General Electric said Monday that its longtime chief executive, Jeffrey R. Immelt, would retire at the end of this year, closing out a 16-year run at the helm of the industrial giant, which included a vast overhaul of the conglomerate’s portfolio but also an underperforming stock price that has trailed well below market indexes and competitors.
General Electric is the only remaining member of the original Dow Jones industrial average, created in 1896 by Charles Dow. In the past, its very makeup — electric lightbulbs, appliances, NBC — gave GE a touch point to hundreds of millions of Americans and consumers worldwide.
Because of its size and ability to generate cash, the U.S. economy and the millions of pensioners, savers and investors depended on the success of the General Electric stock price and dividend — whether they knew it or not.
Immelt’s inability to move that stock price — it fell by nearly half during his tenure — was thought by many to be his undoing.
“Why the change? Two words: stock price,” said Ivan Feinseth, chief investment officer at Tigress Financial Partners. “There is no question. The board and shareholders have given Jeff Immelt a long time. He was CEO for almost 17 years in one of the biggest upmarkets cycles in history and the stock has underperformed.”
Immelt, 61, will be succeeded on Aug. 1 by John Flannery, the current president and chief executive of the company’s health-care business, and will remain chairman until the end of the year. The company said that the announcements were part of a succession plan that had been in place since 2011, and that now was an “ideal time for change” as the company has completed its “pivot” away from financial services and the move of its headquarters from Fairfield, Conn., to Boston.
The company’s announcement comes amid recent pressure from the activist investor Nelson Peltz’s Trian Fund Management, which had pushed GE to cut costs and change up the executive compensation bonus plan. The company’s shares have fallen 12 percent since Jan. 1, while the Standard & Poor’s 500-stock index has climbed 8 percent.
Immelt has been closely watched from even before he took over. He and two other GE executives, Robert Nardelli and Jim McNerney, were forced to undergo a very public “bake off” to succeed the larger-than-life Jack Welch.
Immelt ultimately earned the job. Nardelli left to run Home Depot, then Chrysler. McNerney had successful subsequent careers with 3M and, until recently, Boeing. The company is widely considered a farm system for future executives of major U.S. corporations.
Welch was known during his time for one mission: increasing the stock price. He and a cadre of similar executives during the 1980s and 1990s were known for their single-minded devotion to maximizing shareholder value. Many U.S. corporate executives in the decades following World War II strayed from that religion, with the result helping to spur the advent of takeovers, buyouts and other financial devices designed to increase corporate bottom lines.
General Electric stock jumped 1 percent on the news of Immelt’s departure Monday morning, signalling Wall Street’s positive reception to the change.
“His managerial decisions resulted in investing in projects that did not maximize shareholder value,” said David Kass, a professor of finance at the University of Maryland. “Did he choose the right portfolio of projects to maximize shareholder value? I question whether he did.”
“Jeff Immelt is unfairly criticized for not doing enough for GE shareholders,” said Michael Farr, an investor and president of Farr, Miller & Washington, a Washington, D.C. firm. “In fact, he provided an excellent transition from the Jack Welch magical, do-no-wrong leadership and a highly leveraged balance sheet to a more conservative firm able to weather and endure.”
Many observers believe Immelt was dealt a difficult hand. The timing of his arrival to the job could not have been worse. He took over as CEO just days before the 9/11 terrorist attacks. The surprise attacks brought American business and airline travel to a halt, with far-reaching impact on GE’s jet engine business.
Then there was the 2008 financial crisis, in which GE Capital — one of the company’s major sources of revenue under Welch, accounting for roughly half its net income — turned into a liability. At one point, GE went hat in hand to investor Warren Buffett, who lent the company $3 billion in the depths of the crisis on terms that were very beneficial to Berkshire Hathaway. General Electric paid the money back in 2011, including a $300 million bonus, plus accrued and unpaid dividends.
Immelt has made dramatic changes to GE’s business, not only through completing $260 billion in asset sales for GE Capital over the past two years, but in taking on big acquisitions and divesting out of businesses such as GE Appliances, NBC Universal and GE Plastics.
“He leaves a solid company with an honorable, ethical reputation,” Farr said. “He worked hard and did well. He gets very high marks from me.”
Flannery, 55, has been at GE since 1987 and led the acquisition of Alstom, the largest industrial acquisition in the company’s history. During his tenure leading GE Healthcare, the company said, he has increased organic revenue by 5 percent.
Ultimately Flannery’s success will be viewed on his ability to appease shareholders and put the stock price back on an upward arc, something Immelt was simply unable to do.
“You can’t say it was greedy, obnoxious, impatient shareholders,” Feinseth said. “They gave him 17 years.”