There’s only one fix for GE’s image problem

GE, the embodiment of American capitalism, is under fire from conservatives for CEO Jeff Immelt’s role on a presidential advisory panel and other alleged misdeeds.  The sniping has mostly been heard on Fox News and at Republican presidential primary events, but Monday’s Wall Street Journal brought the story right to the doorstep of GE’s clients.

GE gets good marks for combating its critics, in the article and elsewhere.  It has provided facts on its website to counter the main claims.  It has put Jeff Immelt out front to answer the media, including a “60 Minutes” broadcast last Sunday.   And it has adopted the right tone – concerned, constructive and not defensive.  After all, GE is big enough to take a few hits without whining.

But even with all these steps, GE can’t change some difficult facts.  As the WSJ article notes:

GE has created more jobs overseas in the last decade than it did at home. GE employs more people outside the U.S. than within the country. Its U.S. employment dropped by 16% over the previous decade to 133,000 jobs at the end of last year while overseas employment fell by 2,000 jobs to 152,000. The company moved some of its avionics business, which develops electronic systems that run airplanes, into a joint venture with a Chinese company that has its headquarters in Shanghai.

GE’s income tax payments have also been a thorny issue, and it mishandled its response when the New York Times first brought the matter to light earlier this year, along with revealing the 975 tax engineers the company employs to wring every dime from the tax code and the flotilla of lobbyists it retains to win goodies in Washington.

But the most difficult fact – and the reason the critics get a hearing – is GE’s anemic financial performance.

GE’s stock price is down nearly 60% from its pre-crisis level four years ago, and it hasn’t budged since 2009, compared with about a 7.5% rise in the S&P 500 over the past two years. Nor has GE fully restored its dividend, which is still less than half its 2009 payout.  And GE’s return on equity, at around 11%, is below the average ROE of the past five years, which includes pre- and post-crisis periods.

Sure, some folks object to Jeff Immelt (or Warren Buffet for that matter) rubbing elbows with a President they dislike.  But the real issue is whether Immelt’s duties as a presidential advisor distract him from fixing GE’s businesses.  You don’t need to be a Tea Party devotee to believe that Immelt should make turning things around at GE his top priority.

Still, GE should count itself fortunate.  After all, it’s a bank, but it doesn’t get vilified like one.  GE’s financial-services business earned $1.6 billion in the second quarter, about a third of GE’s total profit – a figure that would put it comfortably among the top 10 banks in the U.S.

So let’s keep the criticism in context.  No one is talking about a boycott of GE products, and the brand remains among the most respected by consumers.  The annual report of top global brands by Interbrand just ranked GE fifth, ahead of McDonalds, Intel and, yes, Apple.

The bottom line is this: Handle the issues in the short term as best you can with good communication, but don’t expect them to go away until the underlying business problem is fixed.

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