Canadian Business last spoke with GE chairman and CEO Jeff Immelt in December 2007 — later determined to be the month the U.S. recession began. That crisis, and the worldwide downturn that has followed in its wake, has created what Immelt calls “the reset world,” where business realities are different and the rules of the game have changed, perhaps forever. Editor Joe Chidley caught up with Immelt recently at the International Economic Forum of the Americas in Montreal, where he talked about what the shift means for GE, the U.S., investors and the rest of the world — as well as what he thinks of Buy American.
Let’s talk about what you’ve called “the reset world,” its effects on the business environment and on GE in particular.
We’re in a cycle. We’ll get through the cycle, and then the world’s going to be different than it was in 2005 or 1995. Inside the company, I think about five themes. One, the world of financial services is going to be broadly restructured. There are going to be fewer players; there is going to be more regulation. Second, in the U.S., and even globally, the government has moved in next door, and they’re not leaving anytime soon. No. 3, you gotta invest in a down cycle, because there’s just no obvious tailwind coming through this cycle. No. 4, we think about a different map of the world: we’re long the resource-rich parts of the world — Middle East. Africa. Canada is going to be important. Australia. And, of course, China and India, for obvious reasons.
And then we think about brand-building from the standpoint of clean energy and affordable health care. These we think are two seismic themes, and we want to make sure GE’s positioned coming through the cycle.
You’re on the president’s advisory board. Is Obama getting it right?
Look, I’m a Republican, so President Obama got elected without my vote. But I think he wants to get different voices inside the administration. He’s a good listener. And he’s got a big agenda. There’s gonna be in some way, shape or form health-care reform and new tax policy. He’s passed a stimulus bill, he wants to do something in energy.
At the end of the day, there’s going to be more government. I can’t say philosophically I agree with it every step of the way, but I do think we’re in a period when business has to engage with government to get our voice heard. Because the status quo isn’t going to be tolerated by the population. People think something’s wrong. The role of business is to be a constructive voice, not to roll over. That’s how I view my role on his advisory board, and that’s what we wanna do inside GE.
Is there something wrong with the U.S.?
Let’s just sit and reflect. You’ve got unemployment close to 10%. You’ve got no real energy policy. You’ve got no real health-care policy. We’re running a big budget deficit. We’re running a big trade deficit. This isn’t what right should be.
I’m a global business guy, but I’m a true-blue red-blooded American. And it’s hard to say things are right. So there is a groundswell for change. Now should it be populism? Should it be libertarianism? In other words, what’s the philosophy? That has to be debated. Everyone would say the status quo is intolerable right now, but there are big debates on what’s the right path.
Is there growing anti-business sentiment?
Oh, sure. Look, it’s not just in financial services. I think the man on the street would say this recession was created by “business,” because we all get cast under the same banner. Other things are just symptoms — all the discussion on compensation, all the protectionism. You know, protectionism is not a philosophy. Who would philosophically say, We can’t compete, so protect us? It’s a cry for help. It’s an anger. You see it in a thousand different ways.
How is the way you manage going to change? Is a new skill set needed for the reset world?
We’ve always had our own schools. We spend a billion dollars [a year] on education. We have a team of people looking at what I call 21st-century leadership. We brought in 25 people from outside the company, married them with 10 people inside the company, to reflect on, Does this cycle change what a good leader does, what the skill set of managers has to be?
Even before the crisis, employees were increasingly purpose-driven. They want to work on clean energy, they want to work on globalization, they want to work on affordable health care. Good people get motivated by things like that. People always want voice. And they want to feel like they count from the factory floor all the way up. On compensation, we’ll see. We’ve always believed high performers get good pay — we want to retain people. But I would say more broadly, you know, we’ve got to make sure — every company has to make sure — that the metrics are aligned in the right way with compensation.
It’s no time to be soft. We want to make sure we’re high-performance but also reflective of the capabilities we think we need in the future. Look, the first 20 years of my career I was maybe in Washington three times, right? We didn’t think about government relations or any of that stuff. There’s a whole new generation of people who have to understand public policy, not just in the U.S., but in Canada, France and China. That’s a whole new skill set for managers.
I think there should be more voices of business in this debate over what government should do or is doing.
Government can still fail. So we can’t be abadoned as just being worthless company guys. In the end, governments fail because they don’t create enough jobs. And creating jobs is what we’re good at. Government needs to recognize that, and on the business side I’d love to say, Go away, no more regulation, but it’s just not reality. We are going to have more regulation. It is going to encroach on the way we work.
How do you keep your team motivated toward a long-term goal like Ecomagination in the midst of crisis?
It’s always a challenge. In our case, as a player in financial services, we’ve had to get more cash, take out costs, protect the company — we’ve had to take a lot of actions that are very short-term oriented just to navigate these turbulent waters.
But to your point, one of the things we do that’s good as a company is we have a point of view. In other words, what I say to you about the next 10 years — that’s probably shared by the top 100 leaders, because we talk about it. So we say, We gotta be in more resource-rich places, we need more products, we’re accelerating products in the pipeline to invest in them sooner. And that’s shared by the senior leadership. We might be wrong by a little bit, but we’re not wrong by a lot.
So what you want to have, while you’re managing the crisis, is senior leaders who have a point of view.
Are you optimistic about the energy future and the carbon equation?
I am, really. But here’s what I don’t know. We’ve studied the science. Both myself and my team have convinced ourselves that global warming is a technical fact, and it’s created by man. The science about whether an 80% reduction by 2050 or targets like that, how big a difference it makes — that’s very hard. It’s very complex linear programming models. Really hard. If you ask, is that amount of reduction possible? I think it could be. And it will stimulate a ton of innovation. And therefore it’s worth going for.
Six months from now, if you really said, Holy shit, I’ve gotta hit this goal, then we would start having a meaningful discussion about nuclear power. I mean, right now we’re having these crazy, stupid — like, I talk about nuclear power, and I say it’s like going to the Super Bowl and the teams never leave the locker room. All the fans are in the stadium, all the referees are out on the field, the teams are dressed, they’re in the locker room — and they never leave.
I think what [tackling global warming] will force in energy is the renaissance of technology. The only thing I can really compare it to in my lifetime is sulphur dioxide, which was reduced by 90%–95% in the span of 10 years. Now this is bigger, broader, it’s got a lot ofother issues. But electric vehicles, nuclear power, renewable energy — these activities will never really take place without a price for carbon and a target for reduction. Ever.
Do you think the new U.S. energy bill is effective on those fronts?
It’s got all the elements. I’m always skeptical of legislation that’s 1,200 pages long. It’s really complicated. [But] there’s a fair amount of industrial collaboration in it. It’s well-intentioned, and we’ll see.
What’s the lesson from this crisis for dealing with the Street?
If you’re in financial services — and that was basically half our company before this started — you’ve got a completely different investor base coming through. In our world, quarterly guidance was something we should have gone away from a long time ago; we finally did it this year.
And investors are going to go through their own reset. You’ve got big mutual funds, big investment funds, that have had to reset their expectations. You’ve got sovereign wealth funds that are going to continue to invest in the U.S., public equities. You’ve got individual investors who’ve been frightened away from Wall Street.
It’s going to take a while to get trust in long-term investing back in vogue. We’ve had a nice run the last couple months, but the S&P 500 is lower than it was in 1998. We’re in a 10-year bear market. We have not had a robust equity market for a decade. Nobody likes where their stock is; I certainly don’t like where ours is.
You haven’t had trouble raising capital this year.
We’ve got US$50 billion in cash on the balance sheet. We probably have more cash on the balance sheet than at any time in our history.
What do you think of Buy American?
I think it’s terrible. It’s a sign of weakness. And that’s not the face America should want to project. The face we should want to project is, We can compete with anybody, anywhere, any time. Let’s get it done. That is a sign of strength.