In the corporate world, history’s tendency to repeat itself is unmistakable, yet it often reappears under a new guise, particularly in the cyclical downfalls of companies that fail to heed its timeless warnings. As a Boeing
BA
shareholder, which I am not, it’s crucial to stay informed about current developments and understand the potential future implications for your investment by examining history.
The History Of General Electric
Ambitious expansions, particularly within GE Capital, during Jeffrey Immelt’s time as CEO of GE exposed the business to the 2008 financial crisis, which had a significant negative impact on its profitability. His strategy included major acquisitions, like Alstom’s power business, and divestitures aimed at focusing GE on digital industrial innovation. However, these moves often failed to generate expected returns and led to substantial debt accumulation. The combination of strategic missteps, a significant downturn in GE’s core financial services during the crisis, and leadership controversies contributed to a sharp decline in stock value and eroded shareholder confidence, ultimately overshadowing Immelt’s vision for transforming GE into a digital industrial leader. GE received a $139 billion FDIC loan guarantee through the Temporary Liquidity Guarantee Program due to liquidity shortages. The transfer was announced in October 2008.
I was concerned about the General Electric loan as an investor because it highlighted how global financial crises can damage huge corporations. Due to its heavy investment in industrial real estate and subprime mortgages, GE Capital was weak during the 2008 financial crisis. The issue demonstrated that GE’s financial services strategy had mistakenly linked its future to the financial market crisis.
In order to restore GE Capital’s balance and win back the trust of investors and clients, the government-backed safety measure was crucial. GE also made $15 billion in October 2008 by selling stocks. Warren Buffett’s Berkshire Hathaway
BRK.B
added $3 billion to this total. The latter transformation under Larry Culp has been nothing short of incredible, but there is no question that GE was saved rather than recovered. By then, billions of dollars of shareholder value had been destroyed.
The government stepped in primarily because of the systemic risk its failure would have posed to the broader economy. GE Capital, GE’s financial arm, was deeply intertwined with the financial system, providing commercial lending, leasing, and other financial services critical to many sectors of the economy.
Similarities With Boeing
Examining the paths taken by industry titans like General Electric (GE) under Jeffrey Immelt and Boeing’s current struggles reveals important insights about the necessity of strong leadership, efficient crisis management, and strategic flexibility in times of uncertainty.
Though they intended to solidify their market leadership, GE and Boeing’s aggressive growth strategies—Boeing’s development of the 737 MAX and GE’s entry into the financial services industry—exposed them to considerable dangers. Despite their audacity, these calculated actions set the stage for upcoming crises that would put their operational resilience and decision-making techniques to the test.
The 737 MAX tragedies and the 2008 financial crisis serve as extremely sad reminders of the difficulties businesses have when handling crises. These events served as a stark reminder of the importance of being ready, making decisions as a manager quickly and openly, and being flexible enough to adjust to changing conditions. The way in which the leadership of GE and Boeing handled these crises drew criticism, underscoring the significance of governance and its capacity to sustain stakeholder confidence under trying circumstances.
The impact on GE and Boeing’s stock prices and market views was significant in terms of financial consequences. To restore financial stability and win back investor trust, recovery efforts required extensive restructuring, with an emphasis on core business functions and debt management.
These accounts from GE and Boeing highlight the significance of strategic vision, crisis management skills, and leadership responsibility while illuminating the fine balance needed in managing large, diverse businesses. These stories provide insightful information on how to maintain long-term corporate health and shareholder value for both investors and corporate executives. They also show how important it is to navigate the difficult world of international business with flexibility and moral leadership.
What’s Wrong With The Culture At Boeing?
A seasoned investor studying Boeing’s cultural difficulties may see that the business has been through rough times, primarily because of safety lapses and transparency problems brought to light by the 737 MAX disaster. The company culture has been criticized for appearing to put efficiency and cost-cutting ahead of thoroughness and safety, which has raised serious questions about internal responsibility and management procedures. Additionally, Boeing’s handling of whistleblowers and its attitude toward regulatory influence point to the need for a more transparent and safety-focused corporate culture. These elements underscore the critical balance that Boeing needs to achieve between innovation, safety, and moral leadership to regain and preserve its standing in the aviation sector. These criteria are also vital for long-term investor trust. Lastly, the current CEO of Boeing, Dave Calhoun, was a GE protege. Calhoun worked at GE for 26 years, where he held various leadership roles and was appointed vice chairman and a member of GE’s Board of Directors in 2005.
Activists Calling For Change
When an organization’s strategy, operations, governance, or financial structure might greatly increase shareholder value, activist investors will often surround it. When they believe the business is underperforming, undervalued, or otherwise mismanaged, their interest frequently peaks. Using their investment, activists hope to exert pressure on the board of directors and management to carry out these changes, which could include anything from leadership changes to operational and strategic reorientations to increased shareholder returns through dividends and buybacks. Their ultimate objective is to maximize value for each shareholder, frequently making money off the ensuing rise in the stock price of the company. Boeing seems a little large at just over $100 billion in market capitalization to be taken on by just anyone but don’t forget Carl Ichan recently tried to bully McDonalds over their animal welfare policies and that was double the size of Boeing. He has also targeted several major companies as an activist investor, including Apple
AAPL
Inc., where he influenced significant stock buybacks, and Herbalife
HLF
Ltd., where he contested Bill Ackman’s short-selling campaign. Icahn’s approach often involves demanding corporate leadership changes to unlock shareholder value.
Jim Mitarotonda, the Chairman, CEO, and founder of Barington Capital Group—a firm known for its value-driven, activist approach—has made a significant observation regarding Boeing’s ongoing challenges. With a history of catalyzing change in boardrooms to enhance shareholder value, Mitarotonda stated, “Considering the depth and ongoing nature of Boeing’s issues, a change in leadership seems necessary.”
Keith Rosenbloom, Founder and Managing Member of Crusier Capital, known for backing strong management teams and revitalizing underperforming businesses, says simply, “Everything starts at the top. Boeing’s total return to shareholders since Calhoun became CEO in January 2020 is materially negative vs. every conceivable benchmark. This exacerbates the reality that the company has lost the confidence of one of its most important stakeholders: its customers. In a business that enjoys near monopoly status, quality control and customer satisfaction are foundational requirements.”
What Next?
Reflecting on Boeing and GE’s historical parallels, both companies faced significant crises under leadership that pursued aggressive expansion strategies, highlighting the critical need for strategic flexibility and crisis management. Boeing’s current predicament, with its culture criticized for prioritizing efficiency over safety, underscores a pressing need for change. As a seasoned investor, I observe that the call for leadership transformation or the possibility of a bailout to navigate out of crises mirrors past corporate recoveries. The possible involvement of activist investors suggests that regardless of the path chosen—activist intervention or government bailout—fundamental changes are imperative to restore shareholder value and corporate stability; otherwise, the stock will continue to slide.
The writer is short GE stock.
