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JACK'S LOST LUSTER. Immelt's growing credibility also stems from his willingness to allow investors to more closely scrutinize GE's finances. "Communication is much more open, and people feel earnings quality is improving," says Stirton. "Reestablishing that trust level is a very important part of the story in this post-Enron, post-Tyco era."
In fact, much of Immelt's gains in stature have come as Welch's legacy has become tarnished. Increasingly, the Welch record of steady double-digit growth is looking less like a miracle of brilliant management and more like clever accounting that kept investors fat and happy in boom times. It hasn't helped Welch's image that post-GE he engaged in a tawdry extramarital affair that led to a messy divorce and revelations of an ultralavish retirement package that infuriated investors.
"In addition to the obvious challenges of a slowdown, Immelt has also had to deal with the aftermath of Jack Welch, most of which has to do with the whole corporate trust issue," says Peter Cohan, an investment strategist and GE shareholder. "He has had to clean up the accounting, make it easier to understand GE Capital, do some work on compensation and board structure issues. And he has done a good job with that."
MINI-PREMIUM. Still, the stock is far cry from its peak of $60 in August, 2000, not long before Welch announced his eventual retirement. The famed Welch premium contributed to GE's stock being priced at an average price-earnings ratio 60% above that of the S&P-stock index, figures Sonya Thadhani, a portfolio manager at Foster City (Calif.) investment firm Bailard, Biehl & Kaiser. By February this year, that premium looked more like an Immelt discount of about 25%.
Now, however, Immelt has earned back a premium -- only about 5% over the S&P 500, but a premium nonetheless. "It won't get back to 60%," says Thadhani, "but just crossing over into the premium territory is significant," she says.
In many ways, the days of CEOs being glorified as masters of the universe likely belong to a bygone era. "Investors have become pretty hard-nosed," says Stirton. "They no longer care about softer elements like personality premium and momentum that were popular in the late '90s. They just want to know how fast a company is growing, what its cash flow is, where the risks are, and that its accounting is clean."
HELP WANTED. Cohan believes GE's premium to the S&P always had more to do with its record of consistent double-digit earnings growth than it did with its former CEO per se. "Welch's charismatic personality encouraged myth-making. But if the earnings string had stopped, the myth wouldn't have held up," he says.
For Immelt to build on investors' respect, he'll have to figure out how to get giant GE to achieve reliable earnings growth year after year. Clearly, he'll need the economy to cooperate, says Cohan, who admits to being frustrated that the stock is so far off its all-time high. But he's not selling now -- and he's rooting for Immelt. "I'd like to see him make his mark and really get the stock price up."
It has taken awhile after the Welch era ended for Immelt's more subtle strengths to emerge. But to many observers, he's increasingly looking like a good choice to lead GE in the new era.
Stone is an associate editor of BusinessWeek Online and covers the markets as a Street Wise columnist and mutual funds in her Mutual Funds Maven column Edited by Douglas Harbrecht
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