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"GE profit shortfall underscores credit crisis" Hey Jeff Immelt! Get control of your own insane clown posse!

Written By mista sense on Saturday, April 12, 2008 | 11:22 AM

That's the headline atop Patrice Hill's sage and knowing piece in The Washington Times today.

But the headline could just as easily have been, "GE profit shortfall shows that conglomerate has its fingers in too many pies." As Hill observes in her story:

Some analysts said the pothole GE hit was caused not only by credit difficulties but the conglomerate's far-flung businesses on nearly every continent, spanning such industries as entertainment, health care, consumer goods and industrial manufacturing.

"That diversity looks rather like a recipe for mediocrity as declining financial earnings offset infrastructure successes," said Rob Cox, analyst at Breakingviews.com.

"Immelt's ability to maintain GE's model is compromised," he said.

Note the key words--"far-flung businesses...spanning such industries as entertainment, health care..."

And that's been The Cable Gamer's point for some time now: mergers and acquisitions--including GE's purchase of NBC in 1985 and NBC's merger with Universal in 2003-- decrease shareholder value.

Repeat: decrease shareholder value. This empirical fact has been documented and demonstrated for some time, although egomaniacal CEO's keep ignoring the lesson, as they pursue glory and glitz in less-green pastures. (And yes, I am specifically thinking of you, Bob Wright--you will be remembered as the man who talked Jack Welch into the NBC deal, and Jeff Immelt into the Uni deal, all because... well we know why, right, Bob?

The practical problems of preserving shareholder value while managing a conglomerate are obvious: the CEO can't be a jack of all sectors. It's hard enough to be good at managing one sector, let alone five or ten.

What are the chances, for example, that Immelt has any idea what Keith Olbermann, for example, is saying on MSNBC, a third-rate network, many rungs down the corporate ladder? The Cable Gamer will give Immelt the benefit of the doubt on this topic, figuring that Immelt is too busy working on GE profit centers to know that Olbermann is routinely defaming George W. Bush and Republicans and conservatives--which is to say, roughly half the country--on his show. So Immelt probably doesn't know, for example, that Olbermann said on Thursday night that Bush delivered "a flaming sack of speech" earlier that day. (Get it? That KO is so clever!)

But the point is, Jeff, people are paying attention, and they are increasingly holding top corporate leadership accountable for the misbehavior of subordinates. Remember, back in 1997, when Michael Eisner at Disney was held accountable for the lunatic ravings of the hip-hop band "Insane Clown Posse"? As well he should have. If Eisner and Disney want to keep their good name, they had to yank the ICP album from the stores--eating the cost of 100,000 recalled CDs of something called "The Great Milenko." Which Disney did. Disney's Hollywood Records subsidiary dropped "ICP" soon thereafter.

That's a lesson for conglomerates--the kneebone isn't just connected to the thighbone; it's more accurate to say that the footbone is connected to the headbone. The CEO can't hide when an underling does something boneheaded; instead, the CEO has to take responsibility, and be held accountable.

And that's the story of Immelt and Olbermann. It will eventually dawn on Immelt that Olbermann isn't a footbone, he is making more like a tailbone. And more to the point, wherever Olbermann is in the anatomy of GE, he and his mean-spirited lefty hit men are costing shareholders real money.

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