and

secured loans in Britain.

The financial crisis led Jeff Immelt,

Welch’s successor, to conclude that

super-conglomerates worked well —

until they didn’t. That is when markets

turn sour and investors see only their

complexities and not the natural hedge

of being in several industries with

differing cycles. Immelt’s successors

John Flannery and Culp, the first out-

sider to run the group, have pursued

that mantra.

Flannery’s conversion to the “decon-

glomerisation” theme during his short

time great pay-offs — a bank transfer

for more than $400 million — it is GE’s

stock performance in the past decade,

during which it has never recovered

from the 2008 global financial crisis,

that has forced Culp’s hand.

In reality GE — valued at more than

$120 billion, only an eighth of the worth

of Tesla, a small carmaker — has been

breaking up and slimming down for

years. In the past decade GE’s global

workforce has been nearly halved.

Its vast exposure to the money-go-

round, which made GE the largest non-

financial finance house in the world,

brought the company to its knees

during the banking crisis. It has divest-

change is “the attack on capitalism that

socialism couldn’t bring”.

The GE that Culp is breaking up is

the organisation that Welch built in the

1980s, fired up by the low-tax and busi-

ness-friendly policies of Reaganomics

and an embrace of combative, brash,

some would say brutal leadership

under which the company acquired

and disposed of dozens of businesses.

Welch got the “Neutron Jack” sobriquet

because, like the bomb, he could elimi-

nate an entire workforce while leaving

the corporate buildings standing.

While Welch increased GE’s reve-

nues fivefold and the stock price tenfold

before he left in 2001 with one of the all-

Former chief executive

Jack Welch increased

GE’s revenue fivefold

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