Ken Langone, the co-founder of Invemed Associates and co-founder of Home Depot Inc (NYSE:HD), also served on General Electric Company (NYSE:GE)'s board of directors. He offered his story of how the conglomerate has become a "colossal failure in governance" on CNBC Wednesday.
What Happened
Langone was invited to join GE's board of directors in 1999 by the company's ex-CEO Jack Welch, who was described as "CEO of the century," the billionaire octogenarian said as a guest on CNBC's "Squawk Box" segment. When Welch retired as GE's CEO in 2001, Langone was still serving on the board. Welch's replacement Jeffrey Immelt took over with an "aura of a coronation," Langone said.
On paper, Immelt "looked fabulous," Langone said. The executive oversaw a transformation at GE — but this is really a "synonym for destruction," the former board member said. When Immelt took over as CEO, GE's industrial segment held just $1 billion in debt. The debt load stands at $85 billion today, Langone said.
But there are more examples of poor business decisions, the former board member said. Immelt oversaw multiple asset and business sales over the years in mostly cash deals, Langone said. The company partly used some of the cash to oversee a $50-billion share repurchase program when the stock was trading at around $30 per share.
Why It's Important
GE's blunders over the years are apparent in today's stock price near the $15 level, Langone said.
"And now the word is they are going to have to do an equity raise," he said. "I'll tell you right now, and I never thought I would say this, here's a case where I think an activist is going to make a huge, huge difference. It all has to come out."
The ongoing involvement of an activist investor like Nelson Peltz could be the catalyst needed to boost shares higher, Langone said.
What's Next?
GE's next steps are unclear. The company nominated three new directors to its board of directors and simultaneously slashed the size of the board. The U.S. Justice Department could bring legal action over allegations that GE Capital violated U.S. laws in connection with subprime mortgages.
Screenshot from Langone's Wednesday CNBC appearance.
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