Monday, February 18, 2019

Avoiding Simple Explanations

History Gremlin here to discuss something that has been on my mind.  That specifically is the fall of General Electric (GE) from investing grace - I will relate a history lesson to their spiral.  I was long GE through its first of two recent cuts, and not including the cut that occurred during the financial crisis.  GE's most recent dividend cut saw their dividend reduced to $0.01 / per share on a quarterly basis [gross].  Before speaking about GE, for the unfamiliar please look at Seeking Alpha's about page or browse their wiki history - or both.  Ok, good either you knew it or not, now you do.  So the question is - how does behemoth of company slide so deeply?  It is a question that I cannot answer, but perhaps some light can be shed on the situation.

Leadership: This is something has clearly plagued GE.  Read any investment website article on GE and you will see people alternating between blame and praise for various GE leaders.  Often leaders shoulder far more credit than they deserve - regardless of the outcome.  GE employs 313,000 people.  Sure the buck will always stop at the top, but is that individual the only one making important organizational decisions?  Hell no.  Can leaders be bad or do stupid things?  Of course they can, my favorite being of course flying two corporate jets around in case one breaks down.  This coming from a company that manufactures jet engines...

Innovation: Sometimes companies get left behind, and it is not entirely a fault of their own.  Blockbuster fits this scenario the best, where a technology appears a company has no ability or infrastructure to benefit from it.  When a vacuum appears, someone will fill it - Netflix (NFLX) in this case.  This has not entirely happened to GE, since GE supports so many industries.  However, it is completely unlikely they are the cutting edge across all the industries they support.  Sure in a way diversification can be a positive when ideas are shared across divisions, but that is always easier said than done.

Culture: As the sports reference goes - you can't teach height.  Same thing goes for companies and culture / personalities.  I have personally worked for several smaller companies, which ranged from good to terrible depending on the organizational structure and the personalities involved.  Currently, I work for a large company and it is the best place I have ever worked.  My company actively works to transfer knowledge between groups and client missions - thus enabling us to be more proactive and deliver better projects.  GE, with its 313,000 people, likely will find it difficult incorporate that kind of workplace culture.  Indeed it is something larger companies will always struggle with, but large companies can make it work if they are dedicated to it on principle over a long period of time.  Also being focused on narrow(er) subset of industry it will be easier to meet that goal.

So how does this all relate to history?  Well it relates to one of my favorite historical entities, the Roman Empire.  For centuries people have debated why Rome, specifically the Western Empire, fell in 476.  People and historians have blamed everything from internal war / over-expansion, disease, Christianity, general moral decay, external pressures, etc.  The only thing clear is some of these did play a role, but none were the single root cause.  Indeed the only thing that is clear is Rome did fall.  However, it is more a death from a thousand cuts scenario (no pun intended), as opposed to singular unique or specific failings.  Much like GE the only thing that will be clear is they cut their dividend twice and are trying to salvage parts of their company that are clearly getting ravaged.  The CEO and leaders will get the blame, but there are 313,000 other stories out there.  Some will be positive, some negative.  All tell a story why GE has punted financially despite not being on their own goal line.

For a great history of Rome, I suggest listening to Mike Duncan's the History of Rome podcast (also linked in my blogs / books page).  However, if you want to skip to the end, episode 179 - The End, will suffice in giving probably one of the most honest looks as to why 476 was the end for Rome.  It has made me think about business in a different way too.  A reminder that no matter how holistic your approach there are and always will be X-factors that are unaccountable.

In Mike Duncan's words: "... or more precisely, why did the Western half of the Empire fall?  Well I have joked there are 256 different reasons why the Western Empire fell, and though I am obviously exaggerating, it is not that much of an exaggeration.  The decline and fall of something as monumentally complex as the Roman Empire is not going to be able to be explained away by one or two simple causes."

Thanks, and do you like Rome or GE (or not)?

- Gremlin
- Long no stocks in this post


  1. Gremlin,

    This is a great article. Thanks for writing it. I like your comparison to the Roman Empire falling and the final conclusion about what caused it to fail. In today's culture, we are way too focused on finding the blame for "one" thing, so we can all be better about pointing our fingers at one solution. You're absolutely right, GE is too big to have one thing cause the downfall for the company. You can say it was diversification caused them to not be specialized or poor management, but there are just so many other factors that play into that. As I just learned, you can work for a large company with an amazing culture, but one or two bosses can cause that system to fail for you personally. A strong culture won't cure everything or cause everyone to act perfectly. That's just impossible. You might as well hire robots at that point. This is about as political as I will get on a blog, but part of the reason the US can't get any major reforms done for healthcare, taxes, social safety net programs, infrastructure, etc., is because of the oversimplification of approaches. In particular, healthcare is too complicated to be reformed with a simple change to the payment structure or just insuring everyone (the two major ideas). It will take hundreds of changes to the system, and I just think people don't want to put the effort into it because it won't look right in a headline. Okay, I'm done with my political rant. Thanks again for the great read!


    1. Bert,

      Totally, isn't it funny how one or two personalities can damage a great idea? I agree with you on politics and the USA in general - especially healthcare where there are what a 100 types of doctors with varying specialties? Also people are afraid of change, even small incremental ones that will benefit people view those who would alter things with suspicion - rightly or wrongly.

      I professionally see this as it relates to national infrastructure. We all agree it needs refresh, but people hate paying for and many don't understand the degree to which things need to happen.

      Thanks for the comment!
      - Gremlin