Billionaire Ken Langone, one of the co-founders of Home Depot (HD) and a former General Electric (GE) board member, said bad decisions from the top led to GE’s fall from grace as one of the great American conglomerates.
“I think a bunch of people, including me, made a bad decision … giving Jeff Immelt the [CEO] job,” Langone told Yahoo Finance’s Jen Rogers. “I was on the committee. I was on the management development and compensation committee, where we approved [then-GE CEO Jack Welch’s] suggestion. We approved it enthusiastically. We made a bad mistake.”
Jack Welch was GE’s chairman and CEO from 1981 to 2001. Immelt succeeded Welch, following Welch’s retirement, steering the company through the Sept. 11 attacks and the financial crisis. Langone, who is worth about $3.5 billion, served on GE’s board from 1999 to 2005.
Langone added that issues at GE were caused by a lack of leadership that “manifested itself in horrible capital allocation, destruction of a culture that was unique in every respect.”
The unraveling of an empire
GE reported a beat on second-quarter earnings expectations last Friday, but the company has been struggling for years.
Its sprawling business became too costly to maintain, leading new CEO John Flannery to consolidate and sell off parts of the company.
Aswath Damodaran, a finance professor at New York University, attributed the company’s rapid decline to poor leadership on Immelt’s part after years of acquisitions under Welch weighed down the company.
“I blame Immelt — he sold false hope to investors, that he will turn GE around and make it the company it was when it was younger,” Damodaran said in an interview with Yahoo Finance recently.
In June, GE was removed as a component from the Dow Jones Industrial Average after more than a 100 years on the index.
‘Bunch of bureaucrats’
Langone said that Kmart suffered a similar fate due to poor leadership.
“You had a bunch of bureaucrats running Kmart … these guys lived in a lofty tower someplace, and they couldn’t be bothered by what the people who walk in off the street to buy goods wanted.”
In January, Kmart’s parent company Sears Holding (SHLD) announced that it was closing 64 unprofitable Kmart stores. More store closings have followed since, amid an extremely competitive retail environment led by the emergence of Amazon.
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