Business

GE ousts chief executive John Flannery after 14 months

Ailing giant makes surprise move and announces $23bn charge on core business

Former GE chief executive John Flannery. Photograph: Etienne Laurent/EPA

Mon Oct 1 2018 - 12:46

General Electric ousted chief executive John Flannery in a surprise move on Monday, replacing him with outsider and board member Larry Culp. The company also said it would take a roughly $23 billion charge to write off goodwill in its power division, primarily from a large 2015 acquisition.

The struggling energy, health and transportation conglomerate said it would fall short of its forecast for free cash flow and earnings per share for 2018 due to weakness in its power business, something analysts had expected.

GE shares jumped 14 per cent to $12.88 in early trading as investors bet Mr Culp could re-energise the brand and more quickly transform its portfolio. The shares had dropped more than half since Mr Flannery became chief executive in August 2017, replacing Jeff Immelt, who had led GE since 2001.

With a market capitalisation below $100 billion as of Friday, GE was worth less than a fifth of its peak value a generation ago.

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GE Power’s falling profits last year forced GE to slash its overall profit outlook and cut its dividend for only the second time since the Great Depression.

Unanimous choice

GE's board, meeting in the past few days, unanimously picked Lawrence Culp jnr as its new chief executive. Mr Culp (55), who was named to GE's board in February, was chief executive of Danaher Corp from 2000 to 2014, helping grow an industrial company into a broader conglomerate through a series of acquisitions.

Mr Flannery’s departure underscores the slow pace of his efforts to turn GE around. Despite cutting jobs and shedding businesses, GE’s results continued to deteriorate, mainly due to problems at its power plant division, which makes electric generating equipment.

Changing chief executives “won’t fix short-term problems at power but Larry, as an outsider, will be able to make the difficult decisions on cost”, said Scott Davis, an analyst at Melius Research in New York. “GE is bloated and its culture is destroyed.”

Analysts said the sinking stock price showed the transformation of GE’s portfolio was moving too slowly under Mr Flannery. “They can’t afford to wait any longer for Flannery to try and regain the confidence of the investor community,” said Gabelli & Co analyst Justin Bergner. – Reuters

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