There was a time when General Electric (GE) was seen as a symbol of American business success. After all, it has been operating since 1892, meaning that it couldn’t have survived to the present time if it hadn’t managed to be successful for decades and decades. For that matter, it should be mentioned that GE was once prized because of its regular dividends, which aren’t possible without stable revenue streams.
Nowadays, GE is better-known for being a mess that is managing to hold on through momentum. For proof, look no further than the fact that Larry Culp replaced John Flannery as both CEO and Chairman in October of 2018 even though Flannery had been named to those same positions in August of 2017, which doesn’t exactly suggest a great deal of success for Flannery’s mission to save the corporation. Combined with other troubling signs such as accounting issues and dividend cuts, it is no wonder that the modern GE commands so much less trust than its previous self.
As for how this happened, well, GE’s issues have been building up for some time. However, those issues are now more apparent than ever because of recent pressures, which have brought the corporation to a crisis point. In short, GE’s past leadership was fond of branching out into other sectors, with excellent examples including both NBC and GE Capital. On its own, this would be a serious challenge. After all, business sectors are not the same, meaning that businesses involved in multiple sectors need to have even more wide-ranging expertise and experience for them to be successful. Certainly, such businesses can succeed, but the evidence makes it very clear why most corporations choose to focus on a set of core operations.
In GE’s case, it compounded this issue by making bad choices. For example, it made a huge investment in fossil fuels at around the same time that renewable power was becoming more and more popular, thus ensuring that it would overpay in the process. Likewise, it poured an enormous amount of resources into GE Capital to make it bigger and bigger, with the result that when said unit was gutted by the 2008 crisis, GE wouldn’t have survived if it hadn’t been for emergency investments from Warren Buffet and other investors. Unsurprisingly, by the time that GE’s leadership was prepared to sell a unit that had become big enough to threaten the rest of the corporation, its issues meant that it couldn’t even get a fair price for what it was offering up.
Finally, GE’s leadership clung to their chosen course of action in spite of the evidence. This was a huge problem because businesses need to be capable of recognizing their mistakes. After all, if a business can’t recognize its mistakes, it can’t put a stop to the metaphorical bleeding before implementing a better course of action. Unfortunately, GE’s leadership was more stubborn than they should have been. Even worse, there is evidence to suggest that GE is well aware of its issues but seeks to keep that information from its stakeholders, which can be seen in how the corporation is infamous for its murky accounting. Suffice to say that if a corporation isn’t willing to show its numbers for its financial performance, that should be seen as serious cause for concern on the part of shareholders as well as other stakeholders.
Can General Electric Make a Return to Becoming a Coveted Buy and Hold Stock?
Under these circumstances, it is no wonder that GE has been brought to a crisis point. Theoretically, it is still capable of recovering because its long existence means that it still has units that can be sold for much-needed resources. Furthermore, it should be mentioned that Culp has an excellent reputation because of his time with Danaher Corporation, though it remains to be seen whether he can replicate that same success for his new charge. With that said, even if Culp manages to save GE, it won’t be something that happens right away but rather something that will take years and years to implement because the issues run deep. For that matter, even if GE returns to profitability, it will take a very long time for it to return to being a coveted buy and hold stock because reputations can take decades to build up but can at the same time, be destroyed in little more than an instant.