General Electric announced Monday that it will replace Chief Executive John Flannery, who took over the industrial giant just over a year ago. H. Lawrence Culp, former chief executive of Danaher Corp., will replace him. GE also said it will take a $23 billion noncash charge for its power business and fall short of earnings expectations in 2018.
The company's shares rose 7 percent to close at $12.09 Monday on the New York Stock Exchange.
GE's stock has declined significantly in the past year even as the stock market overall has touched record highs. The company's stock price fell by half and its market capitalization declined to less than $100 billion.
The 125-year-old company was booted from the Dow Jones industrial average this summer and, last month, shares tumbled to a nine-year low after revealing a flaw in its marquee gas turbines, which caused the metal blades to weaken and forced the shutdown of a pair of power plants where they were in use.
Flannery replaced longtime Chief Executive Jeffrey Immelt, whose tenure marked GE as the worst-performing Dow stock among companies that hadn't gone bankrupt or left the group of blue chip stocks.
GE -- maker of light bulbs, appliances, turbines and the onetime owner of NBCUniversal -- has touched the lives and investment portfolios of hundreds of millions of Americans and consumers worldwide. Because of the company's size, the U.S. economy and millions of pensioners, savers and investors have for decades depended on the success of its stock price and dividend.
Flannery began his career at GE in 1987. He climbed the ranks to president and chief executive of the company's health care business before assuming the top job.
Long admired for its management, GE has been mired in underperforming divisions and poorly timed acquisitions for years. In the past year, it sold its locomotive business and divested its Baker Hughes oil investment to raise money.
But its board of directors demanded results faster than Flannery was able to deliver.
Culp, who was named to GE's board this year, is the first leader of General Electric since its original president and chairman who had not spent years working for the company before ascending to its helm. Culp is only the 14th person to run the 126-year-old company, with its most recent chief executives holding onto the job for nine to 20 years. The company's CEO successions have been among the most widely watched events in corporate America, making the sudden handoff to Culp all the more notable.
While one year is a short tenure by nearly any corporate standard -- the average CEO lasts just under nine years, according to the Conference Board -- it is particularly abbreviated at a company like GE, which has long been heralded for its reputation for developing corporate executives and has seen its management practices become widely copied.
"Here's the company that was the role model for well over 100 years of being able to generate leadership talent, and they didn't have someone on the bench that the board felt comfortable moving in," said Noel Tichy, a professor at the University of Michigan's business school who led GE's leadership training center, known as "Crotonville," in the mid-1980s and has written widely about succession, corporate leadership and GE.
Culp, who retired as CEO of Danaher in 2015, led the industrial giant for 14 years, a management run The Wall Street Journal called "among the most successful in corporate America over the past decade" in 2014. During his tenure, Danaher's revenue and market capitalization grew about fivefold and returns to shareholders well outpaced the Standard & Poor's 500 stock Index.
"GE remains a fundamentally strong company with great businesses and tremendous talent. It is a privilege to be asked to lead this iconic company," Culp said in a statement. "We will be working very hard in the coming weeks to drive superior execution, and we will move with urgency."
GE also installed Thomas Horton, former CEO of American Airlines, as its lead director, succeeding former Vanguard CEO John "Jack" Brennan, a director who said earlier this year that he would not stand for re-election in 2019. The lead director position represents the board's independent board members and is common in publicly traded companies where the chairman is also a current or former CEO. As CEO at American, Horton led the airline's restructuring and its merger with US Airways.
The board of directors that named Flannery CEO in June 2017 now looks very different. Just seven directors from that 18-member board remain after the company announced an overhaul in February. It added three independent directors -- including Culp and Horton -- but said goodbye to eight others, reducing the board to just 12 members and marking a kind of large-scale shift that is rarely seen in corporate governance. (GE's board now has 11 directors with Flannery's departure; the company also named Edward Garden late last year amid pressure from activist investor Nelson Peltz and saw two other board members step down.)
"This is a board that's not loyal to anybody now," said Peter Crist, chairman of the executive search firm Crist Kolder Associates who has been a longtime observer of GE.
The manufacturing conglomerate had long been a pillar of U.S. industry. It has 300,000 employees, competes in 180 countries, and received wide respect for its management and corporate governance.
Information for this article was contributed by The Associated Press.
Business on 10/02/2018