One of the key lessons we have found in this podcast series on leadership has been that of listening. Almost every great leader had this skill. Unfortunately, at times that skill becomes a downside in an organization when the leader only hears what subordinates think he wants to hear. They can lead to a leadership failure which can have catastrophic results for the organization. This problem is one of the reasons we are currently seeing the financial trouble at GE play out on a national and international stage.
The problem was not that former chief executive officer Jeff Immelt did not listen; the problem was that he did not want to be told any bad news. That led to what Thomas Gryta, Joann S. Lublin, and David Benoit, writing in the Wall Street Journal dubbed the “Success Theater” at GE. In a piece entitled, “How Jeffrey Immelt’s ‘Success Theater’ Masked the Rot at GE: A culture that disdained bad news contributed to overoptimistic forecasts and botched strategies” they detailed the stories and tales that “Mr. Immelt and his top deputies projected an optimism about GE’s business and its future that didn’t always match the reality of its operations or its markets, according to more than a dozen current and former executives, investors and people close to the company.”
The problem this false culture pervaded down into the ranks (as one might expect) so that sales and revenue projections were not based on the facts in the business units but on the hopes and dreams of those business unit leads, all because that is both what their leaders wanted to project to the outside world and what he wanted to hear. The consequences were “that included unreachable financial targets, mistimed bets on markets and sometimes poor decisions on how to deploy cash.” As one Deutsche Bank analyst said, “The history of GE is to selectively only provide positive information. There is a credibility gap between what they say and the reality of what is to come.” Another commentator, Sandra Davis, “founder of MDA Leadership Consulting: “GE itself has never been a culture where people can say, ‘I can’t.’”
But this was more than a company leader requiring his direct reports to have a ‘can-do’ attitude. Immelt “didn’t like hearing bad news, said several executives who worked with him, and didn’t like delivering bad news, either. He wanted people to make their sales and financial targets and thought he could make the numbers, too, they said.” The problem with this approach is that it can mask problems, which can become very serious overtime.
GE was lauded for its stock buy-back program in the early part of the decade. However, it is clear now that GE was doing so to mask the softness of its revenues. Adam Hartung, writing in Forbes.com in a piece entitled, “GE: A Total Leadership Failure” noted that the stock price had dropped over 1/3 Immelt’s tenure at GE and in 2015 began a massive stock buy-back program to prop up the price for investors. About the only good thing one can say about this program is that at least Immelt did not borrow money for this buy-back program as he financed it internally. But even this approach had consequences as the company is now strapped for cash.
Yet by 2018 the drop, in the stock price had become almost catastrophic, down some 44%. Then came the bombshells in this calendar year. First that GE would cut its annual dividend payment for only the second time in its 125-year history. The next bombshell was the company’s announced it was taking a $6.2 billion charge in its fourth quarter related to its insurance operations and needed to set aside $15 billion over seven years to bolster insurance reserves at its GE Capital unit. The final bombshell(s) were the announcements that the company was restating its earnings for 2017 and 2016 and that the Securities and Exchange Commission was now investigating the company for these accounting issues.
Even worse, this ‘Success Theater’ was not only about information to and from Immelt. It went above him up to the Board as he apparently gave the Board overly optimistic projections. It came to a head for the Board last September due to the torpid perform of GE’s largest recent acquisition Alstom. Unnamed sources told the WSJ that Immelt “told the board that management had identified risks in the power business yet downplayed them. The probability and risk were way off”. Then in “September that the board learned the depths of the problems at the division, which accounts for 30% of GE’s approximately $122 billion in annual revenue. GE Power was sitting on too much unsold inventory and was discounting deals to hit sales projections.”
The Board was so shocked and dismayed that “Several directors discussed in November whether the entire board should be fired, according to people familiar with the meeting. Instead, what had been an 18-person board will lose half its members but soon add three new directors in coming months.” And this Board action was before the dire financial announcements of 2018.
Perhaps not all of these failures can be laid at the of bad acquisitions, bad bets or bad business sense of Immelt or his colleagues. But it is becoming clear from his tenure at GE that his failure to be willing to hear bad news contributed to a culture within the organization that the reality might not be acceptable if it was something other than what Immelt wanted to hear. That is one very large leadership failure.