Case 8-2 New Leadership at General Electric On June 12, 2017. GE announced that 30-year GE veteran and current President and CEO of GE Healthcare John Flannery would be replacing Jeff Immelt as CEO of the company as of August 1, 2017. Immelt had been the CEO for 16 years, taking over that role from the iconic Jack Welch. GE stated that the announcement was the culmina- tion of a 6-year succession planning process for the company's top spot. Flannery started at GE in 1987 fresh out of Wharton Business School's MBA program and has worked in many positions, including successfully turning around the failing health care division of the company. The Company's CFO Jeff Bornstein was named Vice Chairman.? Bornstein was one of three other final candidates considered for the CEO position. Barclays' analyst, Scott Davis. observed that Jeff Immelt has been criticized for his inability to connect with investors, and now many are expecting "fairly dramatic changes" under Flannery. GE's Market Cap at $153.6 Billion, while greater than 93% of the rest of the companies in the S&P 500, has dropped $240 billion in the last 10 years. Analysts at Seeking Alpha issued a statement saying that: "General Electric has got- ten absolutely crushed over the last two days, falling 15% from $20.50 down to $17.50. GE's peak of the current bull market for the S&P 500 came on July 20th of last year (2016), but since then it's down 47%. Even more shocking is that at $17.50, GE's share price is trading at the same level it was at 20 years ago in early 1997. Of course, there have been dividends paid, but it's not a good look for a company when share price is unchanged on a 20-year basis." On the GE July 21, 2017 second quarter earnings call with financial analysts and investors. Flannery stated that, while he does not officially start his new role as CEO until August 1, he was already underway conducting a "deep dive into all the business areas within GE He stated, "In addition to the business reviews, I want to repeat the process I used in healthcare to really get out and listen to what people are thinking, good and bad about the Company. I always start with customers and employees, but it's also important to get the view of our government partners and especially our inves- tors." His plan was to take his first 90 days in his role to develop a new strategic plan for the company with the intent to report back to the investors in regard to that plan in November. The rest of this earnings call was handled by the current CEO Immelt and CFO Bornstein and was relatively optimistic as to earnings for the year and into the future. On the October 20, 2017 third quarter earnings call with investors, Flannery led the call with Bornstein as CFO and Bornstein's successor Jamie Miller who would be taking over as CFO on November 1. Flannery kicked off the call by stating, "While the company has many areas of strength, it's also clear from our current results that we need to make some major changes with urgency and a depth of purpose. Our results are unacceptable, to say the least. He went on to say that his review of the company has been, and continues to be, exhaustive. The team and I have performed deep dives on all aspects of the Company," and left no stone unturned. "We are evaluating our business (structure), corporate (systems), our culture, how decisions are made, how we think about goals and accountability, how we incentivize people, how we prioritize investments in the segments; and at the overall Company level, including global research, digital and additive. We have also reviewed our operating processes, our team, capital allocation and how we communicate to investors. Everything is on the table, and there have been no sacred cows." One of those changes was that Jeff Bornstein would be leaving the company and not be the new vice chairman. While stating he would give more details on the November call, he further stated that "We are driving sweep- ing change and moving with speed and purpose. I'm focusing on the culture of the Company. Our culture needs to be driven by mutual candor and intense execution, and the accountability that must come with that. We have announced changes in our team at the highest levels of the Company. In addition to changes in our culture and our team, I will also share more with you in November on our capital allocation methods, changes we are making to analytics and metrics, and process improvements. In particular, these changes will be focused on improving the cash generation of the Company. We have to manage the Company for cash and profitability in addition to growth." On the November 17, 2017 call, Flannery led an Investor Update to provide a detailed analysis of his "deep dive into the business and his plans for the company. He reiterated, "that the current operating results were unacceptable" and "the management team is completely devoted to doing what it takes to correct that." He went on to say, "going forward, we really just have to focus on how we can create the most value and portfolio of assets that we have for our owners and we're going to do that with a very dispassionate eye, very critical analytical dispassionate eye. The GE of the future is going to be a more focused industrial company, it will leverage a lot of really game changing capabilities in digital in Additive in industrial research, culture of the company much more open, much more transparent, much more con- nected. And at the end of the day, we really exist to deliver outcomes for the customers, performance for the owners and have an environment where our employees are motivated by excited by, rewarded for delivering on those two things." Only time will tell whether Flannery is able to turn GE around and deliver on these promises. Questions 1. Describe the characteristic traits of leadership at GE. How would you describe Flannery's leadership style? 2. Do you believe that leadership style and connection with employees can influence operating systems? Explain. 3. Scott Davis criticized Immelt's tenure as CEO and observed: "Jack Welch brought much needed energy and charisma to the CEO job and streamlined the bureaucracy." Can a leader's personal qualities be directly respon- sible for a higher level of earnings? Explain. 4. Review the GAAP and non-GAAP third-quarter 2017 earnings information released to the public. As an astute student of accounting, what questions would you have for John Flannery about these numbers if you were on a conference call and knew about the information described in this case