GE, a company that prides itself on management excellence, is so desperate that for the first time in its 126-year history it is being led by an outsider.
“GE has been like watching a slow (but fatal) train wreck,” Scott Davis, lead analyst at Melius Research, wrote to clients on Monday.
“Unwinding 15 years of bad decisions will require courage,” but Davis added: “I wouldn’t want to bet against Larry.”
Culp brings credibility
By bringing in fresh blood, GE is betting that it will be able to accelerate a turnaround plan started under John Flannery, a 30-year veteran of the company who was unceremoniously ousted as CEO to make room for Culp.
“GE should be commended for selecting a credible, seasoned GE outsider,” Cowen analyst Gautam Khanna wrote to clients. Culp is likely to “more candidly and quickly identify how bad things may be.”
Culp built an impressive track record while leading Danaher between 2001 and 2015. The company’s revenue and market cap quintupled over that time.
The Harvard Business School graduate is credited with remaking Danaher from a tired manufacturer into a modern company with strong health sciences and technology businesses. He pushed Danaher into health care, a business that today sells tools, lights and software used by dentists.
“He’s got the chops to take over a company of this size,” said Jim Corridore, an analyst who covers GE at CFRA Research.
Khanna cheered Culp’s history of “prudent” capital allocation at Danaher, noting that roughly $25 billion was deployed during his tenure.
After years of bad decisions that caused a buildup of debt, GE sorely needs a strong steward of its depleted resources. Analysts say that under former CEO Jeff Immelt GE far too often bought high and sold low.
Consider the disastrous 2015 purchase of Alstom, a $9.5 billion acquisition that pushed GE Power further into fossil fuels at precisely the wrong time. GE Power is in such disarray today that the company announced it will need to take an accounting write down of up to $23 billion to reflect the deterioration of businesses acquired.
“The size of the writedown is disturbing,” said Corridore.
Flannery took over a company in disarray when he became CEO last year. While he deserves credited for disclosing “dirty laundry” he uncovered, Flannery failed to move fast enough to restore confidence among shareholders.
“It was really hard for John Flannery to escape the bad hand he inherited,” said Jeff Sonnenfeld, an authority on corporate governance at the Yale School of Management.
In a statement, Immelt predicted that GE Power will recover under the new leadership team because of its superior technology and talent.
“Larry Culp will be a strong leader for GE and its board of directors. His expertise and experience are aligned perfectly with GE’s needs,” Immelt said.
Will GE continue its makeover?
Given Culp’s history in health care at Danaher, Sonnenfeld predicted that GE could decide to keep its own health care division.
GE’s vast corporate structure, built up over decades by Immelt and Welch, could get slimmed-down under Culp.
Culp ran Danaher with less than 100 employees in the corporate office, and Davis said the new CEO will likely likely “strip corporate back to necessary functions and tear down all the fiefdoms.”
Tall challenge ahead
But cost-cutting alone won’t fix GE.
By hiring Culp, GE may have quickly improved its serious credibility problem on Wall Street. But don’t be fooled: righting the ship will take much longer.