General Electric Co. Chief Executive Jeff Immelt will step aside this summer, ending a 16-year run atop a conglomerate that he significantly reshaped but whose shares have vastly underperformed the stock market during his tenure.
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GE said Monday that Mr. Immelt would be succeeded on Aug. 1 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.
"I felt like 15 or 16 years was plenty of time to be CEO," Mr. Immelt, who turned 61 earlier this year, said in an interview Monday. "Doing it until I'm 65 didn't make sense for the company and didn't make sense for me."
The change comes as GE has been under pressure by activist investor Trian Fund Management LP to slash costs and boost profits in the company's core industrial business. Mr. Immelt recently laid out a two-year cost saving target and revamped GE's bonus program under pressure from Trian.
When Mr. Immelt took over in 2001, GE got about half its annual profit from its finance arm, GE Capital, and was one of the country's biggest lenders. Now, the company relies on selling and servicing jet engines, power turbines, hospital machines and oil-and-gas equipment for nearly all of its profit.
Mr. Flannery, in a meeting for employees Monday that was broadcast on Facebook, said he would be taking a look at the conglomerate's entire portfolio of businesses.
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"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."
Some Wall Street analysts have openly wondered about when Mr. Immelt might retire, but the CEO gave no public sign he was ready to step aside and swatted away succession questions. Mr. Immelt and an independent GE director said Monday that he had decided in 2013 to step aside at some point this year as part of a long-term succession process.
The timing was "completely unaffected by what was going on with Trian and their criticism," said Shelly Lazarus, a longtime GE director and a former CEO of Ogilvy & Mather Worldwide. "There was no reason to divert from the path."
Trian executives weren't involved in the process and weren't briefed on the change, people familiar with the matter said. Trian had voiced support for Mr. Immelt when it initially disclosed its investment in 2015, but had recently become frustrated with the company's performance, people familiar with the matter said. Trian declined to comment Monday on Mr. Flannery's selection.
Mr. Immelt sold off GE's media unit and divested the bulk of the company's massive lending division after the financial crisis. 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.
But the company's shares have lagged behind peers and the broader stock market. The stock has fallen about 30% under Mr. Immelt, who took over days before the Sept. 11 terrorist attacks, compared with a 124% surge in the S&P 500 during that period. Even including dividends, GE is the worst performing current member of the Dow Jones Industrial Average over that period.
GE shares rose 3.6% to $28.94 Monday.
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 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 at the beginning of the decade, while increasing operating profits.
Although Mr. Flannery spent much of his career in GE Capital and business development, he said he also had experience working abroad in emerging markets like India and running large business units. "I'm not coming to the table cold, if you will, about the company," he said on a conference call with analysts.
GE's succession planning process, which included external candidates, was narrowed to four internal candidates in about 2015: Mr. Flannery, finance chief Jeff Bornstein, Steve Bolze, who leads the power business, and the head of the oil and gas business, Lorenzo Simonelli.
Mr. Bornstein, who has been finance chief since 2013, will remain in that role and become a vice chairman. Mr. Flannery will take over as chairman of the board on Jan. 1. Mr. Simonelli will run a publicly traded oil and gas business that is being merged with Baker Hughes Inc., GE has previously said. It is unclear what role Mr. Bolze will play. Messrs. Bolze and Simonelli weren't available for comment.
Jack Brennan, the GE board's lead independent director, recently helped directors reach a consensus about Mr. Flannery. Over the past few weeks, Mr. Brennan called each board member and requested their preferred pick to succeed Mr. Immelt, according to Ms. Lazarus.
"You didn't have to give an answer," she said.
Ms. Lazarus said she endorsed Mr. Flannery because she liked his extensive international experience, humility and willingness to consider significant changes, including selling off big business units.
The other internal contenders "didn't know they didn't get it" until after Friday's board meeting ended, a person familiar with the matter said. Mr. Immelt said 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 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 Monday's analyst call.
GE also said that Kieran Murphy, one of Mr. Flannery's lieutenants, would take over as CEO of the Healthcare unit. Mr. Murphy joined the company in 2008.
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(END) Dow Jones Newswires
June 12, 2017 18:00 ET (22:00 GMT)