Speaker 1: Welcome to tech Stuff, a production of I Heart Radios,
Speaker 1: How Stuff Works. Hey there, and welcome to tech Stuff.
Speaker 1: I'm your host, Jonathan Strickland. I'm an executive producer with
Speaker 1: How Stuff Works and I Heart Radio and I love
Speaker 1: all things tech. And we have come to the end
Speaker 1: of our journey covering the history of General Electric up
Speaker 1: to today, and just a heads up, this episode is
Speaker 1: going to focus a lot on the business side of
Speaker 1: General Electric rather than the tech side of General Electric.
Speaker 1: I could have ended the series with the last episode
Speaker 1: as far as the technological innovations go. Now, that's not
Speaker 1: to say GE hasn't continued to innovate in the post
Speaker 1: Jack Welch era, but rather that the innovations the company
Speaker 1: is most known for span the previous one hundred years
Speaker 1: of its existence. The last twenty year is the most recent.
Speaker 1: Twenty years have been more marked with controversy and business
Speaker 1: practices and market issues, and I think it's important to
Speaker 1: understand what's happened since two thousand one because g has
Speaker 1: been such an incredibly important part of the modern technological landscape.
Speaker 1: I mean, that's one of the main companies that helped
Speaker 1: spread the electrical infrastructure in the United States. You know,
Speaker 1: without GE, it would have taken much longer for that
Speaker 1: to have happened, and the world would be very different
Speaker 1: today if GE had not existed. But in the last episode,
Speaker 1: I told you guys about Jack Welch, the g E
Speaker 1: CEO who pushed the company to incredible profitability, mainly by
Speaker 1: selling off businesses where General Electric wasn't in first or
Speaker 1: second place in the industry. He sold off more than
Speaker 1: seventy of g S businesses just in his first two
Speaker 1: years of being CEO. He also laid off more than
Speaker 1: one hundred thousand employees, which earned him the nickname Neutron
Speaker 1: Jack because like a neutron bomb, he eliminated people without
Speaker 1: damaging the assets. And he also led efforts to acquire
Speaker 1: financial institutions like banks and insurance companies in order to
Speaker 1: launch this financial and insurance business, and that would end
Speaker 1: up giving g E an enormous revenue boost. It would
Speaker 1: become incredibly important for the company in the nineteen eighties
Speaker 1: and beyond for different reasons. Now. One exception to Welch's
Speaker 1: amazing victories was an acquisition of a securities firm called Kidder,
Speaker 1: Peabody and Company, which was actually an even older company
Speaker 1: than General Electric. If you looked at the origin for
Speaker 1: Kidder Peabody and Company, that firm traced its history all
Speaker 1: the way back to eighteen sixty five, more than a
Speaker 1: decade before even the earliest of companies that formed General Electric.
Speaker 1: Welch led the acquisition effort in nineteen six, but then
Speaker 1: there were a series of scandals centered around insider trading
Speaker 1: that brought a lot of suspicion and scrutiny on Kider
Speaker 1: Peabodies business and therefore g E Capital the financial division
Speaker 1: of General Electric, and a year after the acquisition, the
Speaker 1: global stock markets crashed on October nineteenth seven and what
Speaker 1: was called Black Monday. The combination of events convinced Welch
Speaker 1: that he had made an error in judgment acquiring Kidder Peabody,
Speaker 1: and it took several more years and more scandals centering
Speaker 1: on Kidder Peabodies record keeping and allegations of reporting false profits,
Speaker 1: but GE would eventually sell Kidder Peabody off at a
Speaker 1: huge loss. Now that embarrassment aside, GE for the most
Speaker 1: part did very well in the eighties and nineties. The
Speaker 1: stock price for g E rose four thousand percent. Some
Speaker 1: sources state that when you take all the factors into consideration,
Speaker 1: it was more like five thousand two. Under Welch's command,
Speaker 1: he put off his retirement in order to secure an
Speaker 1: acquisition of Honeywell International. If you listen to my last episode,
Speaker 1: you know that didn't go well. The European Commission denied
Speaker 1: the merger for anti competitive reasons, and the man who
Speaker 1: hated to lose, Jack Welch, had to go out on
Speaker 1: a down note. But compared to GE, you could say
Speaker 1: Jack Welch got off easy. Now, this episode will cover
Speaker 1: what happened to General Electric since two thousand one, including
Speaker 1: the events that would create massive problems for the huge company.
Speaker 1: And there is ongoing disagreement as to whether most of
Speaker 1: the blame should fall on Welch's successor, or if Welch
Speaker 1: himself should shoulder some of that responsibility or some other party.
Speaker 1: So what the heck actually happened? Well, first, let me
Speaker 1: talk a little bit about g S stock, because that's
Speaker 1: going to come back around later in this episode. A
Speaker 1: few times. So, for years, g E paid out a
Speaker 1: dividend on its stock. Not all companies do this, and
Speaker 1: a dividend is a payment that a company makes to
Speaker 1: distribute some of its revenue to its shareholders. So a
Speaker 1: company makes money and then distributes some of that money
Speaker 1: amongst the people who hold shares in the company. It's
Speaker 1: usually not very much per share. In fact, it's typically
Speaker 1: less than a dollar. Gees case, it was around thirty
Speaker 1: one cents for a long time. In the US, there
Speaker 1: are no rules about how frequently a company actually pays
Speaker 1: out dividends. Most companies will do it quarterly, so you
Speaker 1: would get one quarter of your dividend four times a year.
Speaker 1: So if it was a dividend of forty cents, that
Speaker 1: means every three months you would get a check for
Speaker 1: ten cents for every share you own. So it's not
Speaker 1: very much, but if you own a lot of shares,
Speaker 1: it starts to add up. And besides distributing revenue, it's
Speaker 1: also meant to incentivize shareholders to reinvest and buy more
Speaker 1: shares of stock in that company. So the idea is, oh,
Speaker 1: you got a dividend payout, it's enough for you to
Speaker 1: buy another share in the company, so you spend that
Speaker 1: dividend buying another share. That's the logic there. Well, when
Speaker 1: Welch first took over g E stock wasn't doing so great,
Speaker 1: it wasn't super high. A lot of investors thought of
Speaker 1: the stocks as essentially a dividend payout and not much else.
Speaker 1: So you wouldn't buy g E stocks with the idea
Speaker 1: of selling them at a higher price later on the road.
Speaker 1: You know, you weren't thinking, I'm gonna buy now, because
Speaker 1: in five or ten years this stock is going to
Speaker 1: be worth two or three times as much. You bought
Speaker 1: g E stock because it paid out a dividend, so
Speaker 1: it would take a long time, but you would eventually
Speaker 1: make more money than you invested if that dividend were
Speaker 1: to hold steady. Now, when Welch took over, the stock
Speaker 1: price actually dipped a little bit after he had been
Speaker 1: running GE for a year or two, But another year
Speaker 1: later the entire stock market took a turn and it
Speaker 1: started climb and value. This would be the beginning of
Speaker 1: eighteen years of a climbing market, a bull market. In
Speaker 1: other words, even with events like Black Monday in Night
Speaker 1: seven taken into account, so you had moments where the
Speaker 1: market was not bullish, where it was crashing, but it
Speaker 1: would recover and then go back on its bullish route trajectory.
Speaker 1: If you will now, collectively the SMP five hundred index
Speaker 1: it would climb by two thousand and this was the
Speaker 1: same time that we started seeing packages like four oh
Speaker 1: one K plans replaced traditional retirement plans. Now that meant
Speaker 1: that stock market performance would become far more important to
Speaker 1: weigh more people. Like in the old days, it was
Speaker 1: just people who traded in stocks, and largely it was
Speaker 1: a lot of businesses that did that trading. Your average
Speaker 1: person didn't play the stock market that much. But now
Speaker 1: stuff like our retirement was tied directly into stock market performance.
Speaker 1: So suddenly everybody was really really focusing on the stock market,
Speaker 1: and it meant that it became far more important for
Speaker 1: stocks to do well. See before the nineteen eighties, stock
Speaker 1: market performance was you know, it was an indicator of
Speaker 1: a company's overall health, but most people didn't consider it
Speaker 1: the metric against which all companies should stand. You would
Speaker 1: worry more about the company's profitability, how much revenue is
Speaker 1: it bringing in, how much does it cost to do business,
Speaker 1: and how much profit is the company making. The share
Speaker 1: price wasn't as big a deal. That changed around the
Speaker 1: same time that Welch took over at g E and
Speaker 1: Welch's philosophy happened to match this general shift in how
Speaker 1: businesses operated in the United States. Now. I don't say
Speaker 1: this to diminish Welch's contributions or GEES performance, because the
Speaker 1: company's own stock outperformed the general market significantly. But I
Speaker 1: do also want to take the overall market performance into consideration,
Speaker 1: because while I don't want to take any credit away,
Speaker 1: I also don't want to give too much credit to
Speaker 1: Welch and his impact beyond what it actually was. Anyway,
Speaker 1: as the market improved, and as g S performance in
Speaker 1: particular made its stock price rocket upwards, ge stocks were
Speaker 1: seen as more than just a dividend payout. The company
Speaker 1: continued to pay dividends, though, which again is going to
Speaker 1: be important later. Those dividends were largely funded by the
Speaker 1: incredible performance of g E Capital, that's the financial services
Speaker 1: division of General Electric. In the last year of Welch's
Speaker 1: tenure as CEO, GEES stock price did take several hits,
Speaker 1: but then so did just about everybody else. In March
Speaker 1: two thousand, the stock markets performance shifted. It was no
Speaker 1: longer bullish. It was going into a bear market, so
Speaker 1: instead of growing, it was receding. The Dot com bubble
Speaker 1: had crashed, and that caused a bit of a stock
Speaker 1: market crisis. Companies that were in the dot com in dustry,
Speaker 1: obviously they suffered the most. Many of them just were
Speaker 1: blinking out of existence after it became clear that those
Speaker 1: companies had no way to deliver upon the promises that
Speaker 1: they were making or to be able to justify the
Speaker 1: crazy speculation that drove their stock prices into the stratosphere
Speaker 1: before the companies had even figured out how to generate
Speaker 1: ascent in revenue. But even companies like General Electric, which
Speaker 1: were traditional, established, giant conglomerate companies, were affected by this
Speaker 1: change in the market. Between March two thousand and when
Speaker 1: Welch would hand over the CEO role to his successor,
Speaker 1: Jeff Emilt, in early September two thousand one, the stock
Speaker 1: price for GE had fallen by twenty four percent. Now
Speaker 1: I point that out because often the simplified story about
Speaker 1: what happened to GE was that Jack Welch stepped down
Speaker 1: and Imilt fumbled the ball, that Emilt was a terrible
Speaker 1: CEO and he could not follow Welch's lead. But in reality,
Speaker 1: I think the story is far more nuanced, and we
Speaker 1: have to remember that the market itself was changing during
Speaker 1: this transition. It wasn't the case of Emilt being handed
Speaker 1: a profitable company on a silver platter and nothing was
Speaker 1: going wrong and he just messed it up from there. Uh.
Speaker 1: He did make a ton of decisions that would not
Speaker 1: turn out to be great for GE. So I don't
Speaker 1: want to diminish his responsibility either. I just think it's
Speaker 1: important for us to take all these factors into consideration. Okay.
Speaker 1: So Welch stepped down on September six, two thousand one.
Speaker 1: Emil took over on September seven, and four days later,
Speaker 1: the United States was rocked by a series of terrorist
Speaker 1: attacks that shook the country to its core. Those effects
Speaker 1: were widespread. The tragedy touched thousands of people directly, tens
Speaker 1: of thousands millions of people indirectly. It transformed the New
Speaker 1: York City Escape permanently, and it caused disruption in the
Speaker 1: markets as well. Wall Street made the decision to not
Speaker 1: open the New York Stock Exchange the morning of September eleven,
Speaker 1: two thousand one, fearing that the terrorist attacks would prompt
Speaker 1: panic selling amongst shareholders, making a truly horrible situation even
Speaker 1: more dire both the New York Stock Exchange and the
Speaker 1: NASDAC would remain closed until September two thousand one. When
Speaker 1: trading resumed, the market fell by nearly seven hundred points.
Speaker 1: That was a decline of almost mobile actually more than
Speaker 1: seven per cent, and that was just the first day
Speaker 1: of trading. Losses actually continued throughout that week. I hate
Speaker 1: even talking about this, but it is important in order
Speaker 1: for us to understand ges story. At this stage in
Speaker 1: the company's history, business philosophies had changed significantly in the
Speaker 1: United States in the nineteen eighties and nineteen nineties. We
Speaker 1: had created a new environment where share value was the
Speaker 1: most important metric for a business, the company's stock price.
Speaker 1: If the stock price was going up, that was good.
Speaker 1: That was pretty much the end all be all. A
Speaker 1: company wasn't thought of doing well unless it's stock price
Speaker 1: was growing year over year, or at least the overall
Speaker 1: value of the company when you take in at stock.
Speaker 1: Because of course, companies can do things like stock splits
Speaker 1: so that the price of an individual shriff stock goes down.
Speaker 1: But because you've doubled the number of stocks or a
Speaker 1: number of shares, I should say, out on the market,
Speaker 1: the value of the company itself remains stable and can
Speaker 1: continue to grow. This drove a lot of business decisions
Speaker 1: that put shareholders above just about everything else in the company,
Speaker 1: including customers. Now, in my opinion, it's one of the
Speaker 1: biggest economic mistakes made in recent decades, as it has
Speaker 1: created a world in which many company executives focus very
Speaker 1: much on the short term to mid term gains as
Speaker 1: opposed to long term strategies. So often I think companies
Speaker 1: are making choices that hurt the company's chances to survive
Speaker 1: in the long term, all in an effort to drive
Speaker 1: that stock market price further up. Anyway, this disaster impacted
Speaker 1: gees stock price along with countless other companies, and you
Speaker 1: can't lay that blame on Emilt. It's not his fault
Speaker 1: that this series of awful attacks happened four days after
Speaker 1: he took control of the company. In the wake of
Speaker 1: nine eleven, all airline operations in the United States stopped
Speaker 1: for several days. That had a direct impact on gees business,
Speaker 1: which included building stuff like jet engines for the airlines
Speaker 1: and also leasing out parts for various companies. All of
Speaker 1: that was put on hold. On top of that, gees
Speaker 1: insurance business was suddenly inundated with claims which the company
Speaker 1: had to make good on. For one thing, GE was
Speaker 1: responsible for the insurance policy for the World Trade Center, which,
Speaker 1: as I'm sure you all know, lost the two towers
Speaker 1: that made the center iconic back in two thousand one
Speaker 1: as a result of those attacks. Prior to September eleven,
Speaker 1: it wasn't unusual for GE to lean a bit heavily
Speaker 1: on GE capital to kind of smooth things over. The
Speaker 1: branch was so profitable, that division of GE was so
Speaker 1: profitable that could help conceal if another division weren't quite
Speaker 1: doing so well. A lot of gees accounting practices have
Speaker 1: over the years been called opaque, meaning that you might
Speaker 1: get the end result of how well the overall company
Speaker 1: is doing, but you might not know how it got there,
Speaker 1: which divisions are doing well versus which ones are not.
Speaker 1: The overall performance of the company was what mattered, right,
Speaker 1: So who cares what's happening in the individual divisions. Well,
Speaker 1: Emil would get to work selling off parts of GES
Speaker 1: insurance business, though the company would still maintain some of
Speaker 1: that business up to present day. I'll explain more about
Speaker 1: that in a little bit. It and he also began
Speaker 1: to look at possible acquisitions. So what things turn out, Well,
Speaker 1: we'll find out. But spoiler alert, no they don't. But
Speaker 1: before I get into that, let's take a quick break.
Speaker 1: One thing I want to mention before I forget it
Speaker 1: is that during Emilt's run as CEO of GE, there
Speaker 1: was a particularly wasteful practice going on that would later
Speaker 1: get a lot of media attention when it was made public.
Speaker 1: Emilt traveled a lot. He would meet with various GE
Speaker 1: executives and facilities all around the world, as well as
Speaker 1: with other company and industry leaders and politicians. Particularly. He
Speaker 1: would do this when he was on the lookout for
Speaker 1: possible acquisitions, and he made a lot of those as
Speaker 1: he was CEO of g E. Now, to hop over
Speaker 1: to the other side of the world, he would take
Speaker 1: one of the g E owned business jets. They had
Speaker 1: six of them. But here's the curious thing. Every time
Speaker 1: you would travel, there would be a second empty jet
Speaker 1: that would follow along behind and stay at the same
Speaker 1: airport and wait there. And then when Emilt would fly back,
Speaker 1: so did the empty jet. Now the justification for that practice,
Speaker 1: which again eventually became public, in which a jet carrying
Speaker 1: only a crew no passengers would burn through fuel, it
Speaker 1: would generate pollution. The justification was that Emilt was a
Speaker 1: very important person on very important business and yes I
Speaker 1: capitalized very important in my notes in this section. As such,
Speaker 1: he couldn't be delayed by mechanical failures. His business was
Speaker 1: far too important. So the empty jet was essentially a
Speaker 1: backup transport in case his primary should experience a mechanical delay.
Speaker 1: It was his just in case measure, a very expend
Speaker 1: of wasteful measure. The company would actually stop that practice
Speaker 1: in two thousand fourteen, which was a few years before
Speaker 1: Emilt would be replaced as CEO. Spoiler alert, will get there,
Speaker 1: all right, So back to the post two thousand one
Speaker 1: g E. In two thousand two, GE would acquire a
Speaker 1: business from a formerly huge company. That company was in Ron,
Speaker 1: which went bankrupt in two thousand one after its own
Speaker 1: massive scandal, which I'm not going to get into here.
Speaker 1: It's outside the purview of this episode, but one of
Speaker 1: the many parts of in Ron to go up on
Speaker 1: the auction block after the bankruptcy was a wind power business.
Speaker 1: Emilt was, in his own words, not enthusiastic about wind power.
Speaker 1: He felt wind power wasn't profitable, and it was too
Speaker 1: dependent upon subsidies, and those subsidies could disappear at any
Speaker 1: time according to which way any government budget might be headed,
Speaker 1: So there was no way to control that. If the
Speaker 1: subsidies went away, you'd be saddled with a really expensive
Speaker 1: of a nonprofitable business. But Emil gave the authority to
Speaker 1: executives who really believed in that acquisition to go forward
Speaker 1: with it, and they went and purchased the division. It
Speaker 1: would end up becoming profitable and perhaps should have served
Speaker 1: as a lesson for future emmilt and I'll get back
Speaker 1: into what I mean about that in just a little bit.
Speaker 1: In two thousand three, GE announced its intention to purchase
Speaker 1: a majority stake in Universal Pictures. That was a company
Speaker 1: that was under the control of another company called Vivendi,
Speaker 1: a French company. In this deal, g E would acquire
Speaker 1: eighty percent of Universal. Vivindi was going through kind of
Speaker 1: a financial crisis at the time, so GE merged Universal
Speaker 1: with NBC, creating NBC Universal, and the deal included several
Speaker 1: cable television channels like Sci Fi Network, USA Network, as
Speaker 1: well as the Universal Film Studio, the Universal Theme parks.
Speaker 1: It did not include Universal Music that would remain completely
Speaker 1: under Vendy's control, but lots of the other Universal properties
Speaker 1: were part of this deal. Vivendi would have twenty control
Speaker 1: of this and then UH you would have GE with
Speaker 1: control and you got in BC Universal. G E would
Speaker 1: not hold on to this property forever. G was acquiring
Speaker 1: other companies as well at this time, adding them to
Speaker 1: the various divisions of General Electric. GE. Healthcare was growing
Speaker 1: with companies like UH Instrumentarium and Amersham Plc. Those were
Speaker 1: being added as part of healthcare. G Capital was also
Speaker 1: growing with similar acquisitions, including some subprime mortgage loan companies,
Speaker 1: and we'll get into that in a bit. And G
Speaker 1: would also build out its industrial, consumer and energy businesses
Speaker 1: and made several acquisitions of companies in the oil industry,
Speaker 1: also in banking and that old course of fossil fuels
Speaker 1: in general, because he really believed that that was going
Speaker 1: to be the mainstay for energy production or electricity production.
Speaker 1: I guess I should say for the foreseeable future. Throughout
Speaker 1: this time, GE Capital would remain the most profitable division
Speaker 1: of General Electric, and so the company would lean more
Speaker 1: heavily upon GE Capital in order to do things like
Speaker 1: pay out that dividend to shareholders that set up GE
Speaker 1: for disaster. Just a couple of years after GE purchased
Speaker 1: subprime mortgage businesses, the world plunged into a global economic crisis,
Speaker 1: which we often refer to as the two thousand eight
Speaker 1: financial crisis, but really the crisis first started becoming apparent
Speaker 1: in two thousand seven with the subprime mortgage market. So
Speaker 1: what the heck is a subprime mortgage Well, the short
Speaker 1: answer is it's an incredibly risky, predatory, and irresponsible market
Speaker 1: practice that depends upon people who are some of the
Speaker 1: most vulnerable folks out there. Maybe that's just me putting
Speaker 1: my own bias on things, but it's hard for me
Speaker 1: to see the whole concept as anything other than dumb
Speaker 1: and harmful. But here's how it breaks down, all right.
Speaker 1: So you know about credit scores, right, They're supposed to
Speaker 1: represent how much of a risk or a lack of
Speaker 1: risk a person is when it comes to paying off
Speaker 1: debt like loans. So if you have a high credit score,
Speaker 1: it means your history shows that you're diligent about paying
Speaker 1: off debt and that you represent a low risk for
Speaker 1: future loans. It does not mean that you've never had debt.
Speaker 1: You want to have some debt, and then you want
Speaker 1: to be able to pay it off because that's what
Speaker 1: gets you that high credit score. But if you have
Speaker 1: a low credit score, it means that, in the eyes
Speaker 1: of a lender, you represent a risk. Maybe you have
Speaker 1: a spotty employment history, maybe you have a lot of
Speaker 1: outstanding debt, maybe you've missed some payments on some loans.
Speaker 1: The purpose of these credit scores is to give lenders
Speaker 1: enough information to make responsible loan agreements. Subprime lending involves
Speaker 1: giving loans to high risk individuals, and typically you pair
Speaker 1: this with really high interest rates and other restrictions in
Speaker 1: order to mitigate the risk you incur when you give
Speaker 1: a loan out to one of these people who have
Speaker 1: a very low credit score. And so people who are
Speaker 1: looking to buy homes or to take out other loans
Speaker 1: were securing the money through financial institutions with these subprime
Speaker 1: mortgages and subprime loans, but with incredibly punishing restrictions on
Speaker 1: those loans, and surprise, surprise, a lot of folks found
Speaker 1: it impossible to pay off that debt, and ultimately many
Speaker 1: of the companies that were making those loans found themselves
Speaker 1: in a hole that they had dug themselves and it
Speaker 1: was too deep to climb out. Everyone was put in
Speaker 1: an awful situation and it had a really big ripple effect.
Speaker 1: Part of that ripple led to an investment bank called
Speaker 1: Lemon Brothers collapsing in September of two thousand eight. Other
Speaker 1: major financial institutions were in danger of following suit. The
Speaker 1: whole thing was leading to a global economic collapse, with
Speaker 1: the financial industry on the brink of total disaster. That's
Speaker 1: when arious parties swooped in to rescue the situation, bailing
Speaker 1: out banks that had over extended themselves. This in turn
Speaker 1: ticked off a lot of folks who are directly affected
Speaker 1: by this problem. These were people who had been evicted
Speaker 1: from their homes because they weren't able to make their
Speaker 1: mortgage payments, or people who were otherwise hurt by the
Speaker 1: subprime mortgage crisis, either directly or indirectly. And it didn't
Speaker 1: help that many of these people saw the bailouts as
Speaker 1: being rewards for the same financial institutions that caused all
Speaker 1: the misery in the first place. Well. Ge Capital was
Speaker 1: one of those institutions, and it was hit hard by
Speaker 1: the two thousand eight crisis worse because General Electric was
Speaker 1: so dependent upon GE Capital for revenue, it put all
Speaker 1: of General Electric at risk. To help whether the storm,
Speaker 1: the company announced it would attempt to raise twelve billion
Speaker 1: dollars through a common stock offering. Warren Buffett investor Extraordinaire,
Speaker 1: also helped out by investing billions of dollars in GE
Speaker 1: in retros. Fact, many analysts have said that GE was
Speaker 1: playing an increasingly dangerous game since Welch had transformed GE
Speaker 1: Capital from a small division that helped consumers get financing
Speaker 1: to purchase big appliances like refrigerators into a global financial institution.
Speaker 1: Gees more traditional divisions like it's lighting business, industrial equipment business,
Speaker 1: medical equipment business, it's a via Asian businesses. All of
Speaker 1: these secured for the company the respect of Wall Street
Speaker 1: because they were dependable parts of GE. They could make
Speaker 1: a dependable revenue, and they were traditional. They had a
Speaker 1: long history with the company that gave the company a
Speaker 1: lot of room to swing for the fences with GE
Speaker 1: Capital and thus engage in more risky behaviors in an
Speaker 1: effort to win big payoffs, drive that stock market price up,
Speaker 1: and again pay out those dividends, and that risk was
Speaker 1: somewhat necessary because of that changing climate of business, So
Speaker 1: you had to grow year over years. Traditional businesses usually
Speaker 1: had steady performance, and they did grow, but they grew slowly,
Speaker 1: so that wasn't the kind of performance that would really
Speaker 1: when you the the front cover of various business magazines,
Speaker 1: you wanted to really go for it. So GE Capital
Speaker 1: was that method. That was how GE was going to
Speaker 1: be the leader. Then it became an anchor weighing the
Speaker 1: company down in the wake of this financial crisis. EMIL
Speaker 1: would start trying to sell off parts of g E Capital,
Speaker 1: but it wasn't easy. Before Buffett rushed into help. GE
Speaker 1: famously couldn't secure overnight loans to keep the business afloat.
Speaker 1: Most investors felt it was far too risky to pour
Speaker 1: money into General Electric, so the house that Jack built
Speaker 1: was in danger of crashing to its foundations. Even with
Speaker 1: the influx of investment cash, not to mention an incredible
Speaker 1: one thirty nine billion dollars of federal government bailout money,
Speaker 1: g was still struggling, and one thing barreling down at
Speaker 1: the company was that dividend payout. The dividend made g
Speaker 1: E stock one of the most popular stocks on the market.
Speaker 1: Tons of people owned g E stock because it paid
Speaker 1: out dividends, But paying how that dividend was going to
Speaker 1: put a huge burden on the company. It just wasn't
Speaker 1: going to have the cash to do it, so in
Speaker 1: two thousand nine, EMIL decided to cut the dividend from
Speaker 1: thirty one cents a share down to ten cents a share.
Speaker 1: It would mark only the second time the company had
Speaker 1: reduced its dividend payout. The first time had been during
Speaker 1: the Great Depression and spoiler alert. It would not be
Speaker 1: the last time they would have to cut the dividend. Also,
Speaker 1: in two thousand nine, the company announced its intention to
Speaker 1: sell off NBC Universal to cable provider Comcast. To do that,
Speaker 1: it would first have to acquire the other twenty percent
Speaker 1: of NBC Universal from Vivindy. They still had that air.
Speaker 1: That process took some time, so it wasn't until two
Speaker 1: thousand eleven that GE would sell off a majority stake
Speaker 1: in NBC Universal to Comcast. At that time, GE would
Speaker 1: still retain a forty nine percent share in the company,
Speaker 1: although it did have the intention to sell the rest
Speaker 1: of those shares off. A few years later, uh. This
Speaker 1: would become a common plot element and a source of
Speaker 1: jokes in the series thirty Rock, just as ges ownership
Speaker 1: of NBC Universal had been a source for humor previously
Speaker 1: in that series. Two years later, in Comcast would arrange
Speaker 1: to purchase the entirety of NBC Universal from g E,
Speaker 1: and g E would get out of the entertainment and
Speaker 1: media business and it would use some of that money
Speaker 1: to cover some of the debt that g E had
Speaker 1: accrued following the two thousand eight financial crisis. The NBC
Speaker 1: Universal deal was just one of several that GE pursued
Speaker 1: in the first decade of the two thousand's The company
Speaker 1: looked to sell off some of its businesses and divisions
Speaker 1: in an effort to refocus on core strategy. G's Emilt
Speaker 1: kept working on ways to extract GE from GE capital business,
Speaker 1: and he didn't have a whole lot of success with it,
Speaker 1: and he had his eyes set on another company to
Speaker 1: try and turn gees prospects around. The company in question
Speaker 1: was a French company that was making coal powered turbines.
Speaker 1: In other words, it was a company that built stuff
Speaker 1: for the energy electric industry electric utilities, right specifically for
Speaker 1: fossil fuel based power companies. The name of this company
Speaker 1: was Alstom A L S T O M. And as
Speaker 1: it would turn out, the timing could not have been worse,
Speaker 1: though it is arguable over whether or not that was predictable.
Speaker 1: At that time, Emil was hoping that Alstom would become
Speaker 1: a key component in g ees power division. He thought
Speaker 1: that Ge could take this French company which had been
Speaker 1: struggling financially, and used GES processes and practices to turn
Speaker 1: Alstom around. Then he would use Alstom to meet the
Speaker 1: electricity demands of clients all over the world at all
Speaker 1: with fossil fuel based turbines. So what went wrong? Well,
Speaker 1: I'll tell you after we take this quick break. Not
Speaker 1: everyone at g was crazy about acquiring Alstom. Several executives
Speaker 1: felt that the asking price was far too high, but
Speaker 1: Emma was optimistic that Ge could take Alstom and turn
Speaker 1: it into a profitable business. As it turns out, he
Speaker 1: wouldn't get the chance to stick around long enough to
Speaker 1: see how far Alstom would fall. But I'm not quite
Speaker 1: there yet. Ge needed to do something. The company's oil
Speaker 1: and gas services, which revolved around actually extracting oil. You know,
Speaker 1: making the equipment that would be used for that sort
Speaker 1: of stuff. Those were on the decline as energy prices
Speaker 1: were collapsing. But the power division GE Power, the part
Speaker 1: of g that actually produced equipment that was used to
Speaker 1: generate electricity, that was still a reliable revenue source. In fact,
Speaker 1: at that point was the largest source of revenue for GE,
Speaker 1: and it had a high profit margin to boot. G
Speaker 1: E made a lot of money from that particular division.
Speaker 1: So if g E could do the same thing for
Speaker 1: Alstom and turn things around, then in Emilt's mind, the
Speaker 1: company would have a rock solid foundation from which to work.
Speaker 1: But a few big factors would hamper the success of Alstom.
Speaker 1: One was that there just wasn't as big a demand
Speaker 1: for turbines as Emilt had anticipated. They got fewer orders
Speaker 1: than what they were hoping for. In places like the
Speaker 1: United States, power companies were improving efficiencies and so they
Speaker 1: were able to do more with less. There wasn't as
Speaker 1: big a demand to add additional infrastructure to meet consumer needs.
Speaker 1: Then there was the fact that Alstom's employees were very
Speaker 1: highly compensated, which was good for them but rough for GE,
Speaker 1: and regulations in the EU meant that EMILT couldn't just
Speaker 1: pull a Jack Welch and start laying off employees in
Speaker 1: an effort to cut costs. EU had protections in place
Speaker 1: to prevent that sort of thing, so you couldn't just
Speaker 1: make the books look better by laying off a bunch
Speaker 1: of people. And the EU also blocked one part of
Speaker 1: the business from g E acquiring it. That was Alstom's
Speaker 1: service business, their maintenance business that would have supplied revenue
Speaker 1: as the company would provide maintenance services for its clients.
Speaker 1: That was off limits. And the other major factor was
Speaker 1: that the cost of building out renewable energy systems fell
Speaker 1: drastically not long after GE completed the ten billion dollar
Speaker 1: acquisition of Alstom in two thousand fifteen, so it looked
Speaker 1: like the wrong bet right buying a very expensive fossil
Speaker 1: fuel based company just as renewable energy prices were falling
Speaker 1: to the point where they were uh they could compete
Speaker 1: against fossil fuels. Now, around the same time that the
Speaker 1: Alstom deal was starting to take shape, GE would spin
Speaker 1: off its credit card business, which was part of GE Capital,
Speaker 1: and it would become Synchrony Finance. Nchell and I'm guessing.
Speaker 1: It filled a lot of folks at GE with a
Speaker 1: bit of dismay to see that once it was free
Speaker 1: of General Electric, this former division actually outperformed all expectations.
Speaker 1: It did much better on its own than it did
Speaker 1: as part of General Electric. On top of that, the
Speaker 1: oil price crash pushed GE to merge its own oil
Speaker 1: and gas division with a company called Baker Hughes, and
Speaker 1: then g E got a majority ownership in the Baker
Speaker 1: Hughes company became Baker Hughes, a g E company at
Speaker 1: least for the time. Oh and two thousand fifteen, GE
Speaker 1: formed a unit called GE Digital. G had been in
Speaker 1: various digital products for a while, but marked the move
Speaker 1: for the company to create an independent business unit. Most
Speaker 1: of the unit's focus was on a software product called Predicts,
Speaker 1: sort of a play on Prediction, and it was a
Speaker 1: business to business product. It was meant to help big
Speaker 1: companies like airlines identify strategies and manage assets. But over
Speaker 1: time that unit would experience slow revenues and technical issues,
Speaker 1: and in eighteen there was real serious talk of GE
Speaker 1: potentially selling off the division entirely. That is yet to happen.
Speaker 1: GE Digital still as part of GE, but GE did
Speaker 1: do a few rounds of layoffs, so things have not
Speaker 1: gone smoothly for that part of the company. Back to
Speaker 1: gees leadership WOS. In October two thousand seventeen, GE announced
Speaker 1: that Jeff Emilt would be stepping down as CEO, and
Speaker 1: he had served in that role for about sixteen years.
Speaker 1: The company's stock price was around a third of what
Speaker 1: it had been when he took control. Emerald had spun
Speaker 1: off numerous businesses over the years, including gees Plastics division
Speaker 1: if you remember, that's the division that Jack Welch had
Speaker 1: actually come to. He had also spun off the appliances business.
Speaker 1: He's spun off the insurance business, or a lot of
Speaker 1: it anyway, and more. And by that time much of
Speaker 1: the upper leadership at g E got caught in a shacub.
Speaker 1: There were members of the board who left, there were
Speaker 1: other executive members who left, and investors, employees, and retirees
Speaker 1: were all growing more and more unhappy. The company had
Speaker 1: lost and estimated one hundred billion dollars worth of shareholder
Speaker 1: wealth over the previous decade and a half. Critics stated
Speaker 1: the Emilt had a habit of chasing after fads, investing
Speaker 1: in businesses at the peak of their visibility and then
Speaker 1: later selling them off for less than what g had
Speaker 1: paid for them in the first place, And people said
Speaker 1: the GE method was to buy high, sell low, which
Speaker 1: in general is the opposite of what you want to do.
Speaker 1: I think, oh no, not a business guy. Not every
Speaker 1: deal Emilt made went sour. By the way, the in
Speaker 1: Ron deal in which g took over that wind power
Speaker 1: business ended up being very profitable, though again Emil initially
Speaker 1: opposed that deal, and when GE sold off its plastics
Speaker 1: division it was for a higher price than what a
Speaker 1: lot of analysts expected. But generally speaking, the deals didn't
Speaker 1: break in gees favor or imilts watch. Emeralt's successor was
Speaker 1: John Flannery, who had up to that point headed up
Speaker 1: gees healthcare business and had worked for GE for thirty years.
Speaker 1: Flannery's goal was to build a strong core for g
Speaker 1: E around its aviation business, its power business, and its
Speaker 1: healthcare business, and there was talk of the possibility that
Speaker 1: GE itself might break apart into several different companies. The
Speaker 1: reaction to that idea kind of fell across the spectrum.
Speaker 1: Some people saw it as a necessity if the various
Speaker 1: parts of GE were to stabilize. Others saw it as
Speaker 1: the end of a legacy, and they had a bit
Speaker 1: of a point. One of the discussions was about possibly
Speaker 1: selling off GES lightbulb business, that was the business that
Speaker 1: started it all, really, all the way back in eight
Speaker 1: seventy eight, and the Edison Electric Light Company. But innovation
Speaker 1: could sometimes be a double edged sword. The move towards
Speaker 1: l E ed lights, which can last for thousands of hours,
Speaker 1: meant that there just wasn't as big a demand for
Speaker 1: light bulbs anymore. Because if you don't have to worry
Speaker 1: about the light bulb burning out on a regular basis,
Speaker 1: there's not much call to buy new ones. You just
Speaker 1: buy the LEDs. You might sell your house before you
Speaker 1: ever have to change that light bulb. So lightbulb sales
Speaker 1: were starting to drop. There just wasn't enough call for them.
Speaker 1: I bet it made GE long for the days when
Speaker 1: it had formed that secret lightbulb cartel in which companies
Speaker 1: agreed to limit the useful life of a light bulb
Speaker 1: through engineering. And things were rough for shareholders too. Since
Speaker 1: GE had cut its dividend payouts a few years earlier,
Speaker 1: the payouts had slowly increased again. They had grown up
Speaker 1: to twenty four cents per share, so that was an improvement.
Speaker 1: It was still below the thirty one cents that it
Speaker 1: had been at its peak, but it was better. But
Speaker 1: in late G had to cut the dividend again, that
Speaker 1: time down to twelve cents, and then not too long
Speaker 1: after that they were forced to do another cut. They
Speaker 1: just realized that they're just wasn't enough money to cover
Speaker 1: the dividend payout, so the dividend got cut down to
Speaker 1: just one cent per share. It just didn't have the
Speaker 1: money to cover the payments otherwise. In addition, G was
Speaker 1: having to deal with an unexpected cost. The company had
Speaker 1: not issued any long term care insurance policies since two
Speaker 1: thousand six, and in fact, it had spun off almost
Speaker 1: its entire insurance business with a company called gen Worth. However,
Speaker 1: in order to make that deal happen, GE was forced
Speaker 1: to agree to cover any losses from long term care insurance.
Speaker 1: It was just seen as too great a financial risk otherwise,
Speaker 1: so GE signed that agreement. Now, those long term care
Speaker 1: agreements are policies that are meant to cover the elderly,
Speaker 1: and it turned out that insurers not just a GE,
Speaker 1: but across the industry had underestimated how long policy holders
Speaker 1: would actually live, and the medical costs, including things like
Speaker 1: nursing home fees, would tend to get higher as customers
Speaker 1: got older. So as people lived longer, they were creating
Speaker 1: a larger and larger drain on resources for these insurance companies.
Speaker 1: Like if you looked at it from a financial perspective,
Speaker 1: the person who was paying for the policy was getting
Speaker 1: way more benefits out of it than they were paying
Speaker 1: into it, and that was an issue. So this was
Speaker 1: a huge cost for GE, and it's no wonder that
Speaker 1: the company was continuing to try and find ways to
Speaker 1: get completely out of the insurance business. Now. To meet
Speaker 1: the obligation, Flannery had to redirect fifteen billion dollars of
Speaker 1: GES wealth in two thousand eighteen just to cover the
Speaker 1: obligations of that insurance policy stuff. And the company was
Speaker 1: also hit with a seven and a half billion dollar
Speaker 1: after tax charge, so things were really rough. Also in
Speaker 1: two thousand eighteen, GE would leave the dal Jones Industrial Average.
Speaker 1: If you listen to my previous episodes, you remember that
Speaker 1: GE was one of the original companies listed on that
Speaker 1: average when it was first created, and it was the
Speaker 1: only company of that original list that still existed in
Speaker 1: two thousand eighteen. It had been part of the Dow
Speaker 1: Industrial Average for a hundred eleven years, but the performance
Speaker 1: of the company, along with the perception that industrial companies
Speaker 1: in general weren't really key indicators for overall market performance,
Speaker 1: meant that those days were over, so in its place,
Speaker 1: a different company would join the Dow. That was Walgreen's
Speaker 1: Boots Alliance drug store chain company. Meanwhile, a problem with
Speaker 1: gs most recent heavy duty gas turbines caused other issues
Speaker 1: for General Electric. A utility in Texas had to shut
Speaker 1: down two different power plants for repairs due to failures
Speaker 1: with these new turbines. That news would end up hurting
Speaker 1: GE power sales, which weren't doing super a great at
Speaker 1: that moment. Already, Flannery's efforts were seen as insufficient by
Speaker 1: the board of directors, and on October one, els and eighteen,
Speaker 1: the company announced that Flannery had been removed from the
Speaker 1: position of chairman and CEO, and the board appointed an outsider,
Speaker 1: Lawrence Culp, to serve as the new chairman and CEO.
Speaker 1: Flannery had been CEO for about fourteen months and then
Speaker 1: he was out that would give Flannery the unenviable distinction
Speaker 1: of having served the least amount of time as CEO
Speaker 1: of all g e C e o s, at least
Speaker 1: so far. Culp would be the third CEO to lead
Speaker 1: the company since two thousand seventeen. The company Culp took
Speaker 1: over was in turmoil and there were pending investigations into
Speaker 1: g S accounting practices, which had for years, as I
Speaker 1: said earlier, been described as opaque. It's polite way of
Speaker 1: saying the company wasn't making it easy to see where
Speaker 1: money was coming from or where it was going to.
Speaker 1: GE had already settled sec charges in the past, but
Speaker 1: there were others that sought to find out more about
Speaker 1: the finances of the company. And then, of course there
Speaker 1: was no recent report from Marcopolis, the guy who was
Speaker 1: one of the early whistleblowers on Bernie made Off before
Speaker 1: everyone was aware of the Ponzi scheme that made Off
Speaker 1: was running. The Marcopolis report alleges that GE is essentially
Speaker 1: robbing Peter to pay Paul, shifting cash around frantically to
Speaker 1: fend off insolvency. It's kind of like a shell game
Speaker 1: to trying to move money around fast enough so that
Speaker 1: the company doesn't collapse. G E I should add, disputes
Speaker 1: this report and says that the allegations are baseless and
Speaker 1: it cannot be ignored that Marcopolis himself actually stands to
Speaker 1: make a lot of money should GES stocks decline and value.
Speaker 1: So you could argue there is a motive for Marcopolis
Speaker 1: to try and drag ges name in the mud. Uh
Speaker 1: So their valid arguments on either side about whether or
Speaker 1: not this report is something you should pay attention to
Speaker 1: or if it's something that has alter are your motivations
Speaker 1: behind it. That being said, the fact that the Marcopolis
Speaker 1: report came out doesn't change the fact that there were
Speaker 1: already numerous investigations government investigations into g S businesses that
Speaker 1: could end up hindering the company further. So there seems
Speaker 1: to be smoke. There's just a question of is the
Speaker 1: fire what Mark coupolists is saying or is it something else?
Speaker 1: On top of all the problems the company faces, is
Speaker 1: another external force that could really spell doom. Many financial
Speaker 1: analysts say that signs point to another global recession. Already,
Speaker 1: industries like manufacturing and freight are in a bit of
Speaker 1: a slide, so a recession would greatly exacerbate General Electrics problems.
Speaker 1: So are we seeing the end of days for a
Speaker 1: company that helped launch the technological age? I don't know.
Speaker 1: I don't feel great about it, but it is a
Speaker 1: very large company. It's not like any of these things
Speaker 1: is definitively the death knell for General Electric And there's
Speaker 1: a lot of stuff that could happen. We could see
Speaker 1: GE get broken up into smaller companies that individually are
Speaker 1: able to succeed much better than they can collectively. All
Speaker 1: of that remains to be seen. But it was fascinating
Speaker 1: to learn more about this company's incredible, rich history. And UH.
Speaker 1: I know that this last section was much lighter on
Speaker 1: the tech side, as I said at the beginning, but
Speaker 1: at the same time, I thought it was important for
Speaker 1: us to understand how a company that had been so
Speaker 1: instrumental in setting the tone for the technological age could
Speaker 1: be facing extinction UH in two thousand nineteen. So here's
Speaker 1: hoping that things turn around for GE, that the company
Speaker 1: is able to reconcile all these accounting practices, that it
Speaker 1: is able to deliver value to employees, to customers, to retirees,
Speaker 1: and two shareholders not just two shareholders, and that wraps
Speaker 1: up this episode. If you have suggestions for future topics
Speaker 1: of tech stuff, whether it's a company, a technology, a
Speaker 1: concept in tech, anything like that, let me know. Send
Speaker 1: me an email the addresses tech stuff at how stuff
Speaker 1: Works dot com or draw me a line on Facebook
Speaker 1: or Twitter. The handle of both of those is text
Speaker 1: Stuff hs W. You can also pop on over to
Speaker 1: our website that's tech Stuff podcast dot com. You've got
Speaker 1: to find a link to the archive of all of
Speaker 1: our previous episodes there, so you can look up all
Speaker 1: the different stuff we talked about, including the previous episodes
Speaker 1: I did on g S History where Chris Pallette and
Speaker 1: I sat down and talked about it. But the show
Speaker 1: was very different back in those days. But if you
Speaker 1: want to hear a different take on this same sort
Speaker 1: of stuff, you can check that out. That one came out,
Speaker 1: I believe in two thousand twelve. And don't forget we
Speaker 1: also have a link to our online store where every
Speaker 1: purchase you make goes to help the show, and we
Speaker 1: greatly appreciate it and I will talk to you again
Speaker 1: really soon. Y Text Stuff is a production of I
Speaker 1: Heart Radio's How Stuff Works. For more podcasts from I
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