GE Leaders Rise Up From Finance -- WSJ

The finance guys are back in charge at General Electric Co.

After 36 years under Jack Welch and Jeff Immelt, the conglomerate will soon be run by two GE lifers who spent years working together at the once lucrative-yet-problematic GE Capital division. Newly anointed John Flannery will take the top job when Mr. Immelt retires as CEO this summer, but financial chief Jeffrey Bornstein, who was also in the running for the top job, plans to stay on board.

"Having Jeff as the vice chairman is key," Mr. Immelt said in an interview, sitting at a table with Mr. Flannery in GE's Boston headquarters. "These guys have worked together for 20 years."

The duo first worked together in the 1990s at GE Capital in roles such as commercial lending and bank loans. At the time, GE Capital was one of the country's largest banks, financing everything from home mortgages to power plants. When it became a drag during the financial crisis, Mr. Flannery was abroad and Mr. Bornstein worked to wind it down.

After the crisis, Mr. Flannery was leading the deal making team at GE while Mr. Bornstein was CFO. The duo pushed to sell "sacred cows" such as GE Appliances and continued to shrink GE Capital by spinning off the credit card business into Synchrony Financial.

"We look at the world through a pretty similar lens," Mr. Flannery, 55, said of Mr. Bornstein, 51.

That lens is focused on how the company spends its money, Mr. Flannery said Monday. He has spent recent years turning around the company's health-care division, while Mr. Bornstein has worked with Mr. Immelt on cutting costs at the parent company.

"Every dollar is an incremental choice of investment," Mr. Flannery said. "You can invest in plant and equipment, you can add sales people, you can develop new products, you can do research, you can buy companies, you can sell companies and you can buy back stock."

"Focus on the cost, and margin and cash, and then where do you focus the company," he said.

Mr. Flannery said he would work with Mr. Bornstein on a review of the company's vast operations, which span from diesel locomotive engines to infant resuscitation systems used in hospitals. He will produce recommendations for the portfolio by the fall.

While Mr. Flannery transmits a sense of urgency for the review this summer, certain things won't be considered. The company's dividend, which had to be cut during the financial crisis for the first time since the Great Depression, is "safe" and reducing it won't be considered, he said.

Also the company won't be increasing the scope of its financial services business even if regulations ease, a question that produced a guffaw out of Mr. Immelt. GE Capital had shrunk to about $10 billion of revenue last year, down from more than $58 billion in 2001 when Mr. Immelt took over.

All those ideas generally make Wall Street analysts and investors happy after GE reported a steep shortfall in cash flow during the first quarter. The stock rallied 3.5% Monday following the Flannery promotion announcement, but is still down about 8% for the year and has lagged behind the broader market. On Tuesday, GE shares retreated 1.7%.

Activist shareholder Trian Fund Management LP worked with GE to set new goals in March for cost cuts and industrial operating profit, tying executive bonus amounts to their success in hitting the targets. Mr. Flannery shares the investor's view that a company the size of GE, which more than $100 billion in annual spending, should be able to find $1 billion in annual savings, he has told people.

"Investors still view GE capital deployment as subpar," Credit Suisse analyst Julian Mitchell said, noting that shareholders will want to see details from the new CEO on how and why cash flow will improve.

"If Mr. Bornstein were to have left, this would likely have raised concerns among investors that a major earnings/cash-flow guide reset may be imminent," he said.

Write to Thomas Gryta at

(END) Dow Jones Newswires

June 14, 2017 02:47 ET (06:47 GMT)