Jeffrey Immelt, the long standing CEO of General Electric (GE), has been the subject of speculation after a Barclay’s Research Report suggested that he might leave his position as Chairman and chief executive within the year. Immelt has led GE for more than 13 years while the average S&P 500 (^GSPC) CEO remains in their position for just 8.1 years.
"Though CEO Jeff Immelt has arguably had a good run since the near collapse in 2008-2009, most investors are ready for change at the top now," wrote Barclay’s Analyst Scott Davis in a note to clients. Davis cites GE CFO Jeff Bornstein who joined the company in 1989 as Immelt’s most obvious successor.
GE stock is around 35% since Immelt took the top position while the S&P has gained nearly 93%. Immelt, who took over as CEO from Jack Welch in September of 2001, has been criticized for keeping GE large and bulky. The company operates in a slew of industries including telecommunications, power and water, oil and energy, healthcare and aviation.
“For portfolio managers and analysts, you look at the stock and it’s trading about 15 times, that’s a slight discount to the market but it’s growing at about 5%. I believe that GE broken apart has got to be worth more than the current stock price,” says David Nelson, Chief Strategist at Belpointe Asset Management. “Being the CEO of a big, awesome machine like this has got to be a lot of fun, but maybe it’s time to end it...The truth is that there may be no one that can run GE in its present form.”
Nelson thinks that Immelt will hold on as CEO for longer than a year, but also thinks he’s already made the move that will hammer the final nail in his coffin. Like GE’s unfortunate push into mortgage lending at the height of the bubble in 2007, the company recently invested heavily in its energy business right as oil prices topped.
According to a report in The Wall Street Journal, Immelt has spent $14 billion on companies aiding oil and gas drillers. Oil and gas accounted for one-fourth of GE’s industrial revenue in 2014. Immelt has said publicly that he remains committed to the oil industry for the long term. “You’re seeing these oil companies, their customers are under pressure, and capital budgets are being cut. At some point in time, this is really going to start to hit the order book and this was supposed to be the growth engine for GE,” says Nelson.
Nelson thinks that there are aspects of GE that are very exciting, but those tend to go ignored by upper management. The industrial Internet, for example, could make a big impact in commercial aerospace. But right now, “I think Investors are bored. I’m bored. Every time I hear someone recommend the stock, I roll my eyes. Here we go again.”
Bored shareholders may be a symptom of a larger ailment affecting all S&P companies. In the Barclay’s note, Davis writes that, “GE is not alone. Peers have similarly tenured CEOs and the view among investors is that it's time to give the next [generation] a chance… New energy, new ideas, and a greater understanding of the importance of portfolio management and capital deployment. And the pace of technology change means opportunities and risks that the next gen will need to address. The industrial group had its last major CEO churn in 2001-2003. In our experience, it appears most CEO's struggle past year 10 (arguably year 7) to keep the same energy/drive that got them to the post.”
In 2000, the average tenure of an S&P 500 CEO was 10 years, compared to today’s 8-plus years. According to The Conference Board, the decrease in tenure can be attributed to an increasingly competitive global marketplace, increasing private-equity firms with employment opportunities for CEO-level talent and increased shareholder opportunity.
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