Better to Be a “Joly” Than an “Immelt”
“Choose your parents wisely.”
–wisecrack
“Nothing grows in the shadow of an oak.”
–old saying
Current General Electric CEO Jeffrey Immelt may be a terrific businessman in his own right.
But, his now decade-plus tenure as GE chief will always be compared — negatively — to that of his immediate predecessor, Jack Welch.
During Welch’s 20-plus years at the helm, the stock went up 40-fold(!), and dividends quintupled.
If you bought the company’s stock during that period . . . Welch was your hero.
Immelt, not so much.
Never mind that Welch’s tenure largely overlapped with history’s biggest bull market, and Immelt’s spanned two of the biggest busts (2000 and 2008).
Well-Timed Exit; Taking Over at the Top
While GE’s stock has mostly recovered (along with the rest of the market) from those double-barreled debacles, GE shareholders today are no better off today than 13 years ago — and have endured a helluva ride.
Complicating Immelt’s tenure: Welch was a consummate “earnings manager,” adept at hitting Wall Street estimates, literally to the penny.
The problem is that once, once you’ve shaken all the proverbial coins out of the couch cushions — pulled rabbits out of a hat, if you prefer — there’s not much left for the next guy (or woman, in the case of incoming Fed Chair Janet Yellen).
Arguably, the best example of Welch’s exquisite timing was his departure in 2001, within a year of GE’s all-time high.
Best Buy’s Joly
Now, contrast Immelt’s experience at GE with Best Buy’s new superstar CEO, Hubert Joly.
When Joly took over almost exactly a year ago, the company’s stock price was hurtling towards zero (it reached $11, down from $45), and the company was rumored to be almost-imminent Amazon roadkill.
Today, it’s same-store sales are rising, and its blend of low prices and good service is (re)attracting consumers.
Paying consumers.
(One of the biggest knocks against the company was that its expensive, bricks-and-mortar business model effectively made it into a showroom floor for Amazon).
Based on the above, investors have made Best Buy’s stock the 3rd-best performing in the S&P 500 this year — up fourfold.
Hero vs. Goat
Moral of the story?
Better to take over when things are a mess, not when everything’s perfect.
If you fail, it was because the mountain was just too high.
But, if you succeed, well . . . you’ve made your name (and possibly a mountain of money).
“Name . . . That . . . Successor”
That dynamic describes Michael Eisner (Disney) and Louis Gerstner (IBM), who — once upon a time — took over flailing (if not declining) companies and refocused and reenergized them.
Steve Jobs did the same thing during his second stint at Apple (or was it his third?).
The same principle holds in other fields as well, including politics and sports.
Can you name the (very good) Yankees right outfielder who succeeded Mickey Mantle?
The brilliant money manager who took over Fidelity’s flagship Magellan fund from the legendary Peter Lynch?
The UCLA coach who succeeded basketball titan John Wooden?
Neither can anyone else.
P.S.: You could argue (and I would) that FDR’s legacy — as impressive as it was in its own right — was burnished by the contrast with his hapless predecessor, Herbert Hoover.
Meanwhile, FDR’s successor, Harry Truman, was underrated for decades because his accomplishments were eclipsed by FDR’s.
