GE's Immelt Overcoming Welch's Legacy

He lasted three seasons.

By the time Jack Welch retired as GE's CEO in 2001 the company had maximized all it reasonably could from the stock price, trading at a price-to-earnings ratio of 34, and cash producing businesses that had been ridden hard into Welch's retirement party sunset.

Immelt knew in succeeding Welch he was potentially to GE what Bengston was to the Green Bay Packers, but he planned to get a different result. Immelt, knew, however, the process of winning would take time. He inherited, after all, a company and a stock that had peaked in most every way.

GE had some strategies established under Welch that were still working, like leverage in the companies financial arm which helped pump up earnings to surprise and delight investors.

Immelt knew that had to change, but he also knew it could not happen overnight, or even in the course of one year. The stock was having enough trouble keeping up with its lofting price-to-earnings ratio amid the end of a high-flying stock market and 9/11 repercussions that struck the company days after Immelt took over.

Immelt Inherited Peak Cycle Performance

Some of GE's once-stalwart cash producing business, like its plastics division, had "tired legs" at the finish line, Immelt said, and the conglomerate's mix needed to be changed first. So he went about a massive, long-term plan of reshaping GE the same way Welch had done when he had taken over two decades before.

But Welch had taken over when the company was in the bottom of an economic cycle. He took over GE in a recession, not the height of a bubble. Immelt got the job right after the end of the high-flying 1990s, a era which crowned CEOs with mythical, God-like crowns, and Welch was bestowed the biggest of them all.

Despite the challenges, Immelt was managing to get the plan done in many respects, one year at a time. The company's stock price was right-sizing according to the market's more measured gauge. But probably nobody could have avoided that, considering the lofty levels GE traded it upon Welch's retirement. -- not even Welch himself.