1. Is the subsequent decline of GE attributable to the diversification strategy or is it more attributable to the management regime at the firm?
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Like the premature obituary of writer Mark Twain, reports of the death of the conglomerate are often exaggerated. Diversified companies, straddling multiple industries, or even just different parts of one large sector, remain a dominant, if not always fashionable, feature of stock markets from the U.S. to continental Europe and Asia. But a new backlash against conglomerates suggests that a more lasting shift in investor preferences may be taking place-driven in part by the growing influence of hedge funds and private equity houses. In public markets, big has rarely appeared less beautiful.I Through the 1990s and 2000s, large diversified firms, often called conglomerates, largely fell out of favor with investors. Arguments against conglomerates ranged from complexity in management to the difficulties that analysts and investors had in understanding their operations. More recently, conglomerates have regained some respect. As the largest of the U.S. diversified multinational firms, General Electric Company (GE), with over 300,000 employees, generated a variety of opinions, such as: Increasingly restive General Electric Co. shareholders, frustrated with six years of meager returns, are pressuring Chairman Jeffrey Immelt to break up the conglomerate. But some shareholders and analysts argue that GE's sprawling businesses are better off together than apart. GE's big umbrella, these investors say, can balance differing product and economic cycles, while helping all its busi- nesses financially. And that would boost the stock price over the longer term. "The main appeal of GE is its diversification," says Mark Demos, portfolio manager at Fifth Third Asset Management, which owns 12.6 million GE shares. He says this isn't the time to break up the company, because global economic trends and investor sentiment are moving toward bigger, more international companies such as GE GE's Background GE's roots go back to 1890 when Thomas Edison established Edison General Electric Company. In 1892, Edison General Electric Company merged with Thomson-Houston Company. The new company was called General Electric Company. Several of Edison's early products were still part of GE in 2008, including lighting, transportation, industrial products, power transmission, and medical equipment. GE is the only company listed in the Dow Jones Industrial Index today that was also included in the original index in 1896. Over the century after its founding, GE made hundreds of acquisitions and expanded far beyond its original businesses. By 1980, GE products ranged from plastics, consumer electronics, and nuclear reactors, to jet engines. In 1981, Jack Welch became CEO and radically restructured the company. Welch urged his employees to be "better than the best" and challenged each of the diverse GE businesses to be the number one or number two competitor or disengage. Between 1981 and 1990, GE divested more than 200 businesses and made over 370 acquisitions. Acquisitions included NBC, Kidder Peabody, Thomson/CGR medical equipment, Borg-Warner Chemicals, Penske Leasing, Tungsram light bulbs, and Polaris aircraft leasing. Businesses sold included small appliances, consumer electronics, RCA Records, outdoor lawn equipment, oil exploration and refining, car auctions, and mining. Welch also slashed layers of management and began a series of internal initiatives, many of which set the standard for business practice around the world, such as Six Sigma. In 1980, the year before Welch became CEO, GE recorded revenue of $26.8 billion; in 2000, the year before Welch retired, revenue was nearly $130 billion. Like the premature obituary of writer Mark Twain, reports of the death of the conglomerate are often exaggerated. Diversified companies, straddling multiple industries, or even just different parts of one large sector, remain a dominant, if not always fashionable, feature of stock markets from the U.S. to continental Europe and Asia. But a new backlash against conglomerates suggests that a more lasting shift in investor preferences may be taking place-driven in part by the growing influence of hedge funds and private equity houses. In public markets, big has rarely appeared less beautiful.I Through the 1990s and 2000s, large diversified firms, often called conglomerates, largely fell out of favor with investors. Arguments against conglomerates ranged from complexity in management to the difficulties that analysts and investors had in understanding their operations. More recently, conglomerates have regained some respect. As the largest of the U.S. diversified multinational firms, General Electric Company (GE), with over 300,000 employees, generated a variety of opinions, such as: Increasingly restive General Electric Co. shareholders, frustrated with six years of meager returns, are pressuring Chairman Jeffrey Immelt to break up the conglomerate. But some shareholders and analysts argue that GE's sprawling businesses are better off together than apart. GE's big umbrella, these investors say, can balance differing product and economic cycles, while helping all its busi- nesses financially. And that would boost the stock price over the longer term. "The main appeal of GE is its diversification," says Mark Demos, portfolio manager at Fifth Third Asset Management, which owns 12.6 million GE shares. He says this isn't the time to break up the company, because global economic trends and investor sentiment are moving toward bigger, more international companies such as GE GE's Background GE's roots go back to 1890 when Thomas Edison established Edison General Electric Company. In 1892, Edison General Electric Company merged with Thomson-Houston Company. The new company was called General Electric Company. Several of Edison's early products were still part of GE in 2008, including lighting, transportation, industrial products, power transmission, and medical equipment. GE is the only company listed in the Dow Jones Industrial Index today that was also included in the original index in 1896. Over the century after its founding, GE made hundreds of acquisitions and expanded far beyond its original businesses. By 1980, GE products ranged from plastics, consumer electronics, and nuclear reactors, to jet engines. In 1981, Jack Welch became CEO and radically restructured the company. Welch urged his employees to be "better than the best" and challenged each of the diverse GE businesses to be the number one or number two competitor or disengage. Between 1981 and 1990, GE divested more than 200 businesses and made over 370 acquisitions. Acquisitions included NBC, Kidder Peabody, Thomson/CGR medical equipment, Borg-Warner Chemicals, Penske Leasing, Tungsram light bulbs, and Polaris aircraft leasing. Businesses sold included small appliances, consumer electronics, RCA Records, outdoor lawn equipment, oil exploration and refining, car auctions, and mining. Welch also slashed layers of management and began a series of internal initiatives, many of which set the standard for business practice around the world, such as Six Sigma. In 1980, the year before Welch became CEO, GE recorded revenue of $26.8 billion; in 2000, the year before Welch retired, revenue was nearly $130 billion.