Former GE CEO Welch Advises Immelt to Manipulate Earnings

Jack Welch was on CNBC this morning criticizing Immelt, claiming that he had a "credibility issue." Welch asserts that Immelt promised to deliver strong earnings three weeks ago and he didn't deliver on that promise. I believe what Welch is saying is that Immelt should have used some fancy accounting tricks to artificially boost earnings in order to satisfy Wall Street analysts, just like Welch did when he was CEO. Ever wonder how GE beat earnings by a penny for many years under Welch's reign and achieved spectacular returns? It under-reserved insurance reserves for years, thus artificially boosting earnings. Welch conveniently retired, taking an egregious retirement package which became public during divorce proceedings from his second wife who he left for a much younger woman. Immelt then had to boost reserves to an adequate level in order to sell the insurance arm, basically wiping out most of the earnings gains from Jack Welch's last five years in office.

Although GE's earnings were a disappointment, and Immelt should've been more conservative when giving guidance, he did the right thing by reporting lousy earnings. I'm not a huge fan of GE in particular, but I actually believe that Immelt is a much better CEO than Welch ever was. Welch was lucky, and crafty. In my opinion, he is also mostly responsible for the absurd CEO packages awarded to CEOs for doing mediocre work. When GE was picking a successor for Welch, Welch made certain all three contenders for his job received enormous retention bonuses at GE, thus forcing other companies who wanted to hire the losers to offer absurd guarantees. Who was one of those contenders? Our friend Robert Nardinelli, who was recently forced out of Home Depot with $200 million in pay that he felt he deserved. Shareholders and the board disagreed. Maybe it is Immelt who should be giving Welch some much-needed advice: Get a hobby and stop telling me how to do my job.