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August 7, 2020

Q&A: Authors of new book dish on GE's downfall

HBJ File Photo General Electric's former Fairfield headquarters.

In 2016, manufacturing giant General Electric's decision to move its Fairfield headquarters to Boston symbolized in some quarters a major consequence for perceived hostility former Gov. Dannel Malloy's administration harbored toward the business community. 

Four years later GE, once the world's largest company, is in freefall. The company's stock price and market cap have shrunk significantly, leading the Dow Jones Industrial Average to boot GE from its ranks in June.

In their recently released book, Lights Out: Pride, Delusion, and the Fall of General Electric, Wall Street Journal reporters Thomas Gryta and Tedd Mann document the downfall of the former Connecticut conglomerate. In a Q&A with the Hartford Business Journal, the authors said mismanagement of the company has marginalized it to a point from which it may never recover.

What aspects of GE's downturn can be a cautionary tale for other companies?

There are many different opinions about this but ultimately there was a failure of governance and a series of bad acquisitions that didn’t work out as planned. No company has a crystal ball and GE’s bets went badly wrong at the worst possible time. 

What about GE should manufacturers emulate, and which of GE's mistakes should they avoid?

For decades GE was known for its focus on operations and dependability. It was the benchmark by which other manufacturers measured themselves. While GE’s recent decline will likely take years to turnaround, that doesn’t lessen the value of their past successes. Remember this is about a failure of management and not of the workers who are still cranking out jet engines, CT scanners and power turbines. 

A portion of the book describes a Pratt & Whitney party former Gov. Dannel Malloy attended as being the "last straw" in GE's decision to move to Massachusetts. How large of a role would you say this kind of pettiness had in the company's downturn during this time period?

The celebration was actually a rally more than a party. (There’s a reference to the event in this story about the end of the second engine fight, by way of background.) As it happens, one of us was working on a year-long project about Dan Malloy in 2011, and so we knew about the decision to attend the rally at Pratt, and the fact that it had quickly become apparent that GE was not amused. GE executives harbored a surprising amount of resentment about the second engine fight. Had the dispute over a second engine gone the other way, the Massachusetts delegation would have been fighting to fend off Pratt on behalf of the workforce at GE’s engine plant in Lynn. And if they’d won, GE surely would have celebrated its own victory. Still, watching Pratt and the Connecticut delegation spike the ball made a lot of them very angry.

Ultimately, though, the bitterness over the engine fight probably affected the tone of GE’s exit more than anything else. The company didn’t want to be in a mid-century suburban corporate campus anymore. They were trying to recruit and retool, and their peers among major American companies were increasingly relocating into urban centers, reversing the flight of the 1970s. The CFO himself compared Fairfield to a “morgue.” So one lesson of the relocation is that the debate in many ways was upside down. It shouldn’t have been a question of how Connecticut might have kept GE in a corporate campus they no longer wanted, reflecting the values of a previous age. Instead, the question was (and still is) what states like Connecticut should do to cultivate and rethink the cities that workers and companies increasingly want to live in. The meaningful debate won’t be about what’s good for GE, but what’s good for Bridgeport, Stamford, Hartford, New Haven. Get that right, and the companies will come (or stay).

What does GE's story tell us about U.S. manufacturing as a whole? Is this a story unique to GE and its cast of characters, or are others on a similar trajectory?

GE was considered one of this country’s most important companies for 130 years and we may never see such a successful run again. That alone makes the GE story unique and hard to emulate. Companies stumble all the time for various reasons both internal and external and that certainly won’t end. 

When reporting this book, how much schadenfreude did you encounter among people in Connecticut who had been upset GE left the state?

We didn’t hear schadenfreude, exactly. But it is true that there were people in Connecticut, including lawmakers and veterans of the Malloy administration, who felt it ironic that GE had painted the state as unable to manage its finances, only to then completely mismanage vital parts of its core business. In particular, one of us got a phone call while walking into a Metro station in Washington, D.C. in January 2018, right after GE had said it was taking a $6.2 billion charge and setting aside $15 billion to shore up its long-term care insurance assets. On the other end of the line was a former Connecticut state official who pointed out that huge insurance liability, and noted that the state’s pension plans, for all the concern about state budgeting, were a lot better funded than GE’s bad bet on insurance had turned out to be. It wasn’t entirely gleeful. It was obvious to this person, and to all of us, that the carnage was going to cost thousands of people their jobs and vaporize years worth of investment by mom and pop stockholders. But for those who had resented the company’s campaign against Connecticut’s leadership during the period of their relocation, there was a certain poetic justice.

Can GE ever return to its former position as the world's most valuable company?

Never say never but it seems unlikely that an industrial manufacturer will hold that title in the near future. The biggest companies these days are related to the technologies that are changing our lives in the way that GE did decades ago. Another factor is the decline of conglomerates like GE. In theory, such companies can use their diversified operations to offset each other in downturns but that hasn’t always worked out. Investors reward companies that focus on success in a single or similar industries while conglomerates can be seen as too complicated to value or distill. GE isn’t going away but it will likely be smaller than the behemoth of two decades ago. 

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