Opinion: One of Warren Buffett's management call mistakes - Jeff Immelt of GE

In fairness, we’ve seen plenty of successes as well, some truly outstanding. There are many giant-company managers whom I greatly admire...Jeff Immelt of G.E [and a few others]....come quickly to mind.

— Warren Buffett

Warren Buffett is one of the best investors at judging management—he has to be, given how he is a concentrated investor. But he does make mistakes and Jeff Immelt of GE is one of his mistakes. However, Jeff Immelt is an unusual example of a mistake for several reasons. Buffett, as well as many others, would probably disagree with me (that's why I consider this post strictly an opinion piece.)

First of all, based on my reading of Buffett's comments (I could be mis-understanding his stance,) Buffett still hasn't admitted that Immelt made any serious mistakes in the last decade. In his recent (2009) shareholder letter, he even implied that the poor performance of GE shares was largely because Immelt inherited the company when the stock was at a bubbly peak:

Even evaluations covering as long as a decade can be greatly distorted by foolishly high or low prices at the beginning or end of the measurement period. Steve Ballmer, of Microsoft, and Jeff Immelt, of GE, can tell you about that problem, suffering as they do from the nosebleed prices at which their stocks traded when they were handed the managerial baton.
He doesn't say anything about GE's recent performance but Buffett does imply that the initial high stock price was a big part of the problem.
The other reason Immelt may not be considered a mistake by Buffett is because he actually made money off GE (assuming GE doesn't fall apart before he unloads his GE preferred shares.) But some, including me, argue that the profit off GE was due to government support (essentially a direct transfer of taxpayer wealth to GE creditors and shareholders.)

Lastly, Jeff Immelt may be very talented at operating a large company. I don't much about him and perhaps he is one of the top executives in America, when it comes to operations.

But whatever it is, Jeff Immelt has been a disaster at GE. All I know is that he is not a very good manager of risk. Buffett himself has suggested that the CEO is the chief risk officer and, on that front, Jeff Immelt has been a failure.

GE's stock is down around 50% in the last decade (perhaps a tad bit less if you adjust for dividends) and as Brett Arends suggests in a MarketWatch article, it is questionable whether the $90 million paid in compensation during the last decade has helped shareholders very much.

Although Jack Welch, the once-cherished CEO who is transforming into a goat by the day, is primarily responsible for GE's lurch into the "financial industry," Jeff Immelt does bear a lot of responsibility for not doing enough to fix Welch's mess.

Pundits and the peanut gallery always love to bash GM, a company that took 30+ years for it to go bankrupt, but it appears GE, another industrial giant of similar stature, size and power (as GM in the 1970's,) looks to have been almost undone within a decade. Without the US government aid, GE likely would have gone bankrupt... Unfortunately for GE shareholders, it's still not clear that GE is fully solvent and out of the woods. The stock market is pricing GE at a market cap of $175 billion though so take my opinion for what it's worth...


Popular Posts

Warren Buffett's Evolution and his Three Investment Styles

Ten classic investing myths from Peter Lynch

Charlie Munger: Stock market as a pari-mutuel betting system