The arrival of a new CEO provides an organisation the opportunity for major changes. A new CEO likes to put his or her stamp on the strategy and operations, and the employees are also mentally prepared for changes during the honeymoon period. Furthermore, the changes can be especially severe at an organisation in need of a turnaround.

GE, the $120 billion (₹7.8 lakh crore) US conglomerate, is in such a situation. When CEO Jeff Immelt handed over reins to John Flannery in August, he was leaving before his time was up, it was said to have been prompted by poor stock performance. Even under Immelt’s reign, a major transformation of the company was underway. He exited major sectors during his 16-year stint, like media, plastics, appliances, and many financial services. The company had already announced sale of its industrial-solutions and water businesses. Yet, the company’s stock price remained depressed.

The new CEO is expected to focus on three main divisions: power, health care and aviation, which account for about 58 per cent of revenues and will become the core for its future growth. The divisions that would take a hit include transportation, healthcare IT, lighting, and oil and gas operations.

Turnaround executives who often see the need for dramatic action, set the right expectations inside and outside the company. Thus, he quickly grounded the fleet of jets GE’s top management used for its travel. He wants to move centralised research back to the divisions. He has slowed down the construction of a new headquarters complex in Boston. The company employs about 300,000 people and we would soon begin hearing about layoffs. An activist investor group, Trian Fund Management, which owns a 1 per cent stake in GE since 2015 has been seeking cost reduction and restructuring and was recently given a seat on the board. Bonuses for senior executives have now been linked to profit-related goals.

The share price of conglomerates has been known to suffer from a discount as traders find it hard to truly evaluate its overall prospects, with some divisions doing well and others not so. GE’s share price has dropped a further 43 per cent this year; an underperformance in the face of a broad market boom that has been perplexing. Some believe that nothing short of a break-up of the company would help its performance.

Immelt’s predecessor, Jack Welch, who headed the company for 20 years, became a legend for the great growth he engineered; the market capitalisation under his watch increased by about 30 times. He set a high bar for performance and his pronouncements at the company’s annual meetings were closely watched not just by investors but also management scholars. Unlike most corporations whose shares are held by institutions, GE has a high number of retail investors who are upset by the company’s decision to slash its dividend by half this year as the cash flow is insufficient to make this payment.

GE’s CEOs have traditionally enjoyed long tenures. Flannery, who is already a 30-year veteran of the company, is a true insider having recently headed the healthcare division and is credited with a successful turnaround there. He can look forward to a long reign as he re-structures the conglomerate. He needs the time for there are no quick fixes for a lumbering giant like GE but the question is whether investors will be patient.

The writer is a professor at Suffolk University, Boston

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