The news concerning General Electric (GE) continues to be abominable. The stock price has declined from nearly $40 per share to $11.10 today, the dividend may be cut, and GE's AAA bond rating is expected to be cut. In the face of all this bad news, what do I read? That GE's CEO, Jeffrey R. Immelt has been appointment to Obema's Economic Recovery Advisory Board.
To me this is an outrage. Here we have the CEO of failing company accepting the task of serving on a committee rather than saving the company he supposedly works for. This also creates a credibility problem. It seems illogical to have the head of a failing corporation provide advice on saving the economy! Even if one were to accept the premise that serving on the committee really isn't all that distracting from working to save GE, it does send send a powerful message to the public that Immelt is out of touch with reality.
That Immelt would accept such an appointment demonstrates a degree of arrogance concerning his supposed priorities and public relations. This would be similar to the outrage of auto executives flying on expensive private jets in luxury to Washington DC to beg for money because their companies were "impoverished". Like the auto executives, it seems to me that Immelt has an ego problem that precludes him from realizing that he is out of touch with reality. He should be focusing on saving GE not kissing up to the President.
When I got home from work, I was "greeted" by Glen Beck of Fox news who just happened to be on with "GE in bed with Obama" (The transcript unfortunately does not read well at all. As I am writing this he is now rehashing this with Laura Ingraham). Regretfully, this discussion reinforced my perception that Immelt and the GE board of directors are not managing GE for the benefit of the shareholders. Technically, Immelt and the board work for the shareholders. So it seems that Immelt and the GE board of directors view GE as a private fiefdom that is to be run for their benefit.
We are constantly barraged by many economic pundits with the statement that if the company does well, its leaders should be rewarded. Here we have a company that has a falling stock price, the AAA bond rating may be cut, the dividend may be cut, and earnings are down. The New York Times wrote "In announcing executive pay limits on Wednesday, President Obama is trying to hold the financial industry accountable to taxpayers while aiming to change an entrenched corporate culture that endorses outsize bonuses and perks that often bear little relationship to corporate performance." (emphasis added) I have not seen a public press release from GE announcing how management will share the stockholders pain.
Also, it is not simply an issue of GE management sharing the pain, but recognizing its fiduciary relationship to the stockholders. GE management is supposed to manage the company for the benefit of its stockholders. Many of these stockholders have their retirement savings in GE stock. The decline in the value of GE stock and its dividend mean that people who earn a lot less than Immelt will suffer. It seems that we have to many corporate managers who care very little for the people they hurt. I seriously hope that GE management is not pillaging the company for their own benefit.
According to Jeff Beck, Immelt was paid nearly $20 Million dollars in compensation last year. Based on the decline of the stock price, the potential bond downgrade, the potential cutting of the dividend, and the decline in earnings, one would think, if Immelt were honorable, that he would take a pay cut and refund some of his prior compensation. All that I have heard is silence. I hope that GE management will not destroy GE like the managers of Washington Mutual did.
Update 2/16/2009 Barron's video: Can Immelt Resuscitate GE's Value?
Update 2/18/2009 New York Times article: G.E.’s Immelt Declines His 2008 Bonus
I hope that the shareholders will be able to organize to vote Immelt and the board of directors out of office before it is too late.
Disclosure: We are shareholders in GE