Until two years ago, it was perfectly normal. It didn't matter that General Electric didn't broadcast its quarterly analyst meetings. It was acceptable for the nation's sixth-biggest public company to parse out only the most general operating statistics about hundreds of diverse business units and to divulge only vague details about the earnings impact of its many acquisitions.
All that was fine by GE's investors, because GE was making them rich. Every quarter, nearly without fail, Jack Welch produced profits that were 15% to 20% higher than those of a year before. And the numbers consistently matched guidance that the company had fed Wall Street analysts. GE's stock soared from $25 at the start of 1998 to near $60 in October 2000. What wasn't to love?
But in the wake of Enron and Tyco, special-purpose entities, and accounting shell games, queasy investors zeroed in on a new set of criteria: stuff like transparency, credibility, and disclosure. A deep, unfamiliar skepticism attached itself to GE, which suddenly felt like an impossibly large, acquisition-driven conglomerate — and one that offered only 30,000-foot indicators of financial performance.
When it comes to financial reporting, the New Normal is all about a new glasnost. And in the past year, GE has become the Kremlin revealed. The company has finally instituted a quarterly conference call for analysts. Its annual report features more data than ever about business segments. It reports previously mysterious details on pension expenses. The company held 275 meetings last year with investors.
In this skittish environment, openness is a price of doing business. Here, GE's ambassador to Wall Street, investor-relations director Rich Wacker, discusses the real importance of being earnest.
GE's reporting has become a lot more open. Do we have Enron and Tyco to thank for that?
A lot of the change at GE was linked to our new chairman, Jeff Immelt. But it was also a function of the times. Enron and a few other companies gave investors good reason to ask whether they understood what they were investing in. We participate in the same financial markets, so we're affected by the same question. When you look at the companies that lost investor confidence, some of them had made a lot of acquisitions. GE does a lot of acquisitions. We wanted to make sure that there was visibility around what we did on acquisitions and how they perform. There were companies that lost investor confidence that operated across industries. Well, GE is a multi-industry company. We wanted to make sure investors didn't think that just because we had multiple businesses, they should stay away.
There are risks any time you make more data public. You risk giving away competitive information. You might disclose weaknesses that might have remained below the radar.
The big challenge has been about how we help investors digest all of the information, rather than about us disclosing weaknesses. Take GE Capital. Jeff split it into four operating businesses. For investors who want to understand GE Capital, it's a more coherent organization. The flip side is, people who were comfortable analyzing GE Capital in total now have four businesses to look at.
Last March, bond investor Bill Gross criticized GE's lack of disclosure and questioned some of its operations. He later retracted some of his comments. But did he hit a nerve?
The most significant point Gross made was that we had not done a good job of providing visibility to the fixed-income investor on the amount of debt that we would issue during the year. We triggered his anger when we filed a $50 billion shelf registration. That was a big number. How fast was that going to come on? What did it mean for the GE debt I just bought? That criticism resonated with us. The next day, we laid out our plan for the year. That's now part of our process.
What will GE be reporting differently five years from now?
We'll continue to use the Web and electronic media to communicate more consistently than we did a couple of years ago. We now keep all of the archives of our investor meetings on the Web. We Webcast our meetings. We are organizing the site in a way that allows people to read our most recent statements about discrete business units. For a time, too, we're going to communicate directly and intensively with the buy side rather than relying on sell-side analysts. That will mean more meetings. But that's good, because you're hearing directly from investors.
Why do you care what investors think?
We are very confident about this company. We want investors to be very confident about the company too. We don't want there to be issues surrounding financial structures or board membership. Jeff wanted to take governance off the table. Let's get on with it and focus on maximizing the company's performance.
Keith H. Hammonds (firstname.lastname@example.org) is a Fast Company senior editor based in New York. Contact Rich Wacker by email (email@example.com).
A version of this article appeared in the May 2003 issue of Fast Company magazine.