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What happened to GE's accounting and financial management strengths?
In my latest book: THE SECRET TO GE's SUCCESS, I conclude that one of the GE's strengths has been its financial management and accounting systems.
I joined GE as a member of the Business Training Course (now called Financial Management Program) and learned to admire the talent of the financial organization. It was clear that when GE reported its earnings there was 99% confidence level.
During the Welch era, there was concerted effort to reduce the power of the financial organization, because it was felt that it inhibited creativity and entrepreneurial flexibility.
It is clear that over the last thirty years that GE's accounting and financial auditors have not be able to assure investors and government officials that GE's financial statements and practices meet the historical standards of the past.
There are several very disturbing situations that illustrate this reality.
First was the surprise of GE's missing its expected results in the first quarter of 2008. It was clear that everyone, even the CEO, was surprised that about the miss. This caused GE stock to fall from 42 to 25 and it still hasn't recovered. The investment analysts and companies have moved the company into a hold mode.
Second, the company has had to restate its annual statements several times over the past few years and lower its reported earnings.
Third the SEC announced it was issuing a Wells Notice and taking civil actions and there are several stockholder suits.
It is difficult for me to imagine that GE would find itself in this position and it has clearly impacted the company's credibility and reduced shareholder value. It is clear that the reduction of the internal auditing, the inability to spot external and internal changes that can impact the top and bottom lines and the shear size, complexity, continuing "deal making" and global expansion are all causes of these problems.
The question is whether current financial leaders are ready, willing and capable to do what it takes to restore the confidence of all key stakeholders, especially the investment community and government agencies.
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