Speaker 1: This is Bloomberg Wall Street Week.
Speaker 2: And we may not have an overall recession, we're having
Speaker 2: a rolling recession. To Cone roll looks pretty strongly it
Speaker 2: is when it comes to jobs.
Speaker 3: The financial stories that shape our world.
Speaker 2: Three major regional bank failures send shockwaves through the banking system.
Speaker 2: We're all trying to figure out what to make of
Speaker 2: generative AI.
Speaker 1: Through the eyes of the most influential voices.
Speaker 2: Welcome down, doctor Paul Krugman, Ryan moynihan, a Bank of America,
Speaker 2: deebro Lair of the Paulson Institute, well then Hubbard of
Speaker 2: the Columbia Business School.
Speaker 1: Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
Speaker 2: Less oil that we thought it's more high end chips
Speaker 2: than we expected, and trying to get our hopes for
Speaker 2: the future just right given where we're headed. This is
Speaker 2: Bloomberg Wall Street Week. I'm David Weston. This week Larry
Speaker 2: coppege on his remarkable five years of turnaround for an
Speaker 2: American icon and what comes next.
Speaker 4: You're far better off being strong rather than just big,
Speaker 4: you know.
Speaker 2: Ferguson of the Hoover Institution on the promise and the
Speaker 2: perils of artificial intelligence, and what we can learn from
Speaker 2: the Cold War.
Speaker 5: There were problems posed when nuclear fission club was developed.
Speaker 5: It had both the destructive use atomic bombs and a
Speaker 5: potentially very productive use as a source of energy.
Speaker 2: And Pete Stavros of KKR, together with Kathy Vajos of
Speaker 2: Chartered Next Generation on giving employees a true seat at
Speaker 2: the corporate table.
Speaker 6: We lay the foundation of a different type of culture,
Speaker 6: which is ownership.
Speaker 7: We normalize the fact that management and labor don't get along.
Speaker 7: I want to flip the script on that.
Speaker 2: Global Wall Street eased its way into fall this week
Speaker 2: with continued disappointing economic news out of China, but a
Speaker 2: discovery that Huawei may have found a way to make
Speaker 2: high end microchips despite the US restrictions.
Speaker 8: It shows that China can do mostly with domestic manufacturing
Speaker 8: a lot of the advanced the chip making and development
Speaker 8: for a smallphone.
Speaker 2: Something President g won't have to answer questions about it
Speaker 2: the G twenty meetings in India this weekend because he
Speaker 2: decided not to go.
Speaker 1: It just sticks away from the Shijen Bing's absence steaks
Speaker 1: of the primacy in a way.
Speaker 2: Saudi Arabia and then Russia announced extended restrictions on their
Speaker 2: oil production, catching markets by surprise and raising the specter
Speaker 2: of a return to higher oil prices.
Speaker 7: The fact that was reached ninety dollars but barrel is
Speaker 7: significant and it means that the whole commodity index pushes higher.
Speaker 2: In the United States, everyone was looking for any scrap
Speaker 2: of information to confirm the soft landing. Last week's jobs
Speaker 2: numbers suggested, with the ISM services number coming in hot,
Speaker 2: which made everyone fear more rate heights, while the Fed's
Speaker 2: Beige Book pointed to subdued jobs growth and modest economic activity.
Speaker 8: I think the Fed would be very unwise to raise
Speaker 8: rates again just because of a short term spike and
Speaker 8: enthusiasm and service sector and.
Speaker 2: U US open headed toward its finals is driven by
Speaker 2: new faces, the return of some real American contenders, and
Speaker 2: a media showdown in the way of some people getting
Speaker 2: to watch.
Speaker 9: We just came out of this golden age of fifteen
Speaker 9: years of Roger Rafa Novak, and the baton has not
Speaker 9: only been passed.
Speaker 3: If you think it's been thrown to Carlos Alcarez.
Speaker 2: And the echoing markets this week certainly spend a lot
Speaker 2: of their time trying to get their expectations in line
Speaker 2: with reality, as the SNP five hundred lost one point
Speaker 2: three percent in part because of rising oil prices, to
Speaker 2: close it forty four to fifty seven, but that's still
Speaker 2: well above the median year end call of our Bloomberg
Speaker 2: elves of forty three hundred. The Nasdaq did even worse,
Speaker 2: giving up one point nine three percent, But the one
Speaker 2: clear winner was the dollar, with the Bloomberg Dollar Index
Speaker 2: showing it up for the eighth week in a row.
Speaker 2: That is the longest winning streak since January two thousand
Speaker 2: and five. For her take on what we are seeing
Speaker 2: in the markets, we welcome back now Christina Hooper. She
Speaker 2: is a Vesco Global Market striss Christina. Always great to
Speaker 2: have you with us. So what did you make of
Speaker 2: this week? It doesn't seem to be in one straight line.
Speaker 3: At the moment.
Speaker 10: Well, David, I think this was really a story of
Speaker 10: bad news is good news, good news is bad news,
Speaker 10: and this week it was good economic data that raised
Speaker 10: fears that the Fed may have to continue hiking rates,
Speaker 10: and that's really all it was to it. But actually,
Speaker 10: if we go through the data, not everything was that positive.
Speaker 5: Right.
Speaker 10: Yes, everyone sees on the ism services, but actually the
Speaker 10: S and P services PMI wasn't as good. If we
Speaker 10: look at initial jobless claims, yes, they're lower, get you know,
Speaker 10: the lowest we've seen in a while, and it's been
Speaker 10: on a trend for a few weeks. But other readings
Speaker 10: suggest more tepid labor market, right what we saw from
Speaker 10: the JOLT survey last week. So I think markets have
Speaker 10: been concerned because of a few data points. But I've
Speaker 10: always stressed that not every data point is going to
Speaker 10: perfectly support the narrative of a displacetionary trend. But we
Speaker 10: are very much in that disinflationary trend.
Speaker 2: Disinflation. Are we on our route to two percent? And
Speaker 2: if so, long is it going to take us to
Speaker 2: get there?
Speaker 10: I do believe that, and I'm happy you asked that
Speaker 10: because the Chicago Fed economists just put out of paper
Speaker 10: arguing that we are actually on that path and that
Speaker 10: we will get to two percent inflation. Now, it will
Speaker 10: take some time to get there, but that's okay because again,
Speaker 10: typically we see significant period of time between when monetary
Speaker 10: policy is enacted and when it shows up in the economy.
Speaker 2: What does this say to investors? What do you do
Speaker 2: in this sort of world of as you say, bumpy landing,
Speaker 2: there's going to be some uncertainty even if it's not
Speaker 2: going to go off a cliff. What does an.
Speaker 10: Investor do well, Investors have to understand that there are
Speaker 10: going to be shifts in leadership because markets are uncertain
Speaker 10: right now.
Speaker 2: Last week this week was.
Speaker 10: A perfect example of that. We have a lot of
Speaker 10: fear right now. But once we get clarity that the
Speaker 10: FED really has ended its rate high cycle, that's when
Speaker 10: markets can look ahead and start to discount in economic recovery.
Speaker 10: So that would mean being positioned more in cyclicals, more
Speaker 10: in smaller caps, but also looking outside the US. International
Speaker 10: is going to be a lot more attractive as the
Speaker 10: US dollar weekends, and while it has been strong, I
Speaker 10: do believe that we will see it start to weaken
Speaker 10: once we have that clarity that the FED has stopped
Speaker 10: hiking rates.
Speaker 2: Briefly, oil or persons did go up this week.
Speaker 10: Certainly that's a concern, but it takes time to filter
Speaker 10: into the rest of the economy to make it into core.
Speaker 10: So if this is a relatively short burst, I'm not
Speaker 10: that concerned about it.
Speaker 2: Is the FED going to be concerned?
Speaker 10: I don't think so, because the Fed's looking at a
Speaker 10: mosaic of data, and again this is about a very
Speaker 10: strong disinflationary trend that I think they can see, and
Speaker 10: that was supported by what we heard anecdotally in the
Speaker 10: Federal Reserve page book this week.
Speaker 2: Christina's always such a treat to have you here, Thank
Speaker 2: you so much. That's Christina Hooper of Investco. Generative Artificial
Speaker 2: intelligence poses all sorts of opportunities and risks for investors
Speaker 2: the world, and one of the founders of DeepMind, that's
Speaker 2: the AI startup now part of Google, has written a book,
Speaker 2: The Coming Wave Technology, Power in the twenty first Century's
Speaker 2: Greatest Dilemma, in which he sets out the wonderful opportunities
Speaker 2: as well as the terrifying threats posed by AI and
Speaker 2: the need for nation states to develop structures to contain
Speaker 2: this powerful new technology.
Speaker 8: At this moment, we have to be optimistic and encouraging
Speaker 8: of the nation state. This is a moment when the
Speaker 8: state has to adapt and evolve, just as we all
Speaker 8: have to evolve to these new technologies. There's no way
Speaker 8: to put the genie back in the boggle. This really
Speaker 8: is happening. So there art is going to be around
Speaker 8: shaping it in the public interest and making sure that
Speaker 8: our democratic governments remain in control.
Speaker 2: The historian Neil Ferguson has written not just about economics
Speaker 2: and money, but also about the politics of disaster in
Speaker 2: his book Doom. He is a senior fellow at the
Speaker 2: Hoover Institution as well as a Bloomberg opinion contributor. And
Speaker 2: we welcome now back to Wall Street Wig. So, Neil,
Speaker 2: thanks so much for being with us. I know you've
Speaker 2: read the book because you call it Dazzling, a column
Speaker 2: actually wrote for Bloomberg. Here give us your biggest takeaway
Speaker 2: from this book. Why do you say something that no
Speaker 2: one can afford not to read.
Speaker 5: Well, Mustafa Silima knows what he's talking about. He was
Speaker 5: really present at the creation of the big AI breakthroughs
Speaker 5: in recent years, one of the founders of Deep Mind,
Speaker 5: which has been a key pioneer in the field, and
Speaker 5: so he comes to the subject with the really almost
Speaker 5: unrivaled expertise. He was there in the room when they
Speaker 5: built AIS that could beat world champions at chess and
Speaker 5: then go So I respect him as a true authority
Speaker 5: on the subject. Not everybody who writes about AIS nearly
Speaker 5: as well versed as Mustafa is. And so when he
Speaker 5: says we have a problem, and it's a problem that
Speaker 5: today's nation states aren't really well set up to deal with, I.
Speaker 11: Think we should all listen, because I don't find it
Speaker 11: plausible that just let it writ as some people would advocate,
Speaker 11: is prudent given the potentially very dangerous things that AI
Speaker 11: is capable of doing.
Speaker 2: Yeah, as you're saying, you know, he really sets out
Speaker 2: wonderful things and dangerous things at the same time. You
Speaker 2: were an historian, of course, and one of the things
Speaker 2: that mister Silman talks about is the need for what
Speaker 2: he calls containment, and he admits that that sort of
Speaker 2: sounds like George Kennon's proposal for Jalla Soviet Union. As
Speaker 2: you look back in history, are there analogies. They're always rough,
Speaker 2: they're always imperfect. But have there been times when we
Speaker 2: could get our arms around some potentially dangerous new technology
Speaker 2: and really control it?
Speaker 5: Well, you see, the interesting thing about the book is
Speaker 5: that it has lots of interesting historical analogies. I mean,
Speaker 5: the wilder enthusiasm for AI will tell you that it's
Speaker 5: some combination of fire, the wheel, electrification, and nuclear weapons.
Speaker 5: What was staff zeros In on is the analogy with
Speaker 5: the Cold War, and I was tempted to suggests he
Speaker 5: might turn out to be the Robert Oppenheimer of AI,
Speaker 5: because he observes that there were problems posed when nuclear
Speaker 5: fission was developed. It had both the destructive use atomic
Speaker 5: bombs and potentially very productive use as a source of energy.
Speaker 5: And he shows how some of the challenges of regulating
Speaker 5: this new technology suggest ways in.
Speaker 3: Which we might proceed today.
Speaker 5: For example, he suggests that there should be arms control
Speaker 5: talks on AI between the United States and China, which
Speaker 5: are the only two superpowers really developing AI on a
Speaker 5: massive scale.
Speaker 2: Okay, thank you so much, Neil, really appreciate your insights
Speaker 2: to this. Neil Ferguson of the Hoover Institution. Coming up,
Speaker 2: Private Equity, Doing Well. By doing good, we talk with
Speaker 2: KKR Global co head of private Equity, Pete Stavros and
Speaker 2: Kathy Bojos, CEO of a company he has invested in
Speaker 2: to explore the world of employee ownership. That's coming up
Speaker 2: next on Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Wall Street Week with David Weston from
Speaker 1: Bloomberg Radio.
Speaker 2: This is Wall Street week. I'm David Weston. At the
Speaker 2: beginning of the summer, we brought you a story putting
Speaker 2: together two things we don't usually associate with one another,
Speaker 2: private equity buyouts on the one hand, and employee stock
Speaker 2: ownership on the other. But KKR has been putting them
Speaker 2: together for some time now and has found some real success.
Speaker 2: So we welcome back to the man behind the effort.
Speaker 2: He is Peter Stavros, KKR Global co head of Private
Speaker 2: Equity and someone who's been working with Pete to put
Speaker 2: it into practice. Kathy Bolhost. She is CEO of Charter
Speaker 2: and Next Generation. So welcome both you. Pete, welcome back.
Speaker 2: Great to meet you. This is wonderful to have you, Kathy.
Speaker 2: Thank you.
Speaker 7: Great to be here.
Speaker 2: Let's start with you, Pete. So we've talked about what
Speaker 2: you've been doing at KKR, sort of the principles of
Speaker 2: how it works, how specifically has applied in this specific instance.
Speaker 6: So what we do each time, and what we've done
Speaker 6: in the case of charternext Gen is we lay the
Speaker 6: foundation of a different type of culture, which is ownership.
Speaker 6: So we made every employee at charternext Gen a stockholder
Speaker 6: in the company. It's important to note it was a
Speaker 6: free and incremental benefit, so we're not asking workers to
Speaker 6: invest out of pocket. We're not asking people to trade
Speaker 6: off wages for stock, so it doesn't come out of
Speaker 6: their page, has not come out of their paycheck. It's
Speaker 6: a free, incremental benefit. It's also important to note it's
Speaker 6: a meaningful amount of stock. So we are hoping at
Speaker 6: Charter NextGen. Now, this is equity, its risk, it's not
Speaker 6: a guarantee. But if we hit our plan that we
Speaker 6: can show people a path to earning one hundred percent
Speaker 6: of their income in stock.
Speaker 2: Now that that's just the foundation.
Speaker 6: Really, the purpose of it is to change the culture,
Speaker 6: to get people more engaged on the job, to get
Speaker 6: people to think like business owners, and over time get
Speaker 6: the quit rate down and the engagement scores up.
Speaker 2: And in the.
Speaker 6: Short time we've been working together with charternext Gen, the
Speaker 6: quit rates are down thirty three percent, the number of
Speaker 6: gauged employees up twenty three percent. Safety has improved, So
Speaker 6: even in the two years we've been at this, we're
Speaker 6: starting to make real progress.
Speaker 2: So Kathy, take it from your side of it, turn
Speaker 2: our next Gennels. I understand it is a leading producer
Speaker 2: of film used in packaging. A lot of the things
Speaker 2: that we buy when we go to the zero market
Speaker 2: has some of your film around it. You were a
Speaker 2: successful company before Pete came along. It's not like you
Speaker 2: were struggling about to go belly up. What did you
Speaker 2: see in this opportunity otherwise you might not have seen
Speaker 2: from somebody else.
Speaker 7: Well, first of all, this this is a dream for
Speaker 7: me to be able to offer equity ownership to every employee.
Speaker 7: I look at it. Every single employee is part of
Speaker 7: the success.
Speaker 2: Of the company.
Speaker 7: It's a team sport. So it doesn't make sense that
Speaker 7: you would only reward the top executives the top five
Speaker 7: percent with equity. So the opportunity to give equity to
Speaker 7: everyone alliance the incentives. So now everyone has the same incentive,
Speaker 7: which is to create value for the long term. You know,
Speaker 7: when you give an employee who's living on an hourly
Speaker 7: wage the opportunity to build that nest egg, that's life changing.
Speaker 7: And that's our goal here, is to really have an
Speaker 7: amazing outcome and give them that nest egg. Pensions have
Speaker 7: largely gone away, so there's no opportunity to get ahead.
Speaker 7: I think about the cash compensation, that's what you use
Speaker 7: to pay your bills. The equity is what you use
Speaker 7: to create wealth. And if you don't have an opportunity
Speaker 7: for equity, how are you going to create wealth?
Speaker 2: You mentioned you have some encourage in return. So far,
Speaker 2: how far can the gets to go? I mean you
Speaker 2: must believe in it, because I think you've got a
Speaker 2: documentary in the process right that you're working on with GAT.
Speaker 6: We've released two clips so far of the documentary film
Speaker 6: and no pressure, but this has to be a big win.
Speaker 2: That is exactly no.
Speaker 7: I'm fully committed. I am going to do my best,
Speaker 7: and I know our people will too. This has created
Speaker 7: such a spree to core in the company, and you
Speaker 7: know that what I think is really important as a
Speaker 7: leader is to take the people metrics as seriously as
Speaker 7: you take the business metrics. So much of the time
Speaker 7: we focus on profit, focus on sales, focus on things
Speaker 7: we can measure, but you know, for us, it's really
Speaker 7: about focusing on engagement. Think about the fact that in
Speaker 7: the US forty percent forty to fifty percent of manufacturing
Speaker 7: companies face a turnover issue.
Speaker 2: That's how many people quit. Forty to fifty.
Speaker 7: Percent of employees quit their jobs every year. Think about
Speaker 7: if you can reduce that down to five percent, the
Speaker 7: value that you can unlock. So that's where we're focused now.
Speaker 7: We also want to give our employees a voice, so
Speaker 7: we've implemented things like employee directed capital. We give each
Speaker 7: plant a budget. You decide how this capital is going
Speaker 7: to be spent. You have to vote on it, you
Speaker 7: have to agree. But then imagine spending this money to
Speaker 7: improve your breakroom, making an outdoor eating area. When you
Speaker 7: give the worker the decision around their work, that helps
Speaker 7: to create engagement. We also let them decide what chare
Speaker 7: aritable organizations we want to sponsor in their community. Can
Speaker 7: they vote on it, and they decide what impact do
Speaker 7: they want to have in the community with our charitable contributions.
Speaker 2: PET. One of the things that's happened since you and
Speaker 2: I last spoke actually as a fair amount of organized
Speaker 2: labor activity as we have a strike right now with
Speaker 2: the Writer's Guild and SAG after who knows what's going
Speaker 2: to have with UAW doesn't look real good right now,
Speaker 2: But as I listen to what Kathy's saying right now,
Speaker 2: that's how world away from talking about hundreds of work
Speaker 2: rules to say exactly who goes where what do these
Speaker 2: two things fit together. Does employee ownership fit with organized labor?
Speaker 2: I think it can.
Speaker 6: I think historically organized labor took a skeptical eye understandably
Speaker 6: to ownership, you know, because to union, the employees are
Speaker 6: their members, not your employee, not your employees, right, so
Speaker 6: when you start then aligning their members with your company,
Speaker 6: that can be a conflict.
Speaker 2: I think that's changing.
Speaker 6: I think there's a real openness to new models and
Speaker 6: aligning capital in labor. And as you note, we've gone
Speaker 6: from a period of time where yeah, you saw some
Speaker 6: strife in autos and manufacturing, but now you're seeing it everywhere,
Speaker 6: and people they want to be a part of something.
Speaker 6: They want shared gains, they want transparency around how we're
Speaker 6: going to manage through all of this change driven by
Speaker 6: technology AI, you know, in the case of the writer's strike,
Speaker 6: transitions to EVS, in the case of UAW. There's a
Speaker 6: lot of complicated questions we're going to have to answer,
Speaker 6: and I think we're going to all do a lot
Speaker 6: better if for in the boat together somewhere.
Speaker 2: Finally, to you, we don't know how this will end up.
Speaker 2: I guess we'll have to wait for the documentary to
Speaker 2: find out what ends up. And I know you can't
Speaker 2: predict what's happening, but how big a difference could this
Speaker 2: make in some of your employees' lives. You mentioned before
Speaker 2: you get a paycheck to pay the bills, but it's
Speaker 2: very hard to amass capital, to amass wealth. How good
Speaker 2: could this be for some of your employees? Do you
Speaker 2: think or hope life changing?
Speaker 7: I mean, when you're living paycheck to paycheck, you know
Speaker 7: forty percent of Americans have less than four hundred dollars.
Speaker 7: They're one car repair bill, one medical emergency away from
Speaker 7: financial devastation. Think about building an estag of fifty thousand
Speaker 7: dollars one hundred thousand dollars. There are employees who have
Speaker 7: said this will end generational poverty in my family, and
Speaker 7: I mean that's inspiring to me that you know, Yes,
Speaker 7: I have been a private equity sponsored CEO for thirteen
Speaker 7: years now, sold the company before. This one, to me
Speaker 7: is the most special. This is the one that I
Speaker 7: know I'm going to work the hardest on, and I
Speaker 7: know my team is going to work the hardest on.
Speaker 7: And it's really about breaking down that wall between the
Speaker 7: plant and the office. When you talk about union.
Speaker 2: That's it.
Speaker 7: We normalize that, We normalize the fact that management and
Speaker 7: labor don't get along. I want to flip the script
Speaker 7: on that, and.
Speaker 2: We're going to have to fix this.
Speaker 6: So in manufacturing, we've now got six hundred thousand open jobs.
Speaker 6: National Association Manufacturer says we're going to be short two
Speaker 6: million workers by twenty thirty. When you talk to manufacturing
Speaker 6: CEOs and you say what's your biggest concern, it's not
Speaker 6: supply chain, it's not state of the economy, And my
Speaker 6: number one concern CEOs in manufacturing stays I can't attract
Speaker 6: and retain people.
Speaker 2: So it's great.
Speaker 6: At the company level, we're going to have to do
Speaker 6: this or something like this at the economy level if
Speaker 6: we're going to continue to be successful.
Speaker 2: Many thanks to Kathy Ballhouse of Charter Next Generation and
Speaker 2: Pete Stavros of KKR coming up. There was a day
Speaker 2: when the very survival of General Electric was in question,
Speaker 2: but that day was five years ago and today things
Speaker 2: look very different. We sit down with the man who
Speaker 2: oversaw the remaking of an American corporate icon, Larry Colt,
Speaker 2: CEO of GE.
Speaker 4: We couldn't be in a better position with respect to
Speaker 4: the post pandemic recovery and aerospace.
Speaker 2: That's next on Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Wall Street Week with David Weston from
Speaker 1: Bloomberg Radio.
Speaker 2: General Electric It was founded in eighteen ninety two when
Speaker 2: Thomas Anderson put together his electric companies under the banner
Speaker 2: of GE with the help of John Pierpont Morgan. It
Speaker 2: grew to be one of the largest and most profitable
Speaker 2: companies in the world, with a market capitalization approaching six
Speaker 2: hundred billion dollars in two thousand. Its operations have spent plastics, appliances, computers,
Speaker 2: and TV networks, and along the way it developed under
Speaker 2: Jack Welch, a legendary reputation for management and grooming leadership
Speaker 2: from within.
Speaker 12: What you do with personnel around bad behavior does more
Speaker 12: establish a culture and good behavior role model those behaviors
Speaker 12: with great rewards for those that have the right culture
Speaker 12: and public aatings for those that don't.
Speaker 3: I was very fortunate to grow and be mentored by
Speaker 3: Jack Welch.
Speaker 4: And you know, Jack was laser focused on metrics, appropriate metrics.
Speaker 2: But then the Great Financial Crisis hit and the conglomerate
Speaker 2: mister Welch built was hit particularly hard, causing profits and
Speaker 2: revenues to plummet as problems mounted, causing the market cap
Speaker 2: to plummet to under seventy billion dollars by twenty eighteen.
Speaker 9: We had good businesses, good people, good initiatives, but at
Speaker 9: the end of the day, the stock price lagged. There
Speaker 9: are some things that didn't work. We didn't get as
Speaker 9: much value out of g capital as we could have.
Speaker 9: We had tough in use markets. At the end of
Speaker 9: my tenure, I gave the board a lot of things
Speaker 9: to work on. So it's a complicated story, but I
Speaker 9: think the way it's been told has been incomplete.
Speaker 2: Then GE turned to a new CEO, one who had
Speaker 2: led not at GE but at Danaher. Larry Culp took
Speaker 2: over a CEO in October of twenty eighteen and undertook
Speaker 2: a fundamental rethinking of the company, selling assets, paying down debt,
Speaker 2: and ultimately leading the move to break the company up
Speaker 2: into three independent companies focus on healthcare, power, and aerospace.
Speaker 10: Well they'll have left of meaningful size is power, which
Speaker 10: is a problem.
Speaker 7: In aerospace, which is a terrific business.
Speaker 10: If they get healthcare, everything else is really small.
Speaker 2: Now the parts of GE add up to more than
Speaker 2: the whole did before, with combined market capitalization of about
Speaker 2: one hundred and fifty billion dollars, giving business schools once
Speaker 2: again a case study in management and leadership, but this
Speaker 2: time more in focus and execution and not so much
Speaker 2: in a massing size. And to take us through that
Speaker 2: saga of GE, we turn to the man himself. He's
Speaker 2: Larry Kulp. He's the chairman and CEO of General Electric.
Speaker 2: So welcome Larry. Great to have you here on Wall
Speaker 2: Street week. Take us back five years, because it's almost
Speaker 2: exactly five years now since you took over. It's some
Speaker 2: idea of what what you're get into. You've been on
Speaker 2: the board. Why did you take the job?
Speaker 3: David?
Speaker 4: Always good to be with you, and it's hard to
Speaker 4: believe that it's been five years.
Speaker 3: Here come first of October.
Speaker 4: I think it was really in many respects simple GE,
Speaker 4: an incredibly important company to our country into the world.
Speaker 4: G a company that I had long admired through the
Speaker 4: course of my career, and given what I had heard,
Speaker 4: given what I had learned as a director, clearly a challenge,
Speaker 4: perhaps the challenge of my generation. And it was really
Speaker 4: those three reasons that ultimately led me to say, yes,
Speaker 4: I'll put my uniform back on, and here we are.
Speaker 2: So you put your uniform back on. What did you
Speaker 2: set up to do first? What were your priorities? Is
Speaker 2: you sat down the first day in that desk. So often,
Speaker 2: even if you're close to the job, until you've had
Speaker 2: the job, you haven't had it.
Speaker 3: That's right. I don't remember sitting down much that first day. Right.
Speaker 4: There was a lot happening, but I knew relatively quickly
Speaker 4: that we had to do two things. One, we had
Speaker 4: to get our arms around the balance sheet issues. We
Speaker 4: had over one hundred and forty billion of debt outstanding
Speaker 4: that was crushing load in a host of different ways.
Speaker 4: And we needed to get to a better place in
Speaker 4: terms of the day to day operation of the business.
Speaker 4: And those turned out to be priorities that really took
Speaker 4: us through the first couple of years deleveraging and running
Speaker 4: the businesses better.
Speaker 3: I'm subably that simple.
Speaker 2: As I said, you were on the board for a
Speaker 2: short time before it took over, so some of the
Speaker 2: problems you knew about, but you couldn't anticipate Boeing seven
Speaker 2: thirty seven, Max. You couldn't anticipate the pandemic, couldn't anticipate
Speaker 2: supply chain or in Ukraine. Did that change your plan?
Speaker 4: Well, I think early on we knew that we needed
Speaker 4: the utmost sense emergency around the deleveraging.
Speaker 3: When a number of us had joined the board.
Speaker 4: Through the course of twenty eighteen, the plan a record
Speaker 4: was to actually spin our healthcare business.
Speaker 3: Much as we did earlier this year.
Speaker 4: But I think we found as we dug into it
Speaker 4: that while that was a good idea, we couldn't possibly
Speaker 4: pull it off given the leverage level and given the
Speaker 4: performance of the other businesses, which is why we made
Speaker 4: the quick pivot through the fall into early twenty nineteen
Speaker 4: to actually sell a small part of healthcare, our biopharma business,
Speaker 4: for twenty billion dollars, And that was really the first
Speaker 4: big step we took toward the deleveraging. All the while
Speaker 4: I was spending time with the team, touring facilities, talking
Speaker 4: to customers, trying to get my arms around in terms
Speaker 4: of what we were doing day in and day out
Speaker 4: and why we weren't anywhere close to our full potential operationally.
Speaker 2: You've mentioned a couple of times improving the operations, which
Speaker 2: sounds easy but in my experience it's really hard. So
Speaker 2: how could you, as something of an outsider, come in
Speaker 2: and understand where you needed to improve operations? And that,
Speaker 2: of course is not just what people do, but who's doing.
Speaker 3: It well, exactly right.
Speaker 4: And for me, David, my approach has always been it's
Speaker 4: about the team first and foremost. Fortunately we inherited I think,
Speaker 4: a tremendous team at GE in each of the three
Speaker 4: businesses at corporate up and down the org chart. So
Speaker 4: what we did is we set about making sure we
Speaker 4: knew where we were organizationally. We dove in deeply to
Speaker 4: make sure we understood how we were running the businesses,
Speaker 4: not just in the c suite, but all the way
Speaker 4: down to the factory floor. And there were a host
Speaker 4: of opportunities that we as a team identified.
Speaker 3: Areas where we could do better. We could do better
Speaker 3: for our customers.
Speaker 4: Reduce cycle times, improve our delivery performance, all the while
Speaker 4: taking a lot of waste out of the system. Wasted
Speaker 4: often frankly, helped us improve our profitability and our cash flows.
Speaker 3: It was a daily battle, it was a.
Speaker 4: Game of inches, but over the course of time we
Speaker 4: really were able to lay in our lean operating model
Speaker 4: so that today we're able to perform at much higher
Speaker 4: levels across General Electric in ways that I think are
Speaker 4: going to serve all three of our businesses very well
Speaker 4: going forward.
Speaker 2: How did you bring your board along with you, because again,
Speaker 2: g is just such an iconic company in the United States.
Speaker 2: To break that up into three pieces is quite a move.
Speaker 2: Did you expect to do that from the beginning when
Speaker 2: you took the job? Did you think you'd break it up?
Speaker 3: Well?
Speaker 4: Again, a number of us that joined in twenty eighteen
Speaker 4: knew about.
Speaker 3: The healthcare.
Speaker 4: Idea that we would spend healthcare and created an independent company,
Speaker 4: and that made sense then, it made sense earlier this
Speaker 4: year when we did it, but we really didn't have
Speaker 4: the strategic degrees of freedom.
Speaker 3: We didn't have the balance.
Speaker 4: Sheet to do it so early on there when I
Speaker 4: became CEO, of course, that was something that had never
Speaker 4: happened in the company's history. We didn't necessarily do make
Speaker 4: that move from a position of strengths. The board fortunately,
Speaker 4: was focused on what we were focused on as a
Speaker 4: management team, the deleveraging and improving our daily operations. But
Speaker 4: that board then and now I think is one of
Speaker 4: the best, if not the best boards in the country.
Speaker 4: This is a group of people who really ran toward
Speaker 4: the fire as we reset the board. There were a
Speaker 4: lot of folks DAVI, but you'll recall didn't know have
Speaker 4: G was going to make it ge of all companies.
Speaker 4: And these were a number of people who joined the
Speaker 4: board for many of the same reasons that I did.
Speaker 3: They pitched in.
Speaker 4: It wasn't about themselves, it wasn't about their reputations. They
Speaker 4: just wanted to make sure that we did the right
Speaker 4: thing for the business. But as time passed, we put
Speaker 4: over one hundred billion dollars a debt aside. We improved
Speaker 4: our operations so that we were serving customers better, we
Speaker 4: were generating a respectable amount of free cash flow. When
Speaker 4: the pandemic lifted or began to lift in the spring
Speaker 4: of twenty one, we could see that we had more
Speaker 4: degrees of strategic freedom. And it was really that summer
Speaker 4: when we began to debate what's the best path forward
Speaker 4: for these three outstanding businesses. And that's what led in
Speaker 4: November of twenty one to the announcement that we made.
Speaker 2: How did you manage ego, and I mean ego of
Speaker 2: the company, of the people who worked there of the
Speaker 2: board and even your own ego, because there are a
Speaker 2: lot of CEOs, a lot of leaders say I want
Speaker 2: to have the biggest company. G had been the biggest company,
Speaker 2: and this is a decision. We're not going to be
Speaker 2: the biggest company. We're never going to be the biggest
Speaker 2: company again. How did you manage the egos involved?
Speaker 4: Well, I think I've long believed that you're far better
Speaker 4: off being strong rather than just big, and that was
Speaker 4: a little bit of the evolution of our conversation. We're
Speaker 4: not going to be an all singing, all dancing ge
Speaker 4: going forward, but that doesn't mean we can't lead the
Speaker 4: energy transition. That doesn't mean we can't be a leader
Speaker 4: in precision healthcare. That doesn't mean we can't define the
Speaker 4: future of flight. And that's what these three businesses can
Speaker 4: do now. They'll do them on their own. But as
Speaker 4: we looked forward, I think there was easy consensus that
Speaker 4: each of these three businesses, on their own bottoms, were
Speaker 4: going to be industry leaders. So when we went around
Speaker 4: the table, it was an easy vote.
Speaker 2: Geez Larry Cup was staying with us as we turned
Speaker 2: to those three businesses and where they are going next.
Speaker 2: That's why I'm next on Wall Street Week on Boomberg.
Speaker 2: This is Wall Streaming Week. I'm David Weston and we
Speaker 2: are back now with Larry Kulp, the head of GE. So, Larry,
Speaker 2: we've talked about how you got to where you are, now,
Speaker 2: let's talk about where you're going next.
Speaker 4: We couldn't be in a better position with respect to
Speaker 4: the post pandemic recovery in aerospace. You've seen the performance
Speaker 4: thus far this year. We're really on a record pace
Speaker 4: given both the return to flight really around the world
Speaker 4: now is people see places they haven't been to and
Speaker 4: at the same time they're looking to modernize and expand
Speaker 4: their fleets. So we have tremendous backlogs with our major
Speaker 4: airframers Boeing Airbus for example, the supply chain challenges are
Speaker 4: significant and right alongside everything we're doing on the commercial side.
Speaker 4: We've seen a really strong uptake in our defense business
Speaker 4: is one would imagine both with fixed wing and in rotary.
Speaker 4: So in terms of how big this business can be,
Speaker 4: where I think on a path where we could be
Speaker 4: growing in the mid single digit, high single digit range.
Speaker 3: For some time.
Speaker 4: That would put us well north of forty billion dollars
Speaker 4: in but a few years, a lot of opportunity. We
Speaker 4: have I think an ambuable position in propulsion. But again,
Speaker 4: it's not about how big we get. It's about how
Speaker 4: strong we are and are we serving our customers? Are
Speaker 4: we taking care of our team? Are we doing well
Speaker 4: by way of our shareholders.
Speaker 3: It's optimistic that we will.
Speaker 2: What's on the table. As the point, you've spent your
Speaker 2: five years really redoing the balance sheet, really fixing the
Speaker 2: cash flow situation, retiring a lot of debt. Capital allocation
Speaker 2: maybe hasn't been so much of an issue because you're
Speaker 2: just trying to retire to that debt. Going forward, you
Speaker 2: may well have some capital to work with. So what
Speaker 2: are the possibilities both in terms of acquisition but also
Speaker 2: sail potentially well.
Speaker 4: I think that we want to be why stewards of
Speaker 4: that capital, right. I've long believed that investors give you
Speaker 4: a license to reinvest in your business, and you need
Speaker 4: to be careful with that license lest gets pulled. But
Speaker 4: I think what we've tried to do is set up
Speaker 4: all three of the businesses to be in a position
Speaker 4: where they are well capitalized, investment grade, and we'll have
Speaker 4: the opportunities to think through not only their organic options
Speaker 4: be at M and a small mid size probably not
Speaker 4: something large and headline breaking. But at the same time,
Speaker 4: how do we think about buybacks, how do we think
Speaker 4: about dividends? So I think you'll see each of the
Speaker 4: three companies, once we spend giev Vernova sometime early next year,
Speaker 4: be in a position where they'll have tailored, balanced capital
Speaker 4: allocation policies that will be in effect. Confident all three
Speaker 4: boards carry forward that responsibility.
Speaker 2: Well, Larry, thank you so much for being wilture, with
Speaker 2: really a pleasure to have you here. That's Larry Culp
Speaker 2: of General Electric. Finally, one more thought, look deep into nature,
Speaker 2: and then you will understand everything better, so wrote Albert
Speaker 2: Einstein after the death of his sister in nineteen fifty one.
Speaker 2: And these days there's plenty of nature demanding that we
Speaker 2: look into it deeply, though it's not as clear that
Speaker 2: we're understanding any better. It has been a summer of
Speaker 2: extreme weather. Record heat hit Europe hard, bringing Greek wildfires
Speaker 2: with it, while halfway around the world, an entire town
Speaker 2: burned down to the ground in Hawaii, leaving hundreds dead
Speaker 2: or missing. A once in a lifetime hurricane came ashore,
Speaker 2: not in Florida, but in southern California, and a series
Speaker 2: of typhoons pummeled Hong Kong, Taiwan and mainland China. Science
Speaker 2: has warned that you cannot trace any single weather event
Speaker 2: to climate change, but the degree and the frequency of
Speaker 2: extreme weather overall is because of our warming globe, creating
Speaker 2: what some call growing natural disaster risk.
Speaker 7: What we're seeing now is just repeated examples of natural
Speaker 7: disasters climate extremes happening at scales we haven't seen before
Speaker 7: in places we haven't seen them.
Speaker 2: Burning Man has never really build itself as an environmental movement.
Speaker 2: It's an annual event in the middle of the desert
Speaker 2: in northwest Nevada, celebrating art and self expression and self reliance.
Speaker 2: But this year, whatever its purpose, nature crashed the Burning
Speaker 2: Man party in a big way, putting to a test
Speaker 2: all that talk about self reliance. While others stayed until
Speaker 2: the bitter end for the ritual burning of the Giant
Speaker 2: Man once the weather had cleared enough, and at least
Speaker 2: some still consider it worth it.
Speaker 12: Honestly think that this is the best burn ever.
Speaker 7: Seriously like this has given us the opportunity to rise
Speaker 7: to radical self reliance and to support each other in
Speaker 7: the community, and I'm having the best time, all of.
Speaker 2: Which brings home the need for us to look deeply
Speaker 2: into nature, as Einstein suggested, and to try to understand
Speaker 2: everything just a bit better. That does it for this
Speaker 2: episode of Wall Street Week, I'm David Weston. This is Bloomberg.
Speaker 2: See you next week.