In Depth July 17, 2008, 5:00PM EST

GE's Immelt: an Ever-Hotter Throne

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Andreas Solaro/AFP/Getty Images

The GE chief has made a distinct imprint as a manager, leaving executives in the same position longer than the traditional one or two years so they can develop deeper industry expertise while demanding that each business become more customer-focused, as well as more innovative.

But Immelt hasn't always helped himself. Investors say he has overpaid for some acquisitions, pointing to GE's investments in water, security, and some media properties, such as iVillage. "They have this mindset that the GE way is so superior that they'll make it work," says Wendell L. Perkins, chief investment officer for Optique Capital Management. "And typically, they have. But in this more challenged global economy, that may be more difficult to do."

Another costly miscue for Immelt was WMC Mortgage, the subprime mortgage company he bought in 2004. Morgan Stanley's Davis calls the move "abysmal." As the subprime market imploded, GE lost $1 billion on WMC, ultimately selling it in late 2007. The company may not have a perfect batting average on acquisitions, admits Keith I. Sherin, GE's chief financial officer, but "we've got a pretty good track record."

While Immelt's marketing instincts have given GE a more external focus, they've also led him to make promises that were hard to deliver. Just weeks before the first-quarter miss, he held an online town hall for retail investors in which he confirmed GE's 2008 outlook, saying "in this environment that's going to look pretty gosh-darn good." With the carnage in the banking sector well under way, other GE execs weren't so sure. Although the earnings report largely blamed the miss on the Bear Stearns (BSC) debacle, other units underperformed. Credit Suisse's (CS) Nicole Parent wrote that "it is shocking to us how weak results were across the portfolio."

Even with the solid second-quarter results—revenues were up 11% and earnings met estimates—the environment has hardly improved. The sale of GE's private-label credit-card business is going slower than expected in the wake of worries about consumer spending. Efforts to shed the appliances unit are in flux. With private equity firms snapping up every name brand they could a few years ago, some wonder why Immelt waited so long. "Why do you pick the worst housing market in the last 50 years to try to sell this thing? It should have been done three years ago," says Hardesty. Sherin says the sale of other large businesses took priority and notes that concern for the GE brand made them take their time. "When it's in every household...you want to make sure if you make a change like that you really are comfortable doing it."

Immelt remains optimistic. He points to the strong currencies of potential foreign buyers, as well as his past successes. "It was a tough environment to sell Plastics," he says. "It was a tough environment to sell reinsurance." Even so, he wishes he had moved to sell the insurance business sooner, calling it a "financial drain on the company."

Even with the disposal of insurance, the reality is that GE remains a company that's far more exposed to financial services than many investors would like. Back in 2001, when GE Capital made up 40% of the company's net income, Sherin said he wouldn't want that ratio to go above 45%, at least for a few years. Now those businesses are roughly half the net. Immelt says asset disposals and the boom in infrastructure should bring the ratio back to about 60% industrial and 40% financial by 2010.

But the tougher earnings environment has also prompted fresh debate on whether Immelt should break up the conglomerate. The perennial issue isn't just trying to get double-digit growth from such a mammoth enterprise. It's also the fact that GE's scale makes it harder to maneuver. "The company is so big, it's tough to put properties this size on the market," says Mike McGarr, a portfolio manager with Becker Capital Management.

A number of investors also think GE remains far too complex.

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