Since 2004, when I wrote a story for FORTUNE called Money and Morals at GE , I have been an admirer of General Electric and its CEO, Jeff Immelt. My admiration deepened when GE unveiled EcoMagination, its effort to solve important environmental problems. Immelt and GE also led the U.S. Climate Action Partnership, an alliance of big business and big NGOs committed to getting the government to regulate greenhouse gas emissions.
But–and you knew there’d be a but, didn’t you?–I’ve got a couple of questions about GE and Immelt that have been nagging at me. First, has GE become overly focused on Washington? Second, when will Immelt deliver for GE shareholders?
The first question was prompted by an aside in John Harwood’s column in The Times a week ago, about the Obama administration’s all-out effort to get Ben Bernanke confirmed as Fed chief. He wrote:
There’s nothing wrong with this, of course; Immelt has the right to ask senators to support Bernanke. But it reminded me that this registered Republican and his company have closely aligned their interests with the administration. Immelt serves on the president’s Economic Recovery Advisory Board. Newly-released figures show that among big companies or unions, GE was second only to Exxon Mobil in lobbying expenses during 2009, spending $21.4 million. (Other sources put the figure higher.) This isn’t a surprise–GE is a huge company (2009 revenues were $156 billion) and it has a myriad of Washington interests, including taxes, trade, energy policy and financial regulation.
But there’s more. GE’s Washington operation is a case study in Washington’s revolving door. Nancy Dorn, who runs the office, worked for Dick Cheney at the Pentagon and the White House and was deputy director of the Office of Management and Budget during Bush II. At OMB, she suceeded Sean O’Keefe, who became NASA administrator and is now vice president, Washington operations, for GE Aviation. GE also has Linda Hall Daschle, wife of former Senate Majority leader Tom Daschle, lobbying on its behalf. Meanwhile, Mr. Daschle is on the board of advisors to GE’s HealthyMagination initiative.
Last summer, a leaked email from GE Vice Chairman John G. Rice, soliciting donation’s to GE political action committee, laid out the GE-DC connections. According to Steve Milloy, a right-of-center anti-environmentalist who obtained the email, Rice wrote:
The intersection between GE’s interests and government action is clearer than ever.
GEPAC is an important tool that enables GE employees to collectively help support candidates who share the values and goals of GE. [emphasis added]
On climate change, we were able to work closely with key authors of the Waxman-Markey climate and energy bill…If this bill is enacted into law it would benefit many GE businesses.
And so forth. You won’t be surprised to learn that GE’s “values and goals” were more aligned with Republicans betwen 2000 and 2008, when most of its donations went to the GOP. Now they mostly go to Democrats. To be sure, this business-as-usual in Washington, but it’s revealing.
So what did GE get for its investments in lobbying and campaign contributions?
The quid pro quo is never obvious but you can be sure that GE didn’t spend millions of dollars without the expectation of a significant return. The Wall Street Journal took a good look a couple of months ago in a story headline General Electric Pursues Pot of Washington Gold [subscription req'd] and wrote:
GE has high hopes for the [Washington] strategy. It says that over the next three years or so it could bring in as much as $192 billion from projects funded by governments around the globe, such as electric-grid modernization, renewable-energy generation and health-care technology upgrades.
My favorite quote in the story comes from Immelt, who says: “We’re all Democrats now.” He also said: “The government has moved in next door, and it ain’t leaving.” Give him credit for directness.
So, for example, GE strongly supported the $787-billion stimulus package and helped its customers apply for funds. When the government announced grants for smart-grid projects, GE did well, according to The Journal:
Of the 100 smart-grid grant recipients Mr. Obama announced last month, one-third were GE clients. GE declines to say what portion of the $3.4 billion in government money went to its customers. Its executives have told analysts that GE stands to reap up to $500 million in contracts from every smart-grid project built in a city with a population of more than one million.
GE’s wind and solar businesses benefit from clean energy subsidies. It’s hoping to develop clean coal projects, which get billions in government loan guarantees. Batteries for electric cars? Yes, they get government grants and loans and GE is an investor in a well-regarded supplier, A123 Systems. As I reported last fall:
A123 has been given more than $600 million in grants, loans or tax credits by the federal and state government to build a new plant in Michigan. They include a $249 million grant from the DOE’s Electric Drive Vehicle Battery and Component Manufacturing Initiative, another $100 million in refundable tax credits from the state, and $27.5 million more from the U.S. Advanced Battery Consortium.
GE also makes locomotives which, presumably, stand to gain from the $8-billion in stimulus grants announced last week by the Obama administration, and its aviation business is heavily regulated. (GE does not disclose how much revenue it generates from the government, directly or indirectly.) But as a big financial services company, GE took advantage of FDIC loan guarantees for up to $139 billion of the debt of its GE Capital division when credit markets seized up late in 2008. Here’s an interesting Washington Post/Pro Publica story about how GE qualified for the FDIC’s help.
People on the left say that all the subsidies for GE amount to corporate welfare. Free marketers call it rent seeking. In any event, there’s no way GE can ignore Washington without seeing its performance suffer.
Not that GE’s performance has been anything to boast about. The company sharply reduced its dividend and lost its AAA credit rating last year. GE’s share price is down by 60% since Immelt became CEO in on Sept. 7, 2001—unfortunate timing, because the market swooned after the September 11 attacks. But GE has lagged the market as a whole during that period, as well as during the past five years, a more apt reflection of Immelt’s efforts, since it took time for him sto have an impact. Here’s a chart comparing GE’s stock price to the S&P500 over the last 5 years, and here’s one covering Immelt’s entire tenure.
I don’t know GE well enough to say whether there’s a connection between GE’s focus on Washington and its subpar performance. Certainly questions could be asked (by the board?) about whether GE executive time and shareholder money might have been better spent elsewhere—developing new products, say, or improving service to customers. To its credit, GE has sustained a big, global R&D operation while other companies have cut back.
I do know that as the federal government grows in size and influence, corporations will spend more of time and money in Washington. (The Times reported today that the health care and insurance lobbies spent more then $648 million in 2009.) Business will also do more to influence elections, particularly after the recent U.S. Supreme Court ruling.
What to do? Surely one way to reduce the influence of special interests in Washington is to give them less government to be interested in.