Bringing good things to GE: Now it's Jeff Immelt's turn (page 1 of 3)

As if it weren't enough to be following GE's legendary chief executive Jack Welch, Immelt knew the country was slipping into recession, the first in a decade, when he took over the executive suite on September 7.

Just four days later came the terrorist attack which wreaked havoc on many of GE's customers, particularly in the airline industry. Immelt was forced to revise earnings projections down, a humbling experience at GE where investors pay a premium for predictable results.

Then came Enron. And even GE was lumped into the mounting cynicism about corporate America despite its stature as Fortune's most-admired company. "So you see it just goes to show you can never plan anything in life," Immelt joked at the start of a wide-ranging discussion about GE, the current business climate and corporate leadership during an informal session last month in Philadelphia with Wharton MBA students.

Immelt, 46, joined GE in 1982 and began his climb in marketing and sales jobs. He ran the company's U.S. plastics business and was CEO of GE Medical Systems, the company's $7 billion medical technology division, when he was tapped for the top job.

Now he oversees a company with $125 billion in sales, a stock market valuation approaching $400 billion and 300,000 workers selling everything from adhesives to dishwashers to industrial turbines to insurance.

Immelt characterized the business world, post-Enron, as a "carnival," noting that while the focus is on accounting practices, the real trouble at Enron and other companies is a combination of flawed business models and a corrupt corporate culture. "Accounting is about 10% of the problem," he said. "The business models and the evil culture are the bulk of the problem."

Immelt said he was annoyed when GE's financial reporting was questioned in the Fortune article accompanying the listings that proclaimed it the most admired company in the United States and the world. The article focuses largely on whether GE delivers its steady, 10% to 15% earnings growth by "managing" earnings so that losses in one or several parts of the company are balanced
out against gains elsewhere.

While these are not exactly Enron-sized allegations, they are upsetting nonetheless to Immelt who said the company practices "conservative" accounting and prides itself on financial discipline enforced by a 500-member internal audit staff. GE, he added, can withstand any scrutiny and welcomes tougher accounting standards. "We're all going to have to find ways to live in a world that has more transparency and disclosure."

His comments come at a time when investors fear that corporate America as a whole may be overstating profits through the use of questionable and confusing accounting methods. No doubt in response to that concern, GE's 93-page annual report this year contained 30% more information than last year. Included were more details on "special purpose entities" which had assets of $56.41 billion, up from $41.20 billion in the prior year.

Immelt acknowledged that there is always pressure between delivering short-term results and preserving long-term growth. But that's no reason to fudge: "Companies learn ways to do both. Every day I make trade-offs."

GE's ability to deliver steady earnings growth even as a mature, 124-year-old company lies in a mix of characteristics, said Immelt.