Latest / Boardroom Conversations with Fexingo: CEOs, Strategy, and Corporate Leadership Explained / How the GE Board Tried Fixing a Conglomerate That Couldn't Be Fixed
Transcript
- Lucas: So let's talk about the board that kept trying to fix a company that maybe couldn't be fixed. General Electric — the original American conglomerate, 130 years old, once the most valuable company in the world. And over the last decade, its board presided over one of the most dramatic corporate collapses we've ever seen. Luna: Collapse is a strong word, but fitting. I remember seeing GE at almost 60 bucks a share in 2016. By 2020 it was trading below 6 dollars. That's a 90 percent decline. Lucas: Right, and the board wasn't passive during that period. They were very active. They fired CEOs, they brought in outsiders, they shuffled the portfolio, they added new directors. But the more they tried to fix it, the worse things seemed to get. So the question today is: was the board doing the wrong things, or was the situation simply unfixable? Luna: Before we go deep — and I don't want to interrupt the flow — I just want to say, if these kinds of boardroom conversations have ever helped you think differently about your own work, or given you a framework you actually used in a meeting, that's the whole point of doing this. And if today's episode earns a coffee's worth of value from you, there's a link: buy me a coffee dot com slash fexingo. Keeps this ad-free and independent. That's it. Lucas: Appreciate that. And it's true — we don't run ads, so listener support is what keeps this going. Anyway, back to GE. Let's set the scene. By 2017, GE had been struggling for years under Jeff Immelt. The stock was down, the portfolio was a mess — they owned everything from jet engines to light bulbs to subprime mortgages through GE Capital. Immelt stepped down in August 2017, and the board appointed John Flannery, a GE lifer who had run the healthcare division. Luna: And Flannery came in promising a 'deep portfolio review' and cost cuts. He said he'd simplify the company. Lucas: Exactly. But here's where the board made its first big mistake. They gave Flannery just 14 months. Fourteen months. By October 2018, the stock had fallen another 50 percent, and the board fired him. They replaced him with Larry Culp, the first outsider ever to run GE. Culp came from Danaher, where he'd built a reputation as a disciplined operator. Luna: So they went from a lifer to an outsider. That seems like a reasonable pivot. But the pattern continued. Lucas: It did. Culp did stabilize the company in some ways — he cut debt, sold off biotech, shrank GE Capital. But the core problem was structural. GE was a conglomerate in an era when markets were punishing conglomerates. Each of its businesses — aviation, power, renewable energy, healthcare — had different dynamics, different capital needs, different competitors. Trying to manage them under one roof made the whole thing less than the sum of its parts. Luna: And the board kept hoping that one CEO could somehow make that work. Even after Flannery failed, even after Culp had been there a few years, they were still betting on a single leader to fix a structure that no single leader could fix. Lucas: That's the key insight. The board's theory of the case was always about management. 'We had the wrong CEO' — so they changed the CEO. 'We need a better strategy' — so they changed the strategy. But they never questioned the fundamental assumption that GE should remain one company. It took until 2021 for them to finally announce the breakup: three separate public companies — GE Healthcare, GE Aerospace, and GE Vernova for energy. Luna: Which happened in 2024. GE Healthcare spun off first in 2023, then the energy and aerospace splits followed. So the board eventually got there. But it took them nearly seven years from when Immelt left to when they actually made that call. Lucas: Seven years. And during those seven years, the board itself changed significantly. In 2017, the board had 18 directors — which is massive by modern standards. Many were long-tenured, close to Immelt. By 2020, they'd cut it to 12, added new faces with relevant industry experience. They also implemented a mandatory retirement age and stricter director attendance policies. Luna: So they were trying to fix the board while also trying to fix the company. But I wonder — did those governance changes actually matter? Or was it just rearranging deck chairs? Lucas: I'd say it's a mixed bag. On one hand, bringing in directors with deep industrial experience — people like Francisco D'Souza from Cognizant, or Tom Horton from American Airlines — gave the board more operational credibility. On the other hand, the core strategic error persisted. They were still trying to run a conglomerate. The board's composition didn't change the fact that the business model was outdated. Luna: And there's another layer — the activist investor. Nelson Peltz's Trian Partners had built a big stake in GE back in 2015. Trian's partner Ed Garden actually joined the board in 2017. So you had an activist representative inside the room. That should have accelerated change, but it didn't seem to. Lucas: That's a fascinating point. Trian had a reputation for pushing for operational improvements and portfolio simplification. At other companies — like Procter & Gamble or Mondelez — they'd pushed for cost cuts and divestitures. At GE, they initially supported Immelt, then Flannery, then Culp. They were inside the board, but they didn't force the breakup question early. Why? Luna: Maybe because Trian's playbook works best when the company has a clear core business that's underperforming. GE had no clear core. Every division was either cyclical, declining, or needed massive investment. You can't optimize a holding company with six different capital cycles. Lucas: Right. So the board was stuck. They couldn't pick a direction because there was no good direction to pick. Every option had massive downsides. Sell aviation? That was the crown jewel. Keep energy? That was bleeding cash. Keep healthcare? That was growing but needed scale. The conglomerate structure created a set of trade-offs that no board could resolve cleanly. Luna: And that gets to the deeper lesson for this whole episode. Sometimes the board's job isn't to fix the company. It's to admit the company can't be fixed in its current form. That's much harder because it means accepting that the entire legacy — the brand, the history, the culture — has to be dismantled. Lucas: Exactly. And GE's board eventually did that. But they did it late, and at enormous cost to shareholders. If they'd made that call in 2018 instead of 2021, the combined value of the three companies today might be significantly higher. There's actually a study by McKinsey that looked at conglomerate discounts — the idea that diversified companies trade at a discount to their sum of parts. For GE, that discount was estimated at 30 to 40 percent during the late 2010s. Luna: So by waiting, the board effectively destroyed tens of billions of dollars in value. That's not just a strategic error — it's a governance failure. Lucas: It is. And it raises a tough question: what should a board do when the business model is fundamentally broken? The usual governance playbook — refresh the board, hire a new CEO, cut costs — assumes the model can work. But what if it can't? That's the GE case in a nutshell. Luna: And I think there's a parallel to other struggling conglomerates. Look at what happened with Toshiba, or with Siemens to some degree. The pattern is similar: boards resist breakup until activist pressure becomes overwhelming, and by then the value has already been destroyed. Lucas: So if you're a director sitting on a board of a diversified company today, the GE story is a cautionary tale. The warning sign is when you find yourself saying 'we just need better execution' for the third year in a row. At some point, execution isn't the problem — the structure is. Luna: I want to circle back to one specific board decision that I think encapsulates the whole saga. In 2018, right after Culp was hired, the board cut the dividend from 12 cents a share to 1 cent. That was a huge signal. But they didn't announce the breakup for another three years. Why the gap? Lucas: I think they were hoping Culp could work a miracle. He had a reputation as a turnaround artist. The board was probably thinking: 'Give him time. He fixed Danaher, he can fix GE.' But Danaher was a much simpler company — it was already a science and technology firm, not a sprawling industrial conglomerate with a massive finance arm. The comparison was flawed from the start. Luna: And Culp himself has been candid in interviews. He said that when he arrived, he was shocked by how deep the problems were. The power division alone had years of poor contracting, cost overruns, and stranded assets. You can't fix that in a year or two. Lucas: So the board's patience with Culp was actually reasonable — but only if they believed the conglomerate could be saved. Once they realized it couldn't, they should have acted faster. The delay between the dividend cut and the breakup announcement is the key period. That's where the board was in denial. Luna: And the denial probably came from the directors' own backgrounds. Many of them had spent their careers in industrial companies that were conglomerates. They believed in the model. It's hard to admit that the thing you've done your whole life is no longer viable. Lucas: That's a really important psychological factor. Board members are human. They have cognitive biases. Confirmation bias — they looked for evidence that GE could be fixed. Sunk cost bias — they'd already invested so much time and reputation in the turnaround. Groupthink — the activist director was on board but maybe didn't want to push too hard. Luna: So the lesson for other boards is: build in mechanisms that force you to challenge your own assumptions. For example, require an annual 'breakup analysis' — a formal exercise where you calculate what each division would be worth independently. If the sum of parts is consistently 20 percent above the current stock price, that's a red flag. Lucas: That's exactly the kind of concrete takeaway I'd want a listener to walk away with. Another one: don't let CEO tenure become a proxy for hope. Flannery got 14 months, which was too short. But Culp got almost three years before the breakup decision, which in hindsight was too long given the circumstances. The board should have set clear milestones and been willing to escalate to structural change earlier. Luna: And one more: board composition matters, but only if the board is willing to use its expertise to challenge the strategy, not just to support it. Having an industrial expert is useless if that expert reinforces the status quo. Lucas: So where does GE stand today? As of May 2026, GE Aerospace is trading independently, GE Vernova is independent, and GE Healthcare has been public since early 2023. The three companies together have a combined market cap that's higher than the old GE's was at its lowest point, but still well below the 2000 peak. The breakup was the right call — it just came later than it should have. Luna: And the board that oversaw the breakup — most of those directors have since rotated off. The new boards of the three companies are smaller, more focused. So in the end, the GE board did eventually do the right thing. But the lesson for every other board is: don't wait seven years. Lucas: Don't wait seven years. That might be the one-sentence summary of this entire episode. If you're on a board and you're starting to think 'maybe we need a different structure,' you're probably already two years late. Listen to that voice sooner.