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When General Electric (NYSE: GE) CEO Jeffrey Immelt delivered his annual investor outlook yesterday, there was something notably absent: quarterly earnings guidance.GE, which has long prided itself on its ability to deliver consistent growth, elected not to give anything in the way of earnings per share forecasts. Corporate governance observers like Warren Buffett would be proud: The relentless focus on "the number" can drive companies to engage in short termism at the expense of the company's long-term future. At the extreme, narrowly defined earnings guidance can be a catalyst for earnings management and outright fraud.
So, normally, I would be applauding this move that flies in the face of what Wall Street wants, but in this case I'm skeptical because of the timing: General Electric missed or revised its guidance twice (so far) this year, and it's hard to believe that that has nothing to do with this move.
If this is a long-term move, I applaud it. But if it's a cynical effort to go into hiding while the company's operations are at a low point -- which is exactly what it appears to be -- then it doesn't bode well for the company's 2009 results.
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Reader Comments (Page 1 of 1)
12-17-2008 @ 10:29AM
Sheldon L said...
Maybe the economy is in such a state that they just don't have a clear vision anymore -- or if one were to look on the positive side, as you point out, perhaps new shareholder Buffett is already having an influence.
12-17-2008 @ 4:26PM
Bill Rothschild said...
BACK TO REALITY--Creating realistic expectations
In my book, THE SECRET TO GE's SUCCESS, I challenged Immelt's assertion that he could grow GE at an 8% compounded growth rate, which translated into added $14 billion plus revenues per year. This challenge was based on my extensive experience, study and evaluations of major companies and especially GE.
This is what I wrote (page 250) : " He (Immelt) is clearly convinced and has the missionary zeal to make it happen. However, based on my experience and study. I am not convinced that he can do it and am concerned that he has created an unrealistic expectation. It is possible that in the long term he will have doubled the revenues every nine years, but it is really impossible to add $14 billion plus revenues year after year?
What happens if he doesn't make it, even for one year? Will this have a negative impact on the stock price and put his reputation in jeopardy?
I think it will!"
Unfortunately, I was right... it is impossible for any organization to growth continually. There are always down cycles and the strong organizations are willing to adapt to these changes, set more realistic expectations and move ahead. I hope that Immelt and his team are re instituting the "strategic thinking and decision making disciplines that enabled Borch and Jones to admit their mistakes and refocus the company's portfolio.
Recent actions and words appear to indicate that this type of strategic thinking and decision making is being used, but only time will tell.
If you want to learn why GE was successful in the past and should be in the future, please read my book THE SECRET TO GE's SUCCESS . It provides an objective, comprehensive and insightful view of the companies successes and failures..and what you can " take away " from this remarkable company.