Before, we embark discussing the first P – People, I will give you a quick snapshot of the three other “Ps” we use in our analysis: Product, Potential and Profitability.
For example, the global equities portfolio is invested in high-quality companies such as Lowes, which all else being equal, they should underperform the market leader Home Depot. But what happened to Home Depot?
We should ask the same question about companies such as General Electric, Intel, and IBM. All three companies have long pedigrees and bastions of corporate US.
However, in this article I will focus on General Electric story and what happened at Home Depot will become clearer when we place Robert Nardelli under the spotlight.
When David Cote arrived at Honeywell, the company was struggling. Revenue was down in FY02, and the company incurred a loss. At the time David departed (about fifteen years later), the Compound annual growth rate (CAGR) in revenue was 4% and the company achieved an Earnings before interest and taxes (EBIT) margin of 18% in FY18.
He served as chairman and CEO of Honeywell from July 2002 to March 2017. He was executive chairman of the board at Honeywell until April 23, 2018. During his tenure at Honeywell, the CAGR in the stock price was 13%, compared to 7% for the S&P 500. Today Dave is the executive chairman of Vertiv. A loss to GE, one can rightly argues and a major coup for Honeywell.
Boeing a U$55bn company (revenue), in 2005 with a net profit of U$2.6bn and the stock price at around the U$60 to U$65 mark. Jim was the first CEO appointed at Boeing without any Aviation background. During his tenure, the decision was made to upgrade the 737 series to 737 MAX instead of developing a new model.
The challenges facing Boeing with the Dreamliner also occurred under the leadership of Jim McNermey – as described by an anonymous former Boeing executive: “The sense I always got from him in meetings is that it could have been any business…If we’d been making cameras or autos or doing bond trading, it would have all been the same to him. The net effect is distancing from the people who come to work there every day, who bring their hearts and souls to it and want to make it more than a job.”
The rest is history, so to speak. A headline in the Forbes magazine stated “Boeing Will Pay High Price For McNerney’s Mistake Of Treating Aviation Like It Was Any Other Industry”. Whether Jim resigned or was pushed, is irrelevant – by the time Dennis Muilenburg joined Boeing as CEO, the damage was already inflicted on Boeing.
I find it amazing the chairman of Boeing during the tenure of Dennis Muilenberg and now CEO, David Calhoun, is also a General Electric alumnus. He worked at General Electric for 26 years and vice chairman and member of the board in 2005. David was a non-executive director of Boeing from 2009 onwards.
And the winner is… Jeff Immelt
According to the New York Times, “On Mr. Immelt’s watch, G.E. stock plunged some 30 percent, wiping out more than $150 billion in market value and obliterating the savings of thousands of G.E. retirees. Since Mr. Immelt was pushed out in 2017, it has only gotten worse. G.E. was dropped from the Dow Jones industrial average, its stock has continued to slide, and it recently paid $200 million to settle with the Securities and Exchange Commission for misleading investors. Once a paragon of modern management excellence, G.E. became a punchline.”
The key take aways as a investors are:
- Investing in a company with corporate leadership, in which the original founder / s has long departed and not having “skin in the game”, requires a thorough analysis of the C-band executive leadership.
- Boards have an obligation to shareholders to ensure that companies are led well, and the sooner they can spot problems with leaders’ performance, the better.
- High-performing CEOs do not necessarily stand out for making great decisions all the time; rather, they stand out for being more decisive.
- Mundane as it may sound, the ability to reliably produce results is possibly the most powerful of a CEO’s behaviours – the stock market does not sit well with spikes either up or down when it comes to profitability & growth.
Oracle Investment Management
The next step is to contact an experienced financial advisor who will tailor an investment plan to cater to your individual need and investment goals. Book your complimentary consultation today!