Jeffrey Immelt, Chairman and CEO of General Electric speaks at a U.S. Climate Action Partnership event. (Photo credit: Wikipedia)
This story by MarketWatch about GE is a must-read in my view. Check it out!
via GE’s Immelt shows how to break up a big bank – MarketWatch.
This story somehow disturbs me. It raises mixed feelings and starts a series of conflicting thoughts about GE. There was a time in my life when I really admired GE, then I started to question GE’s effectiveness and how it interfaced with its environment. Indeed in the introduction to my doctorate I declared my ambivalence to GE as a bias.
Anyway, let me return to the MarketWatch article. The headline is very, very powerful. As I contemplated the headline, my mind raced ahead and thought of follow-up articles like, ‘What Chairmen of Big Banks in the UK, Germany, France and Japan can learn from GE’s Immelt’s Big Bank Breakup’.
Regular readers of this blog will know that I’m deeply suspicious of the Financial Services industry. Simply,
- Customers don’t get the benefit effective competition, with too many ‘me to’ products
- Service charges are not evidenced with transaction cost analysis
- Customer service is frequently based on broken processes – somehow the public sector seems more customer friendly than big banks
- Bank executives are paid far too much for ineffective performance
- Tax paid never seems to resemble declared profitability, and the
- Financial Services lobby seems to be too powerful in directing government policy
I still worry about what happened in the 2008 Financial Crisis. Why were bankers never held accountable? Why did so few go to jail?
Since 2008, there has been a series of high profile bailouts, yet austerity has dealt a very painful hand to the middle and working classes, plus of course to Southern Europe. Why have the banks not been held to account as well?
GE is often regarded as a bell-weather stock for US financial markets. So the suspicious part of me wonders ‘Why is GE bailing out of Financial Services, and why now?’ Of course, there are standard answers like GE is returning to its industrial base but I’m still uncomfortable.
Before writing this blog, I had a quick scan of GE’s Wikipedia page. Let me quote the following:
Controversies and criticism
The six reactors in the 2011 Fukushima I Nuclear Power Plant catastrophe had been designed by General Electric. Their design had been criticised as far back as 1972.
In March 2011, The New York Times reported that, despite earning $14.2 billion in worldwide profits, including more than $5 billion from U.S. operations, General Electric did not owe taxes in 2010. General Electric had a tax refund of $3.2 billion. This same article also pointed out that GE has reduced its American workforce by one fifth since 2002.
In December 2011, the non-partisan organization Public Campaign criticized General Electric for spending $84.35 million on lobbying and not paying any taxes during 2008–2010, instead getting $4.7 billion in tax rebates, despite making a profit of $10.4 billion, laying off 4,168 workers since 2008, and increasing executive pay by 27% to $75.9 million in 2010 for the top 5 executives.
In November 2014, Synchrony Financial, formerly GE Capital, came under investigation by the Justice Department for over potential bankruptcy violations.
Between March 1990 and February 2001, General Electric was fined or ordered to pay damages by a court 42 times, amounting to at least $934,027,215, according to a report from the Multinational Monitor.
Let me ask an open question:
What are the wider implications of GE exiting Financial Services, and is the timing significant?
Thoughts?
Dr Alf's Blog 
Dr Alf has valid concerns,I used to work for GE Capital and their modus operandi seems to be to purchase companies after very hard headed and thorough evaluation,negotiation and discussion and then place any debt incurred to make the acquisition into an offshore special purpose vehicle.
Stage 2 is to remove layers of management and get rid of the old order whilst replacing it with fewer people.
Thus the costs of acquisition including extraordinary costs,payoffs,redundancies and outplacement counselling are all recovered in short order.
Then the “Workout” process begins whereby workers identify weak managers and move to very flat self determined work team structures with 4 or 5 layers between the senior directors and those at the coal face.
Then a test is applied”fix,sell or close”,to any business or division which is not no1 or 2 in its marketplace.
Those businesses which fail to make the cut quickly are soon put out of their misery.
With people the process used is Accelerated Change and Transformation.
Here the rule is 80/10/10.
The top 10% that year are promoted and given more pay and career progression,the 80% “sturdy yeomanry in the middle are trained,managed to their level of incompetence and get to keep their jobs and the 10% at the bottom are “napalmed” and “black bagged” which means they are dismissed or made redundant and whenever possible not replaced .
Before any replacement occurs the processes used by those people are whenever possible streamlined,automated or replaced with cheaper people overseas (GE has thousands of UK/US trained accountants working out of shared services centres in India).
There is no job security except that which comes “from customers” so in that regard as long as GE keeps getting them even in what Jeff Inmelt calls “New Normal” conditions people can remain employed as long as they do not fall into the bottom 10% in any particular year.
Whether GE is breaking up a bank or just doing business what I have described illustrates their approach which by any standards is clinical and ruthless.