The transcript from this week’s, MiB: Jeff Immelt, former GE CEO, is below.
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VOICEOVER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.
BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, I have an extra special guest. His name is Jeff Immelt and he is the former chief executive officer of General Electric, one of America’s biggest and best known companies. I was really impressed not only with his book, “Hot Seat” but with our conversation. He’s absolutely forthright. he takes complete ownership of the errors that were made at General Electric. I mean by and large they got more right than wrong.
And to be blunt I think he inherited a mess room Jack Welsh who I’ve described as the most overrated CEO in history. There was an accounting scandal lurking there, Jack paid himself an obscene amount of money, a $460 million severance package and just you know, manipulating earnings, pulling a magic penny out of GE Capital and I gave impulse every opportunity to throw Welsh under the bus and he refused to.
In fact he could not have been more generous to his predecessor who not only gave him a company with a ticking time bomb in it, but a big conglomerate industrial company with a 50 PE. How is it not inevitable that GE stock price was going to come back to Earth, a 15 or a 20 PE is reasonable for a industrial conglomerate, not 50.
And so the stock performance was more or less, you know, out of his hands.
He is super knowledgeable, really just a tremendous guy. Under different circumstances, I think his reputation as a CEO and a leader would be up there amongst the best in the world but because of the situation he stepped into, literally his first day of work was September 10, 2001 and he tells some fascinating stories about it.
I found the book to be really interesting, totally transparent, very honest and very educational. There’s a lot to learn from his experiences and just really a fascinating person with an incredible work history and just a lot to share. He now is teaching at Stanford Business School and is a venture partner at one of the larger venture capital funds.
So with no further ado, my conversation with former GE CEO, Jeff Immelt.
VOICEOVER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.
RITHOLTZ: My extra special guest this week is Jeff Immelt, he joined General Electric in 1982 in the plastics appliances and healthcare division. He eventually led GE’s medical systems division from ’97 to 2000 rising to the role of CEO where he led General Electric from 2001 to 201. His new book is “Hot Seat, What I Learned Leading a Great American Company” Jeff Immelt, welcome to Bloomberg.
JEFF IMMELT, FORMER CEO, GE: Hey, Barry. Thanks. It’s great to be here.
RITHOLTZ: So tell us a bit about your path to becoming the CEO of one of America’s crown jewels. Your dad was an employee at GE, wasn’t he?
IMMELT: Yes, Barry. I grew up in Cincinnati, Ohio. My dad was a career in manufacturing guys in our aviation business so I kind of grew up in the shadow of the company, if you will. You know, I went away to school and went to business school and I graduated in 1982.
And it wasn’t necessarily that my father had worked there but what I thought I would do is go someplace where I can learn to be a manager, you know, kind of learn what general management was like. GE had a great reputation so I went to work in 1982 in the plastics business, I thought I would stay 5 years and I ended up staying 35 years.
So, you know, I would say careers are based on performance and luck, and my career had both of those. I started in the plastics business really commercially selling in Detroit in the western half of the US and that was a really interesting and fun.
I learned so much by selling to big companies like General Motors and Ford which at that time, were kind of the giants of American industry and they were really a challenge.
And then I had my first real break when I was in my early 30s. I was moved to our appliance business to run the service business during a major product recall and so I was at a very high-profile job at a very young age that was extremely difficult, I have lots of exposure to Jack Welsh early in his CEO tenure and, you know, I think getting noticed at an early age is actually one of the things that helps people push them along in their career and I later went back to the plastics business.
And then right before I became CEO, in 1995, I went to our healthcare business and that was just a perfect fit, it was relatively small business but was very technical, very global, it played a lot of my strengths I met with the platform that ultimately I moved from to become CEO of the company in 2001.
RITHOLTZ: So before we move to your tenure as CEO, I have to ask when you started, the medical systems division was relatively small, but that eventually became a pretty substantial growth driver. Tells a little bit about the General Electric Medical Systems Division you ran.
IMMELT: Yes, so, you know, I have been really in appliances and plastics and I went there in 1995 and I remember I had been there for about two months and I was talking to Jack on the phone. And I said you know, Jack, this is a huge industry, you know, trillions of dollars, it seems to me like we got a foot print, a lot of people respect us, multiple perspectives but our business is a peanut, it’s $3 billion, you know, we need to be more adventurous we need to be taking more risks and I think he — it just resonated with him, it was kind of the right comment at the right time, and he became quite encouraging right after that to both to acquisitions but also to help grow globally and invest in organic growth and technology.
So, you know, to your point and so that from $3 billion became a $21 billion, this is by the time I retired and you know, yet today, it’s still, you know, there’s plenty of opportunities in healthcare.
So it played ton my strengths, I would say in my career I was a good product manager I was good at you know, kind of marketing and sales, I knew how to strategically think my way through a business problem and all of those things kind of came to the forefront when I was in GE’s healthcare business.
RITHOLTZ: So you become CEO, your first day on the job is September 10, 2001, tell us about your second day on the job, what was that like?
IMMELT: Yes, so you know, you have to kind of understand the era a little bit, you know, the 90s were just a moment of tranquility in the US economy, the economy was growing, the US was the dominant player in the world, the world was at peace and so that was kind of let’s save the environment in which I grew my career at least the last part of my career before I became CEO.
And so September 11th happened and then it was just a horrible tragedy, and to a certain extent, even though we didn’t know it at the time, it really marked a change in the world, right? It marked a change in globalization and how companies were viewed, what tail risk was, so there’s a bunch of stuff that actually happened.
But from a practical standpoint, you know, here I was, I was run let’s say up $7 billion healthcare business, and all of a sudden, I’m running a hundred and whatever billion-dollar conglomerate. And day into my job, I had to start making decisions, there was no honeymoon, there was no prep time, I had to start making important decisions like do we lend airlines money, what do we — do we restructure our aviation business? How should we think about insurance and I’m doing that in real time in the first, second, third, fourth week on the job.
I had to communicate now to several hundred thousand people who kind of looked in horror at what was going on in New York City.
I had two employees that died tragically in the — in the event so, kind of there was just no warm up and no prep to get ready for making billion-dollar decisions late at night — you know, had to be made under pressure and you know, I just grew up quickly in that context.
Like most crazies do, you know, at some you just don’t have a chance you know it’s kind of like life gets lived (inaudible) not backward, so I was experiencing that in real time. I have the kind of you know, there was no way to kind of say “okay, I’m going to sit this one out.” We were just living life as it came.
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RITHOLTZ: So I like the way you use the chapter structure, the titles of each chapter to go into a deep dive about all sorts of broad topics in leadership. And one of your chapters is “Leaders Persevere in a Crisis.”
Give us the little details about how you persevered, let’s start with September 11 and then we could go on to what you learned about crisis management at Fukushima.
IMMELT: Yes, so I think, Barry, maybe we will take three of them. Let’s take 9/11, and then let’s take the global financial crisis and then we will take Fukushima because I had all of those let’s say between 2001 and 2011.
I think in the in the 9/11, you know, what you learn is really two things. I would say one was that during a crisis, you have to hold two truths and one is that the worst thing that can happen. And the other thing is that you shouldn’t give up hope, that a better future is out there once you make it to the other side.
So I we had to restructure our commercial aviation business because clearly airlines were going to be traveling less. But in 2002, Alan Mulally who was at Boeing at the time, he launched the idea of the Dreamliner which was a revolutionary new aircraft who was going to take $1 billion to make the engine and we won that order and that commitment.
So we made a billion-dollar decision at the absolute worst time in the history of the industry and so you need to hold two truths at the same time.
I think the other one is just the need for communication and I think so much changed around 9/11 and what you really find is that in a crisis, you have to be willing to talk about what you know and what you don’t know and people just want to hear your voice. So though those were the two things I learned.
During the financial crisis, the financial crisis, I think just — if you are in financial services, probably the 3 months after Lehman Brothers went bankrupt, there’s just no describing how every day bought a new challenge, every day brought fear and it was just you just really have to be on your toes, you know, kind of 24 hours a day.
And what I learned in that crisis was that you needed to have contingencies, you needed to have like, I’m going to try this one day, I’m going to do something else the next day, it doesn’t work.
And so you just have to take wave after wave of contingencies. You learn that leaders have to absorb fear. I mean one of the things that was unique about GE in that time is that half our company was in financial services, but the other half was doing fine, it was in healthcare and aviation and a whole series of different businesses.
So you know, it was incumbent on me not to allow anything that was going on in financial services to spillover into the other parts of the company. So you really learn that you have to stay flexible and you have to absorb fear.
And then when I moved to Fukushima, you know, what I learned in Fukushima is the importance of risk management. So Fukushima was a tsunami in Japan and it impacted seven nuclear reactors forward GE that were installed in the 1960s and early 1970s, and I was in Australia when it happened, I was traveling and I had my assistant send me the contract that was from the 1960s that we have signed with the — with Tepco who was the big Japanese utility just to kind of read what it said and read you know, what our liabilities might be and things like that.
And I was so impressed by the work that our lawyers and engineers had done in the 1960s to envision all kinds of natural disasters and all kinds of contingencies and I would say unlike other terrorist events, in the case of Fukushima, that just was a very robust risk management process that even foresaw a horrible natural disaster like the one at Fukushima.
So every crisis is different, I think a little about COVID today and what similar and what’s different but I think the things that are always true are the leaders necessity to absorb fear to hold two truths to make timely decisions and to be a good communicator even if what you’re communicating is you don’t know. So …
RITHOLTZ: And is one of your chapters is titled, leaders also have to maintain optimism.
IMMELT: Yes, I think again, there is a lot that gets written today about it’s better to be a pessimist than an optimist but I think you always have to understand that what — you have to lead people through the toughest times but you need to show them what the future could look like if you really work well together.
RITHOLTZ: Yes, there is a wonderful book about quote “The Triumph of the Optimists” that just explain why the pessimistic perspective in the 20th century was really the wrong side of the trade.
IMMELT: Yes.
RITHOLTZ: Before we leave your career and start delving more into General Electric, I have to ask you a couple questions about what you’re doing post GE. How do you enjoy teaching at Stanford?
IMMELT: Yes, so I teach a class at Stanford on what we call systems leadership but it’s really leading through disruption and I’d say I always wanted — this will be my 4th year. I wanted to kind of try my hand at teaching. By the way, Barry, it’s a lot harder than I ever thought it was going to be but I think students, they are so smart today, they keep you young, they’re very hungry for not just the theoretical but the practical experience.
And I think one of things that you know when you’re — when you’re a business school student, you think you know it all, and one of things that I always harken back to them is look every job looks easy until you’re the one doing it, right? You may have read the case and you think the CEO is a dummy, but someday you are going to be that dummy right? Someday you are going to be in those shoes and you’re going to have to make the decisions and you can’t judge them and some will work and some won’t.
And so your ability to persevere through that kind of criticism is really key to who you are and what you will do. And then I also do venture-capital, I always wanted to work when I retired with small companies, with innovators, with founders mainly in healthcare but a little bit in tech.
I have to say between the teaching and my venture work, I really like it, I really enjoy it, I think it’s a way for me to stay fresh but it’s also a way for me to get back to leaders in the future and hopefully help them through their journey.
RITHOLTZ: So you’re a venture partner at New Enterprise Associates which is one of the larger ventures shops…
IMMELT: Right.
RITHOLTZ: …out in California.
How different is it thinking about companies that are tiny really at the conception with the potential of changing the paradigm versus running a behemoth conglomerate.
IMMELT: You know, that’s a really great question, in some ways, it’s extremely different, right? Because you know, at GE, we just had massive scale and massive diversity, and when you’re in a start up, you’re small and you really focus on one thing.
I mean most startups go narrow and deep and that’s what makes them successful and then they begin to grow. So on one hand, that — those are very different. On the other hand, whether you’re going from 10 employees to a hundred or a hundred to a thousand, learning to scale is an important trait, it’s an important skill and something that every startup have to do and that’s something that I can be very helpful with.
You know, how do you hire first-line managers, how you put in performance systems, what does a good human resource leader look like? Those are a lot of the questions that many of the founders I work with are asking and I can be extremely helpful in that regard.
So you know what we try to do when you’re in a role like my find what is most useful with the company you are working with and play that role. I guarantee that is something I can be helpful with on every company but there are some things that my skill set doesn’t play as much for them and I don’t try to overdo it, I try to just find my niche and play it as well as I can.
RITHOLTZ: Quite interesting. Let’s talk a little bit about some of the challenges of running such of the company, what was it like managing 300,000 employees?
IMMELT: I think that, you know, you got to think about several things when you manage its size, you know one is you got to divide the company up into what I would call both vertical and horizontal cohorts, right? So in the case of a conglomerate, you got many different businesses and ultimately, for most the people in the company, the businesses who they identify with.
So that’s what I call a vertical group. You have to create a horizontal network so you basically look at you know, kind of officers of the company or senior VPs or business leaders and you want them to be part of a collective whole, you want them to drive common initiatives, you want them to be accountable for each other in terms of mission and metrics and things like that.
You got to instrument the company in a way you know whether you’re doing well or doing poorly so metrics are important. And lastly, very, you know, If you go through change there’s probably two or three or four initiatives that you want to embrace across the company because your unique scale can really drive substantial change, right?
So it’s really about communication, it’s about creating good cohorts, it’s about metrics and it’s about one or two or three really, really good initiatives that can leverage your scale.
But you are working every day because you know, size can be an awesome advantage, it also could be a huge disadvantage and you are always teetering right between making an advantage and letting it be a disadvantage.
RITHOLTZ: Interesting. So becoming public is less and less popular these days than it used to be, how do you balance the various constituencies between your employees, your customers, your shareholders, and your Board of Directors, that seems like a lot of balls to keep in the air all at once?
IMMELT: Yes, you know, I’ve heard this question asked, you know, in many different ways over many different eras, and it is still you know, the answers change over time, they are never totally satisfying, but that is part of the paradox of running a public company. So I would say, you know, the answers that investors own the company and unless you’re doing something that is aligned with them, you’re going to get in trouble, right? So there is a sense that if you’re a public company, investors have a huge say.
Increasingly and particularly when I compare 2021 with let’s say 2001, the intersection between companies and society and government has never been greater than it is today, right? Government is a big actor in every industry and that is not going to change.
So investors are key. Government and society is hugely important enablers of the past, and having led through a couple or three or four crises, in a crisis, the people that matter most are your employees, you know, some of which — like when you’re — when you’re taking incoming every day, the only way to get out of a problem — the only way to get out of a mess is if your team is aligned and if you can help bring them with — help them, you know, have them help you solve the problem.
So it’s complicated, it’s more complicated, to be honest with you, today than it was 20 years ago but there’s never going to be a nice, simple easy answer to your question.
RITHOLTZ: So in the book, I found your criticism of the underinvestment at GE for the decades that preceded your tenure was pretty legitimate considering this is a company founded by Thomas Edison. How much underinvestment in R&D took place at General Electric prior to your tenure and what were the ramifications of that underinvestment.
IMMELT: Yes, so you know, I took over a really good CEO who was extremely well known, and who was, I would say in the decade of the 90s, you know, was really kind of leveraging that decade where I would say financial services and management practices were valued and what most general managers worked on were those two things.
And so when we got to the end of the 1990s, GE was a company that had let’s say a relatively stale industrial portfolio, a very vibrant and fast growth financial services set of businesses and a market multiple that exceeded a tech company. So we were just imbalanced, you know, it wasn’t that our, you know, industrial businesses all have high market share but they weren’t necessary technical leaders, and we had not been investing as robustly in R&D and in innovation as we should have.
And you know, if you looked at let’s say, you know, the top 150 people in the company that are called vice presidents or officers, only three were engineering leaders, right? So if you think about the size of GE and that’s kind of symbolic of what was valued in terms of the organization and the functions, you know, that’s kind of where we were in 2000.
So we had a strong balance sheet, we had many good things, we just — we just hadn’t spent enough time thinking about how to be an innovator in the 21st-century.
RITHOLTZ: Interesting.
I love the story early in the book of you after you the names as the incoming CEO but before you actually start the job, out golfing with some college buddies and you’re getting dressed in the locker room, and some random person comes up to you, you start chatting and you are wearing something with a GE logo and he says to you, “Well, at least you’re not that poor bastard who has to follow Jack Welch as CEO.”
IMMELT: It was a funny story. So I’m in the locker room and I just met him and I would ask him for directions and he says “well, what are you doing?” And so I said “I’m playing with some friends but I work at GE.” And he said “GE huh? Well I feel sorry for that poor son of (expletive) that’s going to follow Jack Welch”
RITHOLTZ: (LAUGHTER)
IMMELT: So I went out to the first tee and we just spent the day laughing.
But you know, when you replace a famous guy, you’re always going to have a certain, you know, kind of a complicated path and I would say you know, the main difference, Barry is just the era of 2000s were just so different than the era of the 90s.
The company had to change.
RITHOLTZ: No doubt about that.
And Jack Welch certainly was a tough act to follow. What specific challenges did you encounter after he left as CEO and did he set you up to succeed?
IMMELT: Oh gosh, I think the challenges were to reframe the company’s portfolio and rejuvenate the industrial businesses, you know, for the 21st-century. And so I think that was kind of job number one. Job number two was to maintain sustained as many of the key leaders inside the company as we could, there’s always to be a moment of time when people have a certain comfort with how one CEO did it and they are going to kind of wait and see are they on the new guy’s team?
And then I would say the third thing was to find a way to bring our investors with us, one of the things that, you know, Jack and I did a few transition meetings with investors while he was still chairman and I was coming in and I just felt like investors didn’t really understand the company. He just have such command, such charisma, such presence, there just wasn’t a lot of questioning and depth and you know when you’re the new guy, you’re not going to be accorded the same level of trust, if you will.
So I would say those are the three challenges that faced taking over the company. You know, the good part is we had a strong balance sheet for sure, and you know, we had — we had good leaders even though those leaders were going to have to change for what I felt like the company was going to face in the 21st-century.
RITHOLTZ: Interesting.
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RITHOLTZ: Some people have called him the best CEO in America. What are some of the more important lessons you learned from Jack?
IMMELT: Yes, so when I — in the year 2000, Jack was named the best manager by Fortune of the previous century. So that’s a pretty tall shadow. I’d say what Jack did better than anybody I’ve seen before or after was he knew to — he really knew how to manage scale, he knew how to manage at size. And he was incredibly skilled at that.
So he created an aura, so let’s say in a company of 300,000 people, everybody felt they work for Jack, everybody felt like he could intersect in their world at any moment of the day. He was a great communicator, he knew how to communicate to hundreds of thousands of people to a thousand people, to 500 people, to 20 people from one person at almost every size, he knew how to communicate.
He built horizontal cohorts, Barry, what I talked about earlier. He knew how to kind of segment organizations and how to motivate different groups of people. He did a great job of creating the right kind of instrumentation, the right kind of metrics that drove good behavior, he prioritized and the last thing is — and this going to sound funny today but I think he was the first manager of his era that really understood the power of people. He treated human resource leaders with respect, he spent a lot of time on people, you know, if you go back in the let’s say 70s, 80s, 1990s – even 90s, most of the human resource professionals had come out of union relations based on where the US was at that moment in time, he kind of recognized it was all about the professional workforce and he spent a lot of time in that.
So I really think — I’ve never seen a CEO before or after that could manage at size the way Jack could. He was just awesome at that.
RITHOLTZ: So you inherited a bunch of ticking time bombs, whether it was the accounting scandal or the mess at GE Capital, you could very easily in the book thrown Welch under the bus but you chose not to. In fact, you were very, very generous to Jack in the book.
Tell us about your thought process, a lot of the headaches you were dealing with you inherited from him.
IMMELT: You know, so Barry, when you think about the book is, you know, kind of for 20 years, I have more or less kept my mouth shut and I generally felt like the reason to do that was nobody at GE would benefit by me squabbling with Jack.
What I tried to do in this book was be truthful, was to talk about the things I learned from the things I love being around him for but some of the places where the company have blind spots that need to be fixed, like the ones we talked about earlier was you know kind of lack of investment in technology, lack of globalization, not a good track record of diversity, you know, things like that, right? As it pertains to where GE was.
So I wanted the book to be you know, kind of an accurate perception of what it felt like to follow a guy who is a really great leader but in a time that was very different, and that’s really what I tried to do and again, I loved working for the guy but he was a complicated leader to follow. He was a great leader to work for, you know, and maybe your listeners, maybe your listeners in their own workplace you know, have had similar experiences where sometimes people are great to be a colleague with or great to learn from but they’re not as much fun to follow and I that was kind of the experience I have with Jack.
RITHOLTZ: Interesting.
When you are in the healthcare division, you identified what you thought could be a really significant acquisition, Acuson, which Jack passed on saying “It’s in California, the people out there are crazy” Siemens ended up buying it and it was hugely successful for them. Was this a case of a little political bias clouding his judgment? What was around some of those missed opportunities?
IMMELT: Yes, so the book that Jack wrote and the expression he used while he was CEO is control your destiny, right? Control your destiny. And I think he is feeling about kind of the entrepreneurial systems in California was that you could never control it, right?
And this was kind of a 90s perspective. You sit here today, if you’re a CEO of any kind of company, you really recognize you can’t control much of anything, and that what you really need to be talking about is you know, what are the right investments, what are the right risks to take, how do you grab the future? You know, kinds of things are more operational than controlling your destiny.
So I remember the discussion that he and I had, this is very early 2000 and I was in the GE boardroom pitching this deal and I thought I had it done and he said you can’t do it because it’s in California. And I just looked across the table at him and said, “You got to be kidding me” California is part of the world, in fact, it’s an important part of the world, but you know, it’s just, I think in some ways it’s a generational difference, it certainly was a philosophical difference.
RITHOLTZ: Yes, to say the least. I think in the 90s, California, if it was its own country within the 8th largest economy in the world, something like that?
IMMELT: Just think of everything that has happened since then.
RITHOLTZ: Right.
IMMELT: This is only more true, not less true.
RITHOLTZ: Right, right.
In the book, you mentioned the infamous GE Chase plane, tell us about that there were always rumors and stories about it, what was that about?
IMMELT: Gosh, you know, this was — something that was put in place by security, it was particularly for global travel, it was really a bad practice. You know, to be honest, I ever spent one minute talking to the people that ran our corporate travel, you know, the corporate air group. I should have. But you know it’s — you know, there’s no way to explain another say it was a bad practice and I wish we hadn’t done it.
RITHOLTZ: Chapter 11, you write, “Leaders are accountable” and again given the problems in GE Capital, given some of the issues you inherited, why not call Jack out to account?
IMMELT: You know, again, Barry, I wanted this to be really my story if you will and the ability that that I would have to put more context around the company that I love.
And so I really focused on the issues I had and wanted to put, let’s say finer points on. One of the reasons why wrote the book is that I spent three or four years after I retired, watching the way the story was covered and I just felt like it had lacked any perspective and any context.
And actually in chapter 12, like I kind of go through the four or five things that I clearly would’ve done differently had I — had I thought about them differently or had more time to reflect and what I talked about in that chapter is I would’ve — I would more dramatically changed the shape of the company right after 9/11.
I think anytime the crisis takes place, a leader has an opportunity to really reshape the situation that they’re in. I talked about the lack or the inability to get more value out of GE Capital.
I certainly would run the company differently to produce a different kind of leader, that I gave my board too many things to work on and I wish I’ve said I don’t know more and I talked about that in chapters 11 and 12. So I really wanted to focus on my role and just let the story play out around Jack and let readers draw whatever conclusions they want.
RITHOLTZ: That is fair enough, that’s all anyone could ever ask.
So, Jeff, I love what you did with the structure of your chapter titles. “Leaders Learn Every Day” “Leaders Invest in Growth” “Leaders are Transparent” tell us little bit about how you came up with this structure, it really works well for this sort of book.
IMMELT: Yes, you know, I decided to write a book in the second half of 2018, I hired a co-writer, a woman named Amy Wallace, she spoke to 75 people, we decided to write the book more or less chronological and I have a few of my colleagues kind of writing it side-by-side contemporaneously so I took kind of an outside in view and what it basically is, if you read the book is a series of stories that happened more or less chronologically from 2000 you know, really from 1982, but really from 2001 to 2017.
And then we sat back and said, okay what is the message in each one of these stories, right? So you know 9/11, “Leaders Show Up”, right? My career, “Leaders Learn Every Day” you know early on, “Leaders Invest in Growth” at the end, “Leaders are Optimists” so we basically did the chapter titles last after really seeing — share all the stories and you know, what I tried to do, Barry, for the reader was you know, kind of put them in my shoes on how we made the decisions we made, what decisions we made, but also how I felt. You know like when I was uncertain, when I was certain, when I was wrong, those kinds of things.
So I think we basically told the story and then we sat back and said, okay, here is what people can benefit from, here is what people can learn.
RITHOLTZ: Interesting. So there are a couple of headings that I want to give you an opportunity go into a little more details, one that I thought was interesting was “Leaders Make Big Companies Small”, explain.
IMMELT: Yes, so right after the financial crisis, I was really kind of burned out and I was trying to re-motivate myself and one of the things I decided to do is just spend more time connecting with people. So I began kind of a weekend — one weekend every month I would fly a leader in and we would have dinner on a Friday night and then spend five or six hours on a Saturday without phones ringing and I did this for years.
And it was just a way to connect. We retooled a lot of hard training programs and systems and the ways we communicated just to focus on connection and really what we were trying to do was beef up the – let’s say the software around the company, so that we felt like we were getting more fluid communication and the people were attached to each other and so that’s I think what’s chapter 6 in the book which is really talking about at the core of any culture is connection and the extent to which people feel connected to their leaders or feel connected to each other, that’s how you make a big company small, you make a big company small by having people see other people and not org charts or financial metrics or advertisements or other things, and that’s what we try to describe in chapter 6.
RITHOLTZ: So now let’s take the opposite of small, “Leaders Compete Around The World” that’s about as big as it gets. So I try to describe this in the sense of a big change initiative, but a change initiative that basically was one where we have to kind of rewire our frame of thinking.
And this is a place where size and scale actually can be helpful but only if you’re empowering the frontline. An d so we went to a real change process inside the company to empower frontline leaders around the world, gave them capability in investment to win in the countries that they are in.
And I also talked in that chapter just about the way globalization was changed, that you know, in 2000, everybody talked about doing trade deals by 2010, there were no more — there was no more discussion about trade deals, protectionism was everywhere.
I always tell people that President Trump didn’t invent protectionism, he just Americanized it, and so global leaders had to be changing in order to — in order to make progress and one of the parts of the chapter is the discussion on China and probably, you know, there may be people that are more experienced in Asia than I am but not many, so I have a point of view on China and I talked about that as well in terms of how to think about them on a global setting.
RITHOLTZ: Yes, you write “China matters most.” Explain that a little bit.
IMMELT: Yes, to say you know, again there’s a military context, it’s important that I’m not necessarily the best to speak about, but from an economic standpoint, there’s no going back, you know, China is going to be as big as the US. Their economic influence is huge, our allies trade with them as much as they trade with us, the market is vast for most things American companies do and we have to learn how to compete there and learn how to compete against them but they’re a factor.
And one of the things that worries me is that when I see my students at Stanford or I see young people, they feel like they don’t have to compete in China, they feel like that the American government can protect them or China doesn’t play by the right rules and all this conversation. I think that is bad, right?
My generation had to learn how to compete in China, it was our only path and in many ways, GE did it as well as anybody.
RITHOLTZ: So let’s address some of the student concerns you have issues in China with them hacking and stealing intellectual property, really all the down to things like the design of an aircraft engine and you also have a structure that is not exactly a level playing field for any foreign competition that wants to come in, they force partnerships, they force the sharing of data and processes. Isn’t it a legitimate complaint by students saying …
IMMELT: Sure.
RITHOLTZ: Hey, I don’t want to go to China, they don’t play by the rules.
IMMELT: Sure I think — I think there’s everything to be said that in the past certainly intellectual property was a critical and there are challenges that are put in front of you for sure.
But you know, Barry, GE had a $4 billion healthcare business in China that was more profitable than it was in the US, we have higher market share turbines in China than we had in Germany, we had 75 percent market share of aircraft engines in the country where more planes are being purchased than any other country in the world.
So I’m not saying to be naïve and I am not saying not to be careful, but if you’re going to stay out of the largest market in the world from many of the things we do including tech, this is going to be a different place in 10 or 15 or 20 years than it is right now.
In other words, they are going to continue to be a country on the move, the European Union does more trade in China than they do in US, you know, there’s just all kinds of statistics you can look at.
So my hope is for the Biden administration to be very forceful on creating a level playing field but my hope is that we don’t disengage.
RITHOLTZ: Fair enough.
You mentioned turbines. For a while GE Power was booming, you would think the moves to renewable would be right in their sweet spot. What has that division done right and why are they not bigger? You would think this is a perfect environment for them.
IMMELT: Look, I agree, I still think our power businesses is a good business, I think it’s being well run today but wasn’t well run, we had some of the wrong leaders in place for a while and I own that, but my sense is they’re – it’s a good team now. With wind energy, they built you know, in excess of a $15 billion business with gas turbines, they still have a very strong position as well as a new grid technologies.
I think the challenging place in the power space today is solar because the equipment makers in solar lose money and the only people that earn money are kind of in the project finance side and so I think in order to be more successful there, GE has to kind of invest more in the project finance side in solar, but a third of the world still doesn’t have electricity and there’s going to be a real transition from hydrocarbons to renewables so this takes place over decades, it’s not going to take place in a year or two, and GE should participate in them.
RITHOLTZ: Very interesting.
Let’s talk about consultants, they play such a large role in so many businesses. What do you think of the role of consultants in strategy? Did GE use a lot of consultants whether it was Arthur Anderson or McKinsey or you know, insert your favorite consultancy here, what’s your views on this?
IMMELT: Look, I think we used our fair share, I always think it’s good to get an external perspective. They shouldn’t be here to operate the company, they’re here to give you a perspective. I never liked to rely on one group or another. I like the mix of different perspectives but I think there’s always room to get an outside view.
You know, my sense today is the largest clients for consultants are really private equity and you know, some of the people that are in kind of serial acquisition business, I think that is a place where consultants can be of most use, where you basically have a financial firm that has capital that wants to make an investment they want to get market data and insights and consultants can provide a tremendous value there.
So their business model has evolved as well but again I think external perspectives are always good and firms like McKinsey you know, they just have good people and they can bring good perspectives to your decision-making.
RITHOLTZ: Talk a little bit about succession planning, it was a factor in the transition from your predecessor to you and you described in the book grooming various candidates and prepping the transition process, what went right at GE during various transitions and what went wrong?
IMMELT: Yes, look, I mean my transition clearly didn’t go the way any of us had planned, it was a little bit rushed, I would say, there were certainly problems in markets that I left behind that I wish hadn’t taken place that made my successor’s job tougher but I think two other things you know, kind of hurt that process. One was my successor was a good, a guy that I supported and really thought could do the job, he had to come in and make a lot of fast decisions and that didn’t play to his strength and I would say the board was in a little bit of disarray as well.
So if you add in tough markets, not playing to somebody’s strengths and a little bit of disarray on the board, that — that’s a chemistry that just doesn’t work. I go back to when I took over — look, I had fast decisions to make for sure, I was probably a little bit more skilled or more willing to make those decisions but I had a really stable and mature board and that wasn’t the case probably 17 years later.
So I own my share the blame in all those and it’s hard to get right particularly given, you know, kind of the complicated world we live in today.
RITHOLTZ: Well, you own up a lot of errors in the book and you take responsibility for your tenure, what do you think the company doesn’t get enough credit for and what do you think you don’t get enough credit for considering you spent a few hundred pages essentially accepting blame for so much?
IMMELT: Yes, look, I think what I wanted to do again in the book was to provide context. So over 16 years we generated more earnings and cash flow than the previous 110 years combined, we were leaders in the industries we were in, we developed good team, you know, there’s probably more than 30 people that worked for me that went on to run Fortune 500 companies, public companies, and made good initiatives, whether it’s globalization or digitization, I could go down the list. On the flip side, our price-earnings ratio went from 50 to 15, so the stock didn’t work the way any of us wanted, we didn’t get value as we went to the transition at GE Capital and the succession didn’t work the way any of us wanted.
So you know, I guess what I wanted to do with the book is show that we got more right than we got wrong, we did a lot of good work as a team and I didn’t want that to get lost and at the same time, I think in this generation all leadership is crisis leadership and lord knows, we worked through more than our fair share so I felt like other leaders and other leaders could get something out of the book.
RITHOLTZ: That’s an interesting line, all leadership is crisis leadership these days. You know, you mentioned the P/E ratio, I think that what happened to you was more or less inevitable given that you came in with a 50 P/E that was pumped up by both the 90s bull market, you arrive just as that was deflating, Jack played the media better than anybody and never hesitated to show up on CNBC which was a General Electric owned property and burnished his reputation.
So you showed up, wasn’t it all but inevitable that the P/E multiple had a return back to something resembling normal – a 15 to 20 price-earnings ratio for a giant conglomerate, that’s still pretty much what the average is, isn’t that what a typical conglomerate gets?
IMMELT: No, no, yes.
RITHOLTZ: I mean what I’m saying — asking is wasn’t it inevitable that GE had to come back down to earth following the prior 20 years?
IMMELT: Sure, and again that’s you know, Barry, what I’m trying to do is just tell the story, in other words, what I wanted to do is just start on day 1 and end the day I walked out the door and talk about my colleagues, the decisions we made and let and let people just have a full set of facts.
You know, there is not a day that doesn’t go by that I don’t think about the company, I know some people feel like I let them down, I get that, but by the same token, look I worked with some great people, we always did our best and what I try to do in the book is just tell a complete — a complete story and let other people judge who is good, who is bad, you know, and just let it speak for itself, that’s really what I try to do with the book.
RITHOLTZ: Well, I think you succeeded, the book was not only fair, I thought it was generous. Before we let you go, let’s jump to some of our favorite questions that we ask all of our guests starting with given that we’re all working from home and under pandemic conditions, what are you streaming these days? Tell us your favorite Netflix or Amazon Prime show?
IMMELT: Yes, so we are doing Amazon Prime, a show called “Tell Me Your Secrets” my wife and t I like mysteries in this is really a mystery and it’s a fun watch about halfway through but that’s kind of what we do, on podcast, you know, I like Stan McChrystal’s podcast, “No Turning Back” I did “Freakonomics” I have always been kind of – I have always liked the different angle to Freakonomics takes place and I think in the course of launching the book, I’ve found some new podcast that I’m going to go back and listen to.
So yeah but to your point, there’s probably nobody that has benefited more from the pandemic than Netflix has.
RITHOLTZ: It’s Netflix and (inaudible) world, we just live in it.
IMMELT: Exactly.
RITHOLTZ: Tell us about some of your early mentors, who helped shape your career along the way?
IMMELT: Yes, I had two mentors, the first one was the leader of the plastics business when I was young, when I was a young manager, it was a gentleman named Glen Heiner (ph) and he was, you know, what Glen showed me was that a leader could be you know respectful and tough at the same time and it was good to see in him and then later in my career, one of the vice chairman was of gentleman named John Opie (ph) and John was really operationally really sharp and I love both those guys and learned so much from them.
On the board, I always liked Shelly Lazarus was a board member for a long time and I always very much enjoyed talking with her and if I had a problem or something on my mind.
RITHOLTZ: Let’s talk about some of your favorite books, what are your all-time favorites and what are you reading now?
IMMELT: So, let’s see, my all-time favorite is “Truman” by McCullough because you know it’s kind of this great American story that any person could be president and I thought that was remarkable, I love that one.
I read a lot of military history because I think it’s the best corollary to business because military history is the subject of failure, whoever fails the least wins, and sometimes business feels like that.
RITHOLTZ: (LAUGHTER)
IMMELT: I have read over the last oh gosh, six months a few books on the reconstruction in the US after the Civil War just as you know, some the seeds of some of the racial challenges we have today, those have been good and then I still read novels, I’m reading all of the — there’s a guy named CJ Box that writes about a game warded in Wyoming called “Joe Pickett” so I mix history and novel and try to learn but I’m an avid reader and I like to – I love to read.
RITHOLTZ: If you like McCullough’s “Truman” if you haven’t read his “Wright Brothers” it’s really quite outstanding.
IMMELT: It’s really good, spectacular. Somebody can’t have worked at GE and not read “Wright Brothers”.
RITHOLTZ: That’s right . What sort of advice would you give to a recent college grad who was just beginning their career and thinking about working either for a large conglomerate or a manufacturer?
IMMELT: I think stay curious. You know, again, I think curiosity is this — is the sole attribute that every successful person that I’ve ever met has whether it’s Jeff Bezos or Fred Smith or you know, I could go down the list of great people I’ve known, I just think curiosity is such an important part of being a lifelong learner and being a lifelong learner is really critical. I say in my class, you know, when I teach at business school, I said like everybody in that room has the capability to be CEO of a Fortune 500 company, right?
But you have to ask yourself kind of three questions, how fast can I learn, how much might take and how much will I give? How much can I take is you’re going to get punched in the nose so many times some people just give up, right? It’s not because I’m not smart enough, they just give up.
But you also have to be willing to give back to others if you want people to follow you so how much can you learn, how to can you take, how much will you give, answers those three questions and then you can start your career.
RITHOLTZ: Interesting. And our final question what you know about the world of leadership running a big company, the entire industrial process today that you wish you knew 30 or so years ago early in your career?
IMMELT: I think the importance of speed, I think the importance of speed, I just think sometimes when you work at a the big company you never feel the urgency the way you need to and what I see in Silicon Valley, what they get right is they just — they just move quickly, they make mistakes but they don’t wallow in their mistakes, they just keep moving so I think I wish sometimes you know, Barry that I worked for like 20 years and before I became CEO, I took maybe a three year sabbatical in Silicon Valley and then came back and became CEO, I would have run the place differently than I did, I think.
RITHOLTZ: It’s easy to move fast and break things when it’s a three-person shop as opposed to a 300,000 person shop.
IMMELT: Yes.
RITHOLTZ: We have been speaking with Jeff Immelt, he is the former CEO of General Electric and author of the book “Hot Seat, What I Learned Leading a Great American Company” if you enjoy this conversation, well, be sure and check out any of our previous 400 or so, you can find those at iTunes, Spotify, wherever you get your podcast fix.
We love your comments, feedback, and suggestions, write to us at mibpodcast@bloomberg.net, give us a review on Apple iTunes, you can sign up for our free daily reading list, you can see that at Ritholtz.com, check out my weekly column on Bloomberg.com/opinion, follow me on Twitter @Ritholtz.
I would be remiss if I did not thank our crack team that helps put this conversation together each week. Tim Harrow (ph) is my audio engineer, Atika Valbrun is my project manager, Michael Boyle is my producer, Michael Batnick is my head of research, I’m Barry Ritholtz, you have been listening to Masters in Business on Bloomberg Radio.
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