Jeffrey Immelt, Incorrigible Optimist

I don’t know what to make of this, but I imagine that some readers will have better information than I do. The other day Thomas Gryta did an extended analysis on Jeffrey Immelt’s failure as CEO of General Electric. The stock price tells the tale of an implosion, even though some of the carnage occurred after Immelt had abandoned ship.

You know that the psycho world has become infested with positivity. Cognitive psychologists did well to resurrect positive thinking from the bleak tragic vision bequeathed them by Freud. And yet, their relentless emphasis on happiness and good feeling comported certain risks. Among them, the current mania over Steven Pinker’s assertion that you have never had it so good, that the world is getting better and better… and that it’s all because we have overcome religious faith and are practicing the art of rational thought.

Pinker is a starry-eyed optimist, and, you will ask yourself, what could possibly be wrong with that.

Well, examine Gryta’s presentation of Immelt’s failure at GE. Could it all have been produced by an optimism that purposefully blinded itself to company problems? Was it produced by a relentless positivity that resembles the mindlessly absurd self-esteem movement? Or did Immelt lead his ship straight into an iceberg because he thought it was all theatre?

Gryta explains:

GE’s precipitous fall, following years of treading water while the overall economy grew, was exacerbated, some insiders say, by what they call “success theater.” Mr. Immelt and his top deputies projected an optimism about GE’s business and its future that didn’t always match the reality of its operations or its markets, according to more than a dozen current and former executives, investors and people close to the company.

This culture of confidence trickled down the ranks and even affected how those gunning to succeed Mr. Immelt ran their business units, some of these people said, with consequences that included unreachable financial targets, mistimed bets on markets and sometimes poor decisions on how to deploy cash.

The history of GE is to selectively only provide positive information,” said Deutsche Bank analyst John Inch, who has a “sell” rating on the stock. “There is a credibility gap between what they say and the reality of what is to come.”

Of course, Immelt has his defenders. And yet, Grypta notes, excessive optimism caused him to overpay for shares of GE stock:

… Mr. Immelt didn’t like hearing bad news, said several executives who worked with him, and didn’t like delivering bad news, either. He wanted people to make their sales and financial targets and thought he could make the numbers, too, they said.

The optimism was evident in how Mr. Immelt and the board used the company’s cash. Over the past three years, GE spent more than $29 billion on share repurchases, at an average price of almost $30, about twice the current level. That included billions of dollars spent less than a year before GE suddenly found itself strapped for cash last fall.

How did the stock do during his tenure?

Instead, at Mr. Immelt’s retirement in August the stock was below its level when he took over 16 years earlier. Including dividends, GE gained 8% with Mr. Immelt at the helm, while the S&P 500 rose 214%. Since he stepped down, the stock has lost about 43%, erasing almost $94 billion in market value. 

As I said, I am hardly an expert on GE or on the Immelt management style. Yet, is seems to embody the kind of Panglossian positive psychology that drowns the world in optimism and blinds us to dangers and risks.