General Electric Co. said longtime leader Jeff Immelt will step aside as chief executive on Aug. 1, ending a 16-year run atop the conglomerate that he reshaped after the financial crisis but recently has struggled to boost profit.
Continue Reading Below
GE said Monday that Mr. Immelt will be succeeded by the head of the company's health-care business, John Flannery, and retire as chairman of the board on Dec. 31. Mr. Flannery, 55 years old, is a 30-year veteran of GE who spent much of his career in the company's once-sprawling financial business.
Mr. Flannery, in a meeting for employees Monday that was broadcast on Facebook, said he would be taking a look at the entire portfolio.
"I want to start with a fresh look around the company overall," he said, expecting to come back in the fall with a set of recommendations. "I want to go through a deep review with a sense of urgency."
The change comes as GE has been under pressure by activist investor Trian Fund Management to slash costs and boost profits in the company's core industrial business. Mr. Immelt recently laid out two-year cost saving targets and revamped GE's executive-bonus program. Some Wall Street analysts had recently openly wondered about when Mr. Immelt might retire, but the CEO gave no sign he was ready to step aside.
Despite its public involvement in GE, Trian executives weren't involved in the CEO succession process and weren't briefed on the change, people familiar with the matter said. Trian declined to comment Monday on Mr. Flannery's selection.
Continue Reading Below
Mr. Immelt, 61, sold off GE's media businesses and divested the bulk of the company's lending businesses after the financial crisis. He took over days before the Sept. 11 terrorist attacks and GE shares plunged well below $10 during the financial crisis. The stock has rebounded off its lows but lagged behind the returns of the S&P 500. Overall, GE shares have fallen about 30% since he took over in 2001.
The conglomerate has refocused on its industrial businesses, shedding low-margin units like home appliances and striking a big oil-and-gas deal with Baker Hughes Inc. last fall.
GE said the leadership change has been in the works for years, with the board deciding on the timing in 2013 and voting Mr. Flannery as CEO Friday. Last month, Mr. Immelt told analysts the board had been working on succession plans but didn't indicate a decision was imminent.
"We've got a disciplined process. And I think we've got it well on track, " Mr. Immelt said at an investor conference.
GE shares rose 3.8% to $29.01 in midday trading. Shares are down more than 8% so far this year.
The succession planning, which included external candidates, was narrowed to four internal candidates in 2015: Mr. Flannery, finance chief Jeff Bornstein, the head of the power business Steve Bolze, and the head of the oil and gas business Lorenzo Simonelli.
Throughout 2016, those four were interviewed and increasingly given public exposure and investor interviews and by the end of the year, the timing and process for the change was set up, according to a person familiar with the matter.
GE directors made their final decision about Mr. Flannery during a regularly scheduled board meeting Friday at its Boston headquarters, according to another person familiar with the matter. Trian had "zero" impact on the process, this person said. Even the date of last Friday's board meeting was scheduled "years in advance," this person said.
The three runners-up "didn't know they didn't get it" until after Friday's board meeting ended, this person added.
"We feel good about how we prepared for this transition," Mr. Immelt said on a conference call Monday, adding the company didn't plan to make any changes to its executive-compensation plans to retain other top executives and was sticking to its recent financial forecasts.
Mr. Bornstein, who has been finance chief under Mr. Immelt, will remain in that role and become vice chairman. Mr. Flannery will take over as chairman of the board next year. Mr. Immelt described the new management arrangement as a "partnership."
Mr. Flannery will review the businesses and doesn't come into the job with any sacred cows, but no major changes are anticipated at this time, the person said. There is no mandate to shake up the portfolio.
Mr. Flannery is the former head of GE's India business and former leader of its deals team. On Mr. Flannery's watch, GE spun off its consumer-credit business, Synchrony Financial, sold its appliance business, and purchased of the energy business of Alstom SA.
He stepped in to lead the health-care business in 2014 when the unit was struggling and some analysts called for GE to spin it off or sell it. Instead, Mr. Flannery and GE have doubled down. The unit, which makes imaging and diagnostic equipment, has been expanding into life sciences. GE Healthcare's revenue rose to $18.29 billion in 2016, back to levels it sustained in the beginning of the decade, while increasing operating profit.
Mr. Bornstein said he and Mr. Flannery have worked closely for more than 20 years and have a similar view in terms of return and capital allocation. "He grew up as a corporate finance guy and has a deep understanding of value and value creation," Mr. Bornstein said on the call.
The new CEO will be focused on cash flow management and shareholder value and will work closely with Mr. Bornstein on costs, one of the people familiar with the matter said.
GE said Monday that Kieran Murphy, one of Mr. Flannery's lieutenants, will take over as CEO of the health-care unit. Mr. Murphy, who joined the company in 2008, has been CEO of the company's life-sciences business.
Write to Thomas Gryta at email@example.com, David Benoit at firstname.lastname@example.org and Joann S. Lublin at email@example.com
(END) Dow Jones Newswires
June 12, 2017 12:52 ET (16:52 GMT)