Flannery Says Company's Reporting Has Been Too Complex Summary

Key Words

This week’s articles covered General Electric’s (GE) recent restructuring plan and how that connected to this week’s lecture concept on Leading Change and Overcoming Resistance

Accounting Complexity
Simplification of metrics
Custom Metrics Hard for Investors to follow
More in line with peers metrics
Free Cash flow
Non-GAAP metrics
Refocus company around core business
Lowered Earnings
Selling companies

Article Summary

WSJ article 1: “GE CEO Flannery Says Company’s Reporting Has Been Too Complex”

General Electric started a value-neutral diversification strategy that will reshape its core business and improve non-standard metric reporting that has left investors confused about the company’s financial standing and direction.

He laid out a future for three core markets—power, aviation and health care—and said the company would look to shed smaller divisions such as transportation and lighting.” (Rapoport, 2017). GE can realign their operations efficiency and cost savings by selling off less profitable industries.

This maneuver also frees up much needed cash flow to invest in their core business. From the investor perspective, GE’s cost reduction strategy will also help boost the price per share and prove to skeptical investors that the core business is solid and moving in the correct direction under the guidance of Chief Executive John Flannery and the team he has enlisted to address the profitability of the company.

Another area that has caught the attention of investors and observers is the nontraditional metrics that GE uses to convey financial results. “GE is known for reporting multiple measures, stripping out various costs and adjusting for different changes and assumptions in its business—a practice that often makes its results hard for investors to follow” (Rapoport,

Flannery,

Thank you for the opportunity to analyze your company. Below is a list of areas within GE that require focus and attention by GE’s leadership in regards to the neutral diversity strategy.

1. Focus on Core Business: GE needs to focus on the core business: power, aviation and healthcare. Smaller and less profitable divisions such as transportation, oil fields and lighting can be sold off or solicit joint ventures to reduce costs and free up capital to invest in the core business.

2. Simplify Accounting Reporting: A complex financial statement package including overly complex metrics that are non-traditional confuse our management team and investors. The Executive Management must utilize more generally accepted metrics to gauge our progress against our projections and our competitors in the various markets. Investors also need to have a very clear picture of the company’s financial standing and that anticipated performance has been met by the company’s executives.

3. Management changes: To align the appropriate value neutral strategy, GE will need to bring in the appropriate management to guide the company through this complex change. New management who have the experience and a fresh perspective are needed to realign the company back to