GE's New CEO Has a Reputation for Transforming Companies

October 1, 2018 | Bloomberg

Larry Culp’s resume made him a good fit in Wall Street’s eyes to run General Electric Co.

He ran an industrial company, he executed multiple mergers and acquisitions and he employed innovative manufacturing techniques -- all things that should come in handy as he tries to turn around the sputtering company.

Culp was only 38 when he was appointed chief executive officer of Danaher Corp. in 2001. The Washington, D.C.-based company was then making products like retail gasoline pumps and Sears Craftsman tools. But over the next 14 years, he remade the company into a conglomerate with $22 billion worth of acquisitions, focusing on equipment and service for the health care and life science industries.

Armed with a Harvard MBA, he gained a reputation for his operating know-how. Similar to Jack Welch and his famous Six Sigma model, Culp deployed “continuous improvement” workplace techniques -- borrowed freely from the Japanese kaizen method -- that buoyed profit margins. It was called the Danaher Business System, and he made sure every employee knew it.

Wall Street liked the results, sending Danaher’s stock up almost 14 percent annually during his tenure, compared to 5.5 percent for the S&P 500. Culp is the first outsider to run GE.

Market Trends

Culp, now 55, has “the ability to judge a business with little information and see market trends that might be attractive longer term,” said Jeff Windau, an analyst who covers GE and had covered Danaher before the company was split in 2016.

Despite the plaudits, his departure from Danaher, in 2015, was apparently not as routine as then portrayed. Culp gave the standard reason, that 14 years was enough and he had other interests to pursue.

But analysts have long suspected he was the victim of a corporate struggle with the billionaire founders of Danaher --- Mitchell and Steven Rales. They wanted to change course and start splitting up the company. Culp resisted the strategy, and soon he was out.

Shortly after, Danaher began a revamp by announcing the separation of its industrial technologies segment into the company that is now Fortive Corp. It has since continued to sell under-performing segments such as its dental unit.

Deep Bench

Culp joined Danaher after a brief stint as a consultant at Andersen Consulting. He was thrust into a leadership position early on when he was put in charge of Fluke Corp., a testing company that Danaher acquired in the late 1990s. He soon became chief of the company’s growing testing and measurement unit.

GE investors are counting on Culp, who is replacing John Flannery, to eventually regain a business culture that inspired other companies to follow. Culp was able to build a deep bench of executives that have kept Danaher successful even after his departure.

Danaher “delegates a lot of accountability to the operating people,’’ said Mike Magsig, who leads the board and CEO practice at executive search firm DHR International. “It’s not as centralized and hierarchical as GE has become.’’

One downside for GE is that Culp doesn’t have much experience outside of Danaher and he never had to repair lagging operations, said Nicole DeBlase, an analyst with Deutsche Bank AG, in a note.

Culp will have a short window to turn things around. Low interest rates and solid U.S. growth won’t last forever, said Peter Sorrentino, chief investment officer of Comerica Asset Management. The pace at which Culp made decisions on buying companies and improving their profit margins is a good sign he can push through the changes. 

“The situation certainly calls for a far more aggressive approach,” Sorrentino said. “They need someone who can move decisively and who is divorced from all the internal parochial attitudes that might have affected the rank-and-file management at GE.”