Anonymity is Not a License to Rewrite GE's History

“Lights Out: Pride, Delusion, and the Fall of General Electric” is a tough read for those of us who served on Jeff Immelt’s leadership team at GE. Future postmortems of Jeff’s tenure as Chairman and CEO of GE will be too. And deservedly so. There isn’t a day that goes by when we don’t ask ourselves what we could and should have done better.

I also never take issue with honest criticism, even when it’s made with the benefit of 20/20 hindsight. But critics should not be allowed to rewrite history for their own benefit, especially without attribution. On three topics, the dishonesty is particularly egregious.

“Aggressive Accounting.” Let’s not forget the important but missing context for the various unsourced stories about GE’s accounting. Our company invested millions of dollars in its controllership teams and Corporate Audit Staff (CAS), which were tasked with scrutinizing the businesses’ collection and reporting of financial results with critical eyes. Few companies have made such significant investments to build and maintain robust in-house challenge functions devoted to the integrity of financial reporting. GE also paid hundreds of millions of dollars to KPMG for independent audits of the entirety of its operations. GE’s Chief Accounting Officer, CAS and KPMG all independently reported at least three times per year to the Board’s Audit Committee, which was led by a former CEO of JP Morgan and later the former Chair of the SEC. No aspect of GE was ever off-limits to GE’s controllers, CAS, KPMG or the Audit Committee.

When it came to especially complicated issues, GE put even more eyes on its accounting and financial reporting. We routinely enlisted the additional assistance of numerous independent experts, including the rest of the Big Four, and the extra scrutiny of these specialists was always made available to the Audit Committee. Indeed, when it comes to certain unavoidably complicated topics that are now proving fodder for GE’s critics, like long-term services contracts, I’m at a loss to think of what else we or the Audit Committee could have done to make sure that GE was getting it right. It’s also worth noting that some of today’s criticisms are being expressed by people who supported GE’s accounting judgments at the time they were being made without any reservations.

Finally, GE and its business units were subject to oversight by numerous regulators, including the SEC, the FDIC, the Office of Thrift Supervision and various state regulators. Plus, for the four years that GE Capital was designated a “non-bank Systemically Important Financial Institution,” a supervisory team from the Federal Reserve worked on-site and scrutinized every aspect of GE Capital’s operations (and, while they were at it, some of GE’s as well). Our marching orders from Jeff and the Board were always to be open with GE’s regulators and to cooperate with their investigations. To be sure, we disagreed with our regulators on occasion and, when appropriate, we defended our positions, owned up to mistakes, compromised disputes and instituted remedial measures. But we did all of these things transparently.

“Success Theater.” As Jeff was stepping down as CEO, it became fashionable for some leaders at GE to blame their poor results on what quickly came to be known as “success theater”– Jeff’s supposed unwillingness to hear anything other than good news.

What hogwash.

First, it’s simply and demonstrably untrue. For example, as Jeff’s General Counsel, I communicated plenty of news that would be unwelcome for any CEO. I also disagreed with Jeff on plenty of occasions and viewed our back-and-forth as an essential and important part of my job. Jeff’s questions and challenges led my team and me to do some of our very best work, and the same held true for other functions.

We also tried to cultivate a culture of open reporting that made it safe and valued for employees to raise their concerns about accounting and other integrity issues without fear of retaliation, including via anonymous reporting channels. We fielded thousands of such concerns on a wide variety of topics each year. We investigated the merits of all of them and, when warranted, took disciplinary and remedial actions. Jeff unequivocally supported these efforts and never shut down a single such investigation. 

Second, the leaders who now claim that they were too intimidated by Jeff to express their concerns or reservations were being counted on (and paid a lot of money) to run their businesses with courage, honesty, excellence and determination. An important part of doing their jobs at GE was to step up and push back on Jeff and other leaders whenever necessary and to challenge our colleagues constructively whenever we disagreed about something important. I witnessed many leaders display the courage and intellectual wherewithal to do precisely this, privately and during business reviews, and such exchanges did not derail any careers. To the contrary, Jeff and GE rewarded independent thinkers who stood up in principled ways for their views and teams.

Third, shame on the people who now profess to have raised issues with Jeff or others when, in reality, they did not. I witnessed a disheartening amount of such dishonesty in the months after Jeff stepped down as CEO, so I suppose that I shouldn’t be surprised to see that some of the leaders responsible for some of GE’s biggest shortcomings are still trying to rewrite history to deflect blame to others.

$2 a Share. It’s also not true that “everyone” supposedly “knew” that our target of $2 in earnings per share for 2018 was a “pipe dream.” I sat through dozens of business reviews and leadership meetings from 2014 – 2017 during which there was always a consensus around the commercial and organizational initiatives whose implementation we believed would enable GE to meet this target for the benefit of our shareholders, including the significant mid-course corrections (mostly significant cost reductions) necessitated by the extraordinarily difficult markets that our Oil & Gas and Transportation businesses were encountering.

We all knew that meeting our target was going to require our best work, but we debated all of this openly and constantly at all of our quarterly business reviews. Again, it’s the responsibility of true, genuine and honest leaders of any organization to voice their concerns during meetings so that they can be considered and addressed appropriately and not simply to whisper them in hallways (or to journalists) afterward.

Was Jeff adamant about staying with our target so long as there remained a workable path toward achieving $2 a share? Absolutely. Name a successful CEO who ever retreated lightly from commitments made to a company’s shareholders. But here’s the rub that keeps getting glossed over time and again – even the hard-boiled skeptics believed that GE might miss $2 a share by pennies or nickels but never, as it regrettably turned out, by more than a dollar. This is the prism necessary for Jeff’s leadership during this period to be evaluated fairly.

There are plenty of reasons for people to be frustrated about what’s happened to GE, and it goes without saying that everyone is entitled to her or his opinions about the reasons for GE’s fall from grace. Still, as the old adage goes, principled critics are not entitled to their own facts.