In an alternate universe, Larry Culp, the current CEO of GE (ticker: GE), may have found himself in a prominent position at hedge fund Bridgewater. Meanwhile, GE would have struggled under the burden of debt and underperforming businesses. This intriguing scenario is explored in Rob Copeland’s recently published book, The Fund.
Culp and Bridgewater
Back in 2015, shortly after completing a successful 14-year tenure as the head of industrial and healthcare conglomerate Danaher (DHR), Culp briefly joined Bridgewater. However, according to the book, his time there was far from harmonious. Determined to implement his own approach, Culp clashed with Bridgewater’s founder, Ray Dalio.
Dalio had different ideas on how to manage the firm, emphasizing the use of committees and the principles outlined in his book, Principles. In contrast, Culp believed that Bridgewater suffered from a surplus of employees with vague roles. He advocated for a clear chain of command, with one person at the helm.
The Fateful Exchange
During a pivotal exchange where Culp presented his ideas, Dalio allegedly criticized Culp for lacking conceptual thinking. According to the book, Dalio promptly fired him and left the room. Notably, it should be clarified that Culp was an advisor at Bridgewater and not a full-time employee. Both GE and Bridgewater declined to comment on Culp’s stint at the hedge fund.
A Twist of Fate
While the clash between Culp and Dalio may have seemed dramatic at the time, it turned out to be a fortuitous turn of events for GE investors. In 2018, Culp assumed the top position at GE and swiftly embarked on a mission to alleviate the company’s substantial debt burden. He instigated a series of asset sales, leading to the upcoming separation of GE into three distinct businesses.
GE’s New Path
The transformation of GE began with the spin-off of GE Healthcare Technologies (GEHC) at the beginning of 2023. Next on the agenda is the spin-off of GE Vernova, the power generation business, which is expected to take place in the first half of 2024. This strategic restructuring will ultimately result in GE operating solely within its aerospace franchise, under Culp’s guidance.
The Benefits of Hard Decisions
Thanks to years of rigorous decision-making and diligent efforts, all three independent businesses within GE are projected to possess investment-grade balance sheets. This achievement serves as a testament to the difficult choices made and the extensive work undertaken by Culp during his tenure.
The Lean Management Approach
Culp is known for championing lean management principles—a philosophy not unfamiliar to American businesses. Originating from post-World War II Japan, this methodology emphasizes inclusive, decentralized, and hands-on management practices. Additionally, it advocates for statistical process control to drive continuous improvement and tackle operational challenges.
In conclusion, the dynamic clash between Larry Culp and Ray Dalio at Bridgewater laid the foundation for Culp’s transformative leadership at GE. In his pursuit of lean management practices, Culp has positioned GE on a path towards success and resilience across its aerospace, healthcare, and power generation ventures.
GE’s Lean Approach Pays Off
The application of lean principles in the right way is crucial, and General Electric (GE) has successfully demonstrated this under the leadership of Culp. Despite the challenges posed by the Covid-19 pandemic, supply chain issues, and high inflation, GE’s aerospace business achieved remarkable operating-profit margins of 20.4% in the third quarter of 2023. This surpasses the aviation margins of 20% recorded in 2017, during the industry’s prosperous period prior to Culp taking charge.
Steady Improvement Across Businesses
Culp’s tenure at GE has also led to notable improvements in profit margins across various sectors. In addition to the aerospace business, the gas-power and wind-power businesses have experienced enhanced profitability.
Impressive Stock Performance
GE’s stock performance has been another success story. Since Culp assumed leadership in December 2018, adjusted for the spinoff of GE Healthcare, the stock has surged by approximately 50%. Over the same period, when GE’s significant challenges became evident to investors, its shares have more than doubled while the S&P 500 index rose by only around 50%. This achievement is particularly noteworthy as GE’s stock value had plummeted by about 70% from December 2013 to December 2018.
Bridgewater A Different Story
The reasons behind Culp’s departure from Bridgewater, however, remain uncertain. Hedge funds, unlike other businesses, often operate under the influence of powerful founders who direct investment strategies. Personality clashes may have played a role, but it’s important to acknowledge that the dynamics of hedge funds can differ significantly from those of traditional manufacturing companies.
In conclusion, the positive outcomes of Culp’s leadership at GE have undoubtedly pleased investors. The successful application of lean principles within GE, along with improved profit margins and impressive stock performance, showcase Culp’s effective management. Despite the challenges faced, GE’s accomplishments under Culp’s guidance are commendable.