Rerun: The GE of Today

Tragedies and financial crises turned what used to be General Electric's strengths into liabilities. In this episode, we learn how the once dominant company began to struggle and why some think its heading for insolvency.

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Episode Transcript

Speaker 1 (00:04):
Welcome to Tech Stuff, a production from I Heart Radio.
Hey there, and welcome to tech Stuff. I'm your host,
Jonathan Strickland. I'm an executive producer with iHeart Radio, and
I love all things tech and it is time for
us to conclude the g E Saga. Now. These were

(00:25):
a series of episodes that originally published back in two
thousand nineteen. I did reruns this week because in case
you hadn't listened to any of the other ones, I'm
on vacation this week. I am. I am vacating. Actually,
as you listen to this, I'm probably getting ready to
head back to Atlanta. But yes, I was on vacation
and I didn't want to leave you without any episodes. So,

(00:48):
because GE recently announced it was going to split up
into three separate companies in the near future, I thought
it would be good to go back and review the
history of Ural Electric. It's a long and storied and
at times very bumpy history, and so we are going
to listen to the g E of today. Although keep

(01:10):
in mind the today in that title refers to two
thousand nineteen, because this episode originally published on September eleven, nineteen.
I hope you enjoy and I'll talk to you again,
really really soon, like next week when I'm back in
the office. We have come to the end of our
journey covering the history of General Electric up to today,

(01:34):
and just a heads up, this episode is going to
focus a lot on the business side of General Electric
rather than the tech side of General Electric. I could
have ended this series with the last episode as far
as the technological innovations go. And that's not to say
GE hasn't continued to innovate in the post Jack Welch era,

(01:56):
but rather that the innovations the company is most known
for span the previous one years of its existence. The
last twenty years, the most recent twenty years have been
more marked with controversy and business practices and market issues.
And I think it's important to understand what's happened since

(02:17):
two thousand one because GE has been such an incredibly
important part of the modern technological landscape. I mean, that's
one of the main companies that helped spread the electrical
infrastructure in the United States. You know, without GE, it
would have taken much longer for that to have happened,
and the world would be very different today if GE

(02:40):
had not existed. But in the last episode, I told
you guys about Jack Welch, the g E CEO who
pushed the company to incredible profitability, mainly by selling off
businesses where General Electric wasn't in first or second place
in the industry. He sold off more than seventy of
g S businesses just in his first two years of

(03:01):
being CEO. He also laid off more than one hundred
thousand employees, which earned him the nickname Neutron Jack, because
like a neutron bomb, he eliminated people without damaging the assets.
And he also led efforts to acquire financial institutions like
banks and insurance companies in order to launch this financial

(03:22):
and insurance business, and that would end up giving g
E an enormous revenue boost. It would become incredibly important
for the company in the nineteen eighties and beyond for
different reasons. Now. One exception to Welch's amazing victories was
an acquisition of a securities firm called Kidder, Peabody and Company,

(03:46):
which was actually an even older company than General Electric.
If you looked at the origin for Kidder, Peabody and Company,
that firm traced its history all the way back to
eighteen sixty five, more than a decade before even the
earliest of companies that formed General Electric. Welch led the

(04:06):
acquisition effort in nineteen six, But then there were a
series of scandals centered around insider trading that brought a
lot of suspicion and scrutiny on Kidder Peabodies business and
therefore GE Capital, the financial division of General Electric. And
a year after the acquisition, the global stock markets crashed

(04:27):
on October nineteenth, n seven and what was called Black Monday.
The combination of events convinced Welch that he had made
an error in judgment acquiring Kidder Peabody, and it took
several more years and more scandals centering on Kidder Peabodies
record keeping and allegations of reporting false profits, but GE

(04:48):
would eventually sell Kidder Peabody off at a huge loss.
Now that embarrassment aside, GE for the most part did
very well in the eighties and nineties. The stock price
for g E rose four thousand percent. Some sources state
that when you take all the factors into consideration, it
was more like five thousand two. Under Welch's command, he

(05:11):
put off his retirement in order to secure an acquisition
of Honeywell International. If you listen to my last episode,
you know that didn't go well. The European Commission denied
the merger for anti competitive reasons, and the man who
hated to lose, Jack Welch, had to go out on
a down note. But compared to GE, you could say

(05:32):
Jack Welch got off easy. Now, this episode will cover
what happened to General Electric since two thousand one, including
the events that would create massive problems for the huge company.
And there is ongoing disagreement as to whether most of
the blame should fall on Welch's successor, or if Welch
himself should shoulder some of that responsibility or some other party.

(05:54):
So what the heck actually happened? Well, first, let me
talk a little bit about g S stock, because that's
going to come back around later in this episode a
few times. So, for years, g E paid out a
dividend on its stock. Not all companies do this, and
a dividend is a payment that a company makes to

(06:14):
distribute some of its revenue to its shareholders. So a
company makes money and then distributes some of that money
amongst the people who hold shares in the company. It's
usually not very much per share. In fact, it's typically
less than a dollar. Ges case, it was around thirty
one cents for a long time. In the US, there

(06:35):
are no rules about how frequently a company actually pays
out dividends. Most companies will do it quarterly, so you
would get one quarter of your dividend four times a year.
So if it was a dividend of forty cents, that
means every three months you would get a check for
ten cents for every share you own. So it's not
very much, but if you own a lot of shares,

(06:55):
it starts to add up. And besides distributing revenue, it's
also meant to incentivize shareholders to reinvest and buy more
shares of stock in that company. So the idea is, oh,
you got a dividend payout, it's enough for you to
buy another share in the company, So you spend that
dividend buying another share. That's the logic there. Well, when

(07:16):
Welch first took over g E stock wasn't doing so great,
it wasn't super high. A lot of investors thought of
the stocks as essentially a dividend payout and not much else,
so you wouldn't buy g E stocks with the idea
of selling them at a higher price leader on the road.
You know, you weren't thinking, I'm gonna buy now, because

(07:37):
in five or ten years this stock is going to
be worth two or three times as much. You bought
g E stock because it paid out a dividend, So
it would take a long time, but you would eventually
make more money than you invested if that dividend were
to hold steady. Now, when Welch took over, the stock
price actually dipped a little bit after he had been

(07:59):
run ge for a year or two, but another year
later the entire stock market took a turn and it
started to climb in value. This would be the beginning
of eighteen years of a climbing market, a bull market
in other words, even with events like Black Monday in
Night seven taken into account, so you had moments where
the market was not bullish, where it was crashing, but

(08:22):
it would recover and then go back on its bullish
route trajectory. If you will now collectively the SMP five
hundred index, it would climb by two thousand and this
was the same time that we started seeing packages like
four oh one K plans replaced traditional retirement plans. Now

(08:43):
that meant that stock market performance would become far more
important to weigh more people. Like in the old days,
it was just people who traded in stocks, and largely
it was a lot of businesses that did that trading.
Your average person didn't play the stock market that much.
But now stuff like our retirement was tied directly into

(09:03):
stock market performance. So suddenly everybody was really really focusing
on the stock market, and it meant that it became
far more important for stocks to do well. See before
the nineteen eighties, stock market performance was you know, it
was an indicator of a company's overall health, but most
people didn't consider it the metric against which all companies

(09:26):
should stand. You would worry more about the company's profitability,
how much revenue is it bringing in, how much does
it cost to do business, and how much profit is
the company making. The share price wasn't as big a deal.
That changed around the same time that Welch took over
at GE, and Welch's philosophy happened to match this general
shift in how businesses operated in the United States. Now,

(09:49):
I don't say this to diminish Welch's contributions or GEES
performance because the company's own stock outperformed the general market significantly.
But I do also want to take the overall market
performance into consideration, because while I don't want to take
any credit away, I also don't want to give too
much credit to Welch and his impact beyond what it

(10:12):
actually was. Anyway, as the market improved, and as GEES
performance in particular made its stock price rocket upwards, ge
stocks were seen as more than just a dividend payout.
The company continued to pay dividends, though, which again is
going to be important later. Those dividends were largely funded
by the incredible performance of g E Capital, that's the

(10:35):
financial services division of General Electric. In the last year
of Welch's tenure as CEO, gees stock price did take
several hits, but then so did just about everybody else.
In March two thousand, the stock markets performance shifted. It
was no longer bullish. It was going into a bear market,

(10:56):
so instead of growing, it was receding. The dot com
bubble had crashed and that caused a bit of a
stock market crisis. Companies that were in the dot com
industry obviously they suffered the most. Many of them just
were blinking out of existence after it became clear that
those companies had no way to deliver upon the promises
that they were making or to be able to justify

(11:19):
the crazy speculation that drove their stock prices into the
stratosphere before the companies had even figured out how to
generate ascent in revenue. But even companies like General Electric,
which were traditional, established, giant conglomerate companies, were affected by
this change in the market. Between March two thousand and

(11:40):
when Welch would hand over the CEO role to his successor,
Jeff Emilt, in early September two thoe, the stock price
for g E had fallen by twenty four percent. Now
I point that out because often the simplified story about
what happened to GE was that Jack Welch stepped down
and Immolt fumbled the ball, that Emilt was a terrible

(12:02):
CEO and he could not follow Welch's lead. But in reality,
I think the story is far more nuanced, and we
have to remember that the market itself was changing during
this transition. It wasn't the case of Emilt being handed
a profitable company on a silver platter and nothing was
going wrong, and he just messed it up from there. Uh,

(12:23):
he did make a ton of decisions that would not
turn out to be great for Ge. So I don't
want to diminish his responsibility either. I just think it's
important for us to take all these factors into consideration. Okay.
So Welch stepped down on September six, two thousand one.
Emilt took over on September seven, and four days later,
the United States was rocked by a series of terrorist

(12:45):
attacks that shook the country to its core. Those effects
were widespread. The tragedy touched thousands of people directly, tens
of thousands millions of people indirectly. It transformed the New
York City Escape permanently, and it caused disruption in the
markets as well. Wall Street made the decision to not

(13:06):
open the New York Stock Exchange the morning of September eleven,
two thousand one, fearing that the terrorist attacks would prompt
panic selling amongst shareholders, making a truly horrible situation even
more dire. Both the New York Stock Exchange and the
NASDAC would remain closed until September two thousand one, when

(13:29):
trading resumed, The market fell by nearly seven hundred points.
That was a decline of almost mobile actually more than
seven percent, and that was just the first day of trading.
Losses actually continued throughout that week. I hate even talking
about this, but it is important in order for us
to understand ges story. At this stage in the company's history,

(13:54):
business philosophies had changed significantly in the United States in
the nineteen eighties and nine nineties. We had created a
new environment where share value was the most important metric
for a business, the company's stock price. If the stock
price was going up, that was good. That was pretty
much the end all be all. A company wasn't thought

(14:16):
of doing well unless its stock price was growing year
over year, or at least the overall value of the
company when you take in at stock. Because of course,
companies can do things like stock splits so that the
price of an individual shaff stock goes down, but because
you've doubled the number of stocks or a number of
shares i should say, out on the market, the value

(14:38):
of the company itself remains stable and can continue to grow.
This drove a lot of business decisions that put shareholders
above just about everything else in the company, including customers. Now,
in my opinion, It's one of the biggest economic mistakes
made in recent decades, as it has created a world
in which many company executives Phoe becus very much on

(15:02):
the short term to mid term gains as opposed to
long term strategies. So often I think companies are making
choices that hurt the company's chances to survive in the
long term, all in an effort to drive that stock
market price further up. Anyway, this disaster impacted gees stock

(15:22):
price along with countless other companies, and you can't lay
that blame on Emilt. It's not his fault that this
series of awful attacks happened four days after he took
control of the company. In the wake of nine eleven,
all airline operations in the United States stopped for several days.

(15:43):
That had a direct impact on gees business, which included
building stuff like jet engines for the airlines and also
leasing out parts for various companies. All of that was
put on hold. On top of that, gees insurance business
was suddenly inundated with claims which to come and he
had to make good on For one thing, ge was
responsible for the insurance policy for the World Trade Center,

(16:06):
which as I'm sure you all know lost the two
towers that made the center iconic back in two thousand
one as a result of those attacks. Prior to September eleven,
it wasn't unusual for ge to lean a bit heavily
on ge capital to kind of smooth things over. The
branch was so profitable, that division of ge was so

(16:27):
profitable that could help conceal if another division weren't quite
doing so well. A lot of gees accounting practices have
over the years been called opaque, meaning that you might
get the end result of how well the overall company
is doing, but you might not know how it got there,
which divisions are doing well versus which ones are not.

(16:49):
The overall performance of the company was what mattered, right,
so who cares what's happening in the individual divisions. Well,
Emil would get to work selling off parts of gees
insurance business, though the company would still maintain some of
that business up to present day. I'll explain more about
that in a little bit. And he also began to
look at possible acquisitions. So what things turn out well,

(17:13):
we'll find out. But spoiler alert, no they don't. But
before I get into that, let's take a quick break.
One thing I want to mention before I forget it
is that during Emilt's run as CEO of GE, there

(17:35):
was a particularly wasteful practice going on that would later
get a lot of media attention when it was made public.
Emilt traveled a lot. He would meet with various GE
executives and facilities all around the world, as well as
with other company and industry leaders and politicians. Particularly, he
would do this when he was on the lookout for

(17:56):
possible acquisitions, and he made a lot of those as
he was the EO of g E. Now, to hop
over to the other side of the world, he would
take one of the g E owned business jets. They
had six of them. But here's the curious thing. Every
time you would travel, there would be a second empty
jet that would follow along behind and stay at the

(18:19):
same airport and wait there. And then when Emilt would
fly back, so did the empty jet. Now the justification
for that practice, which again eventually became public, in which
a jet carrying only a crew no passengers, would burn
through fuel it would generate pollution. The justification was that
Emilt was a very important person on very important business

(18:44):
and yes, I capitalized very important in my notes in
this section. As such, he couldn't be delayed by mechanical failures.
His business was far too important. So the empty jet
was essentially a backup transport in cases Mary should experience
a mechanical delay. It was his just in case measure,

(19:05):
a very expensive, wasteful measure. The company would actually stop
that practice in two thousand fourteen, which was a few
years before Emilt would be replaced as CEO. Spoiler alert,
will get there, all right, So back to the post
two thousand one g E. In two thousand two, ge
would acquire a business from a formerly huge company. That

(19:27):
company was in Ron, which went bankrupt in two thousand
one after its own massive scandal, which I'm not going
to get into here it's outside the purview of this episode.
But one of the many parts of in Ron to
go up on the auction block after the bankruptcy was
a wind power business. Emilt was, in his own words,

(19:47):
not enthusiastic about wind power. He felt wind power wasn't
profitable and it was too dependent upon subsidies, and those
subsidies could disappear at any time, according to which way
any government budget might be headed. So there was no
way to control that. If the subsidies went away, you'd
be saddled with a really expensive and nonprofitable business. But

(20:09):
EMIL gave the authority to executives who really believed in
that acquisition to go forward with it, and they went
and purchased the division. It would end up becoming profitable
and perhaps should have served as a lesson for future
emilt And I'll get back into what I mean about
that in just a little bit. In two thousand three,
ge announced its intention to purchase a majority stake in

(20:32):
Universal Pictures. That was a company that was under the
control of another company called Vivendi, a French company. In
this deal, g E would acquire eighty percent of Universal.
Vivindi was going through kind of a financial crisis at
the time, so g E merged Universal with NBC, creating
NBC Universal and the deal included several cable television channels

(20:56):
like Sci Fi Network, USA Network, as well as the
un Reversal film studio the Universal Theme Parks. It did
not include Universal Music that would remain completely under Vivendi's control,
but lots of the other Universal properties were part of
this deal. Vivendi would have twenty control of this, and
then UH you would have GE with control and you

(21:20):
got INBC Universal. GE would not hold onto this property forever.
G was acquiring other companies as well at this time,
adding them to the various divisions of General Electric. GE
Healthcare was growing with companies like UH Instrumentarium and Amersham Plc.
Those were being added as part of g E Healthcare.

(21:41):
G Capital was also growing with similar acquisitions, including some
subprime mortgage loan companies, and we'll get into that in
a bit. And GE would also build out its industrial,
consumer and energy businesses and made several acquisitions of companies
in the oil industry, also in banking and that old
horse of fossil fuels in general, because he really believed

(22:03):
that that was going to be the mainstay for energy
production or electricity production. I guess I should say for
the foreseeable future. Throughout this time, GE Capital would remain
the most profitable division of General Electric, and so the
company would lean more heavily upon GE Capital in order
to do things like pay out that dividend to shareholders

(22:26):
that set up GE for disaster. Just a couple of
years after GE purchased subprime mortgage businesses, the world plunged
into a global economic crisis, which we often refer to
as the two thousand eight financial crisis, but really the
crisis first started becoming apparent in two thousand seven with
the subprime mortgage market. So what the heck is a

(22:49):
subprime mortgage Well, the short answer is it's an incredibly risky, predatory,
and irresponsible market practice that depends upon people who are
some of the most vulnerable folks out there. Maybe that's
just me putting my own bias on things, but it's
hard for me to see the whole concept as anything
other than dumb and harmful. But here's how it breaks down,

(23:11):
all right. So you know about credit scores, right, They're
supposed to represent how much of a risk or a
lack of risk a person is when it comes to
paying off debt like loans. So if you have a
high credit score, it means your history shows that you're
diligent about paying off debt and that you represent a
low risk for future loans. It does not mean that
you've never had debt. You want to have some debt

(23:33):
and then you want to be able to pay it
off because that's what gets you that high credit score.
But if you have a low credit score. It means
that in the eyes of a lender, you represent a risk.
Maybe you have a spotty employment history, maybe you have
a lot of outstanding debt, maybe you've missed some payments
on some loans. The purpose of these credit scores is
to give lenders enough information to make responsible loan agreements.

(23:56):
Subprime lending involves giving loans to high risk in individuals,
and typically you pair this with really high interest rates
and other restrictions in order to mitigate the risk you
incur when you give a loan out to one of
these people who have a very low credit score. And
so people who are looking to buy homes or to
take out other loans were securing the money through financial

(24:20):
institutions with these subprime mortgages and subprime loans, but with
incredibly punishing restrictions on those loans, and surprise, surprise, a
lot of folks found it impossible to pay off that debt,
and ultimately many of the companies that were making those
loans found themselves in a hole that they had dug
themselves and it was too deep to climb out. Everyone

(24:43):
was put in an awful situation and it had a
really big ripple effect. Part of that ripple led to
an investment bank called Lemon Brothers collapsing in September of
two thousand eight. Other major financial institutions were in danger
of following suit. The whole thing was leading to a
global economic collapse, with the financial industry on the brink

(25:04):
of total disaster. That's when various parties swooped in to
rescue the situation, bailing out banks that had overextended themselves.
This in turn ticked off a lot of folks who
are directly affected by this problem. These were people who
had been evicted from their homes because they weren't able
to make their mortgage payments, or people who are otherwise

(25:24):
hurt by the subprime mortgage crisis, either directly or indirectly.
And it didn't help that many of these people saw
the bailouts as being rewards for the same financial institutions
that caused all the misery in the first place. Well.
Ge Capital was one of those institutions, and it was
hit hard by the two thousand eight crisis. Worse, because

(25:46):
General Electric was so dependent upon ge Capital for revenue,
it put all of General Electric at risk. To help
whether the storm, the company announced it would attempt to
raise twelve billion dollars through a common stock offering or
in Buffett Investor Extraordinaire also helped out by investing billions
of dollars in GE. In retrospect, many analysts have said

(26:08):
that GE was playing an increasingly dangerous game since Welch
had transformed GE Capital from a small division that helped
consumers get financing to purchase big appliances like refrigerators, into
a global financial institution. Gees more traditional divisions like it's
lighting business, industrial equipment business, medical equipment business, it's a

(26:30):
via Asian businesses. All of these secured for the company
the respect of Wall Street because they were dependable parts
of GE. They could make a dependable revenue, and they
were traditional, They had a long history with the company
that gave the company a lot of room to swing
for the fences with GE Capital and thus engage in

(26:51):
more risky behaviors in an effort to win big payoffs,
drive that stock market price up, and again pay out
those dividends. And that risk was somewhat necessary because of
that changing climate of business. So you had to grow
year over years. Traditional businesses usually had steady performance and
they did grow, but they grew slowly, so that wasn't

(27:13):
the kind of performance that would really when you the
the front cover of various business magazines, you wanted to
really go for it. So GE Capital was that method.
That was how GE was going to be the leader.
Then it became an anchor weighing the company down in

(27:33):
the wake of this financial crisis. Emil would start trying
to sell off parts of GE Capital, but it wasn't easy.
Before Buffett rushed into help, GE famously couldn't secure overnight
loans to keep the business afloat. Most investors felt it
was far too risky to pour money into General Electric,
so the house that Jack built was in danger of

(27:54):
crashing to its foundations. Even with the influx of investment cash,
not to mention an incredible one thirty nine billion dollars
of federal government bailout money, GE was still struggling, and
one thing barreling down at the company was that dividend payout.
The dividend made g E stock one of the most

(28:15):
popular stocks on the market. Tons of people owned g
E stock because it paid out dividends, but paying out
that dividend was going to put a huge burden on
the company, It just wasn't going to have the cash
to do it, so in two thousand nine, Emil decided
to cut the dividend from thirty one cents a share
down to ten cents a share. It would mark only

(28:37):
the second time the company had reduced its dividend payout.
The first time had been during the Great Depression, and
spoiler alert, it would not be the last time they
would have to cut the dividend. Also, in two thousand nine,
the company announced its intention to sell off NBC Universal
to cable provider Comcast. To do that, it would first

(28:59):
have to a wire the other twenty percent of NBC
Universal from Vivendi they still had that share. That process
took some time, so it wasn't until two thousand eleven
that GE would sell off a majority stake in NBC
Universal to Comcast. At that time, GE would still retain
a forty nine share in the company, although it did

(29:21):
have the intention to sell the rest of those shares
off a few years later. Uh This would become a
common plot element and a source of jokes in the
series Thirty Rock, just as ges ownership of NBC Universal
had been a source for humor previously in that series.
Two years later in Comcast would arrange to purchase the

(29:42):
entirety of NBC Universal from g E, and g E
would get out of the entertainment and media business and
it would use some of that money to cover some
of the debt that GE had accrued following the two
thousand eight financial crisis. The NBC Universal deal was just
one of several that GE pursued in the first decade
of the two thousands. The company looked to sell off

(30:02):
some of its businesses and divisions in an effort to
refocus on core strategies. Emilt kept working on ways to
extract g E from g E capital business, and he
didn't have a whole lot of success with it, and
he had his eyes set on another company to try
and turn gees prospects around. The company in question was
a French company that was making coal powered turbines. In

(30:25):
other words, it was a company that built stuff for
the energy electric industry electric utilities, right specifically for fossil
fuel based power companies. The name of this company was
Alstom A L S T O M. And, as it
would turn out, the timing could not have been worse,
though it is arguable over whether or not that was predictable.

(30:47):
At that time, Emilt was hoping that Alston would become
a key component in g ees Power division. He thought
that GE could take this French company which had been
struggling financially and used GES processes and pra this is
to turn Alstom around. Then he would use Alstom to
meet the electricity demands of clients all over the world,
and all with fossil fuel based turbines. So what went wrong, Well,

(31:12):
I'll tell you after we take this quick break. Not
everyone at g was crazy about acquiring Alstom. Several executives
felt that the asking price was far too high, but
Emma was optimistic that g E could take Alstom and

(31:33):
turn it into a profitable business. As it turns out,
he wouldn't get the chance to stick around long enough
to see how far Allston would fall. But I'm not
quite there yet. GE needed to do something. The company's
oil and gas services, which revolved around actually extracting oil,
you know, making the equipment that would be used for
that sort of stuff. Those were on the decline as

(31:54):
energy prices were collapsing. But the power division, GE Power,
the part of GE that actually reduced equipment that was
used to generate electricity that was still a reliable revenue source.
In fact, at that point it was the largest source
of revenue for GE, and it had a high profit
margin to boot. G E made a lot of money
from that particular division. So if g E could do

(32:16):
the same thing for Alstom and turn things around, then
in Emilt's mind, the company would have a rock solid
foundation from which to work. But a few big factors
would hamper the success of Alstom. One was that there
just wasn't as big a demand for turbines as Emilt
had anticipated. They got fewer orders than what they were
hoping for. In places like the United States, power companies

(32:38):
were improving efficiencies and so they were able to do
more with less. There wasn't as big a demand to
add additional infrastructure to meet consumer needs. Then there was
the fact that Alstom's employees were very highly compensated, which
was good for them, but rough for GE. And regulations
in the EU meant that Emilt couldn't just pull a

(32:59):
jack well and start laying off employees in an effort
to cut costs. EU had protections in place to prevent
that sort of thing, so you couldn't just make the
books look better by laying off a bunch of people.
And the EU also blocked one part of the business
from GE acquiring it. That was Alstom's service business, their
maintenance business that would have supplied revenue as the company

(33:22):
would provide maintenance services for its clients. That was off limits.
And the other major factor was that the cost of
building out renewable energy systems fell drastically not long after
GE completed the ten billion dollar acquisition of Alstom in
two thousand fifteen, So it looked like the wrong bet
right buying a very expensive fossil fuel based company just

(33:46):
as renewable energy prices were falling to the point where
they were uh they could compete against fossil fuels. Now,
around the same time that the Alstom deal was starting
to take shape, GE would spin off its credit card business,
which was part of GE Capital, and it would become
Synchrony Financial. And I'm guessing it filled a lot of

(34:09):
folks at GE with a bit of dismay to see
that once it was free of General Electric, this former
division actually outperformed all expectations. It did much better on
its own than it did as part of General Electric.
On top of that, the oil price crash pushed GE
to merge its own oil and gas division with a
company called Baker Hughes, and then g E got a

(34:31):
majority ownership in the Baker Hughes company became Baker Hughes
a GE company, at least for the time. Oh and
two thousand fifteen, GE formed a unit called g E Digital.
G E had been in various digital products for a while,
but marked the move for the company to create an
independent business unit. Most of the unit's focus was on

(34:52):
a software product called Predicts, sort of a play on Prediction,
and it was a business to business product. It was
meant to help big companies like airlines identify strategies and
managed assets. But over time that unit would experience slow
revenues and technical issues, and in eighteen there was real

(35:12):
serious talk of GE potentially selling off the division entirely.
That is yet to happen. GE Digital still as part
of GE, but GE did do a few rounds of layoffs,
so things have not gone smoothly for that part of
the company. Back to GS leadership woes. In October two
thousand seventeen, GE announced that Jeff Emilt would be stepping

(35:34):
down as CEO, and he had served in that role
for about sixteen years. The company's stock price was around
a third of what it had been when he took control.
Emerald had spun off numerous businesses over the years, including
gees plastics division, if you remember, that's the division that
Jack Welch had actually come to. He had also spun

(35:55):
off the appliances business. He's spun off the insurance business,
or a lot of it anyway, and more. And by
that time much of the upper leadership at g E
got caught in a shake up. There were members of
the board who left, there were other executive members who left,
and investors, employees, and retirees were all growing more and
more unhappy. The company had lost and estimated one hundred

(36:18):
billion dollars worth of shareholder wealth over the previous decade
and a half. Critics stated the Emilt had a habit
of chasing after fads, investing in businesses at the peak
of their visibility and then later selling them off for
less than what g had paid for them in the
first place. And people said the ge method was to
buy high sell low, which in general is the opposite

(36:40):
of what you want to do. I think O don't. No,
I'm not a business guy. Not every deal Emilt made
went sour, by the way, the in Ron deal in
which g took over that wind power business ended up
being very profitable, though again Emilt initially opposed that deal,
and when GE sold off its plastics division it was
for a higher price than what a lot of analysts expected,

(37:02):
but generally speaking, the deals didn't break in gees favor
under Emilt's watch. Emeralt's successor was John Flannery, who had
up to that point headed up gees healthcare business and
had worked for GE for thirty years. Flannery's goal was
to build a strong core for GE around its aviation business,
its power business, and its healthcare business, and there was

(37:26):
talk of the possibility that GE itself might break apart
into several different companies. The reaction to that idea kind
of fell across the spectrum. Some people saw it as
a necessity if the various parts of GE were to stabilize.
Others saw it as the end of a legacy, and
they had a bit of a point. One of the
discussions was about possibly selling off ges lightbulb business that

(37:50):
was the business that started it all, really all the
way back in eight seventy eight and the Edison Electric
Light Company. But innovation could sometimes be a double edged sword.
The move towards l e ED lights, which can last
for thousands of hours, meant that there just wasn't as
big a demand for light bulbs anymore. Because if you
don't have to worry about the lightbulb burning out on

(38:12):
a regular basis, there's not much call to buy new ones.
You just buy the l e ed s. You might
sell your house before you ever have to change that lightbulb.
So lightbulb sales were starting to drop. There just wasn't
enough call for them. I bet it made GE long
for the days when it had formed that secret lightbulb
Cartel in which companies agreed to limit the useful life

(38:33):
of a lightbulb through engineering. And things were rough for
shareholders too. Since GE had cut its dividend payouts a
few years earlier, the payouts had slowly increased again. They
had grown up to twenty four cents per share, so
that was an improvement. It was still below the thirty
one cents that it it had been at its peak,
but it was better. But in late, G had to

(38:57):
cut the dividend again, that time down to twelve sense,
and then not too long after that they were forced
to do another cut. They just realized that there just
wasn't enough money to cover the dividend payout, so the
dividend got cut down to just one cent per share.
It just didn't have the money to cover the payments otherwise.

(39:17):
In addition, G was having to deal with an unexpected cost.
The company had not issued any long term care insurance
policies since two thousand six, and in fact, it had
spun off almost its entire insurance business with a company
called gen Worth. However, in order to make that deal happen,
GE was forced to agree to cover any losses from

(39:40):
long term care insurance. It was just seen as too
great a financial risk otherwise, so GE signed that agreement. Now,
those long term care agreements are policies that are meant
to cover the elderly, and it turned out that insures,
not just a g E, but across the industry, had
underestimated how long policy holders would actually live, and the

(40:03):
medical costs, including things like nursing home fees, would tend
to get higher as customers got older. So as people
lived longer, they were creating a larger and larger drain
on resources for these insurance companies. Like if you looked
at it from a financial perspective, the person who was
paying for the policy was getting way more benefits out

(40:24):
of it than they were paying into it, and that
was an issue. So this was a huge cost for GE,
and it's no wonder that the company was continuing to
try and find ways to get completely out of the
insurance business. Now. To meet the obligation, Flannery had to
redirect fifteen billion dollars of GES wealth in two thousand

(40:46):
eighteen just to cover the obligations of that insurance policy stuff.
And the company was also hit with a seven and
a half billion dollar after tax charge, so things were
really rough. Also in two thousand eighteen, GE would leave
the dal Jones Industrial Average. If you listen to my
previous episodes, you remember that GE was one of the

(41:06):
original companies listed on that average when it was first created,
and it was the only company of that original list
that still existed in two thousand eighteen. It had been
part of the Dow Industrial Average for a hundred eleven years.
But the performance of the company, along with the perception
that industrial companies in general weren't really key indicators for

(41:29):
overall market performance meant that those days were over, so
in its place, a different company would join the DOW.
That was Walgreen's Boots Alliance drug store chain company. Meanwhile,
a problem with most recent heavy duty gas turbines caused
other issues for General Electric. A utility in Texas had
to shut down two different power plants for repairs due

(41:53):
to failures with these new turbines. That news would end
up hurting GE power sales, which weren't doing super a
gray at that moment. Already, Flannery's efforts were seen as
insufficient by the board of directors, and on October one,
two thousand eighteen, the company announced that Flannery had been
removed from the position of chairman and CEO, and the
board appointed an outsider, Lawrence Culp, to serve as the

(42:17):
new chairman and CEO. Flannery had been CEO for about
fourteen months and then he was out. That would give
Flannery the unenviable distinction of having served the least amount
of time as CEO of all g e C e
O s, at least so far. Culp would be the
third CEO to lead the company since two thousand seventeen.

(42:41):
The company Culp took over, was in turmoil and there
were pending investigations into g S accounting practices, which had
for years, as I said earlier, been described as opaque.
It's polite way of saying the company wasn't making it
easy to see where money was coming from or where
it was going to. G E had already settled sec

(43:01):
charges in the past, but there were others that sought
to find out more about the finances of the company.
And then, of course there was no recent report from Marcopolis,
the guy who was one of the early whistleblowers on
Bernie made Off before everyone was aware of the Ponzi
scheme that made Off was running. The Marcopolis report alleges

(43:22):
that GE is essentially robbing Peter to pay Paul, shifting
cash around frantically to fend off insolvency. It's kind of
like a shell game to trying to move money around
fast enough so that the company doesn't collapse. G E,
I should add, disputes this report and says that the
allegations are baseless and it cannot be ignored that Marcopolis

(43:45):
himself actually stands to make a lot of money should
ges stocks decline and value. So you could argue there
is a motive for Marcopolis to try and drag ges
name in the mud. Uh So their valid arguments on
either side about whether or not this report is something
you should pay attention to or if it's something that

(44:05):
has ulterior motivations behind it. That being said, the fact
that the Marcopolist report came out doesn't change the fact
that there were already numerous investigations government investigations into g
S businesses that could end up hindering the company further.
So there seems to be smoke. There's just a question

(44:28):
of is the fire what Marcoupolists is saying or is
it something else? On top of all the problems the
company faces is another external force that could really spell doom.
Many financial analysts say that signs point to another global recession. Already,
industries like manufacturing and freight are in a bit of

(44:49):
a slide, so a recession would greatly exacerbate general electrics problems.
So are we seeing the end of days for a
company that helped launch the technological age? I don't know.
I don't feel great about it, but it is a
very large company. It's not like any of these things
is definitively the death knell for General Electric. And there's

(45:12):
a lot of stuff that could happen. We could see
GE get broken up into smaller companies that individually are
able to succeed much better than they can collectively. All
of that remains to be seen, but it was fascinating
to learn more about this company's incredible, rich history. And UH.
I know that this last section was much lighter on

(45:33):
the tech side, as I said at the beginning, but
at the same time, I thought it was important for
us to understand how a company that had been so
instrumental in setting the tone for the technological age could
be facing extinction UH in two thousand nineteen. So here's
hoping that things turn around for GE, that the company

(45:57):
is able to reconcile all these accounting practices, that it
is able to deliver value two employees to customers, to retirees,
and two shareholders, not just two shareholders. And that wraps
up this episode. If you have suggestions for future topics
of tech stuff, whether it's a company, a technology, a

(46:19):
concept in tech, anything like that, let me know send
me an email the addresses tech stuff at how stuff
works dot com, or draw me a line on Facebook
or Twitter. The handle of both of those is text
Stuff hs W. You can also pop on over to
our website that's tech stuff podcast dot com. You've got
to find a link to the archive of all of

(46:39):
our previous episodes there, so you can look up all
the different stuff we talked about, including the previous episodes
I did on g S History where Chris Pallette and
I sat down and talked about it. But the show
was very different back in those days. But if you
want to hear a different take on this same sort
of stuff, you can check that out. That one came out,
I believe in two thousand twelve. And don't forget. We

(47:01):
also have a link to our online store where every
purchase you make goes to help the show and we
greatly appreciate it, and I will talk to you again
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For more podcasts from I Heart Radio, visit the i

(47:22):
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