With a Push-out Score of 9, the CEO departure at General Electric Co. is in the upper range of the scale and looks bitter. It is one of the most spectacular leadership changes in recent history.
As announced on October 1, John L. Flannery leaves the conglomerate company. While the announcement does not explicitly state that he was fired, all the criteria of the analysis model suggest that he had to leave under extreme pressure.
H.Lawrence (Larry) Culp, a former CEO of Danaher Corp., succeeds Flannery as chairman and CEO. Culp, 55 years old, is already a director of General Electric. In general, it is considered a crisis signal when a company recruits the CEO from the board. Often a board member is a last resort, someone who is turned to in desperation when a company cannot find suitable candidates. That’s the first point for the Push-out Score.
On the other hand, directors-turned-executives represent a blend of outsider and insider. They don’t have the constraints of a pure insider when it comes to leading painful changes or making unpopular decisions, and they have more company knowledge than a pure outsider.
Having been a director, Culp understands the expectations and dynamics of the board and has knowledge of General Electric’s organization, risk-management practices and strategy. Culp joined GE’s board in April, after retiring from about 15 years leading Danaher.
A reason for Flannery’s departure was not explicitly given. Point number 2.
Precise information about his future plans was not immediately available.
His age of 57 years could theoretically justify a career rise, but not a departure with an initially unknown destination. Point number 3.
Flannery, a 3-decade GE veteran, leaves at short notice (effective immediately). That’s telling. And point number 4.
His short tenure as CEO of General Electric (one year and two months) raises one more red flag. Point number 5. His predecessor, Jeffrey Immelt, led the company for 16 years. Former CEO Jack Welch was chairman and CEO for 20 years.
The shares have more than halved since Flannery became CEO in August 2017. Point number 6.
Flannery steps aside at a critical time. Point number 7.
GE has been shaken in recent years by one piece of bad news after another.
On October 1, GE signaled more pain ahead, warning it would write down about $23 billion of goodwill associated with its struggling power segment and miss its 2018 earnings forecast. GE made an ill-timed purchase of France’s Alstom in 2015.
GE was once the most valuable U.S. corporation and a global symbol of American business power.
In June, GE lost its spot in the blue-chip Dow Jones Industrial Average after 111 years. GE’s market capitalization fell from $600 billion 18 years ago to barely $100 billion.
General Electric said in June that it will spin off its healthcare business and divest its stake in oil-services firm Baker Hughes, effectively breaking up the conglomerate.
The form and language of the announcement provide further warning signals and two additional points.
In the announcement from Boston, Massachusetts-based General Electric, John Flannery receives thanks, but no accolades for concrete and quantified successes, no praise, no word of regret and no good wishes.
Thomas W. Horton, lead director, said 17 hollow words regarding John Flannery: “On behalf of the board, I thank John for his significant contributions and long service to GE.”
Meanwhile, Flannery’s successor is showered with advance praise. Horton says that Culp has “a proven track record in company transformation and delivering shareholder value.” He portrays him as “a strong leader with deep knowledge of industrials and technology, and an intense focus on execution, organization, and talent development.”
All this can be seen as thinly veiled criticism of Flannery, who was handed the job of catching the falling knife 14 months ago. He was not given much time to turnaround the company and makes a great scapegoat.
Larry Culp, the first outsider to receive the top job at GE in the 126 years since it was co-founded by Thomas Edison, said that “we have a lot of work ahead of us to unlock the value of GE” and that “we will move with urgency.” GE is under activist attack by Nelson Peltz’s Trian Fund.
In the announcement from General Electric, John Flannery does not get a chance to speak. Eloquent silence.
Conclusion: Low age, short notice period, short tenure, poor share price development, non-transparent reason, critical time, succession issues, formal anomalies and linguistic peculiarities in the announcement are nine red flags. Flannery’s move follows the pattern typical of rough CEO changes.