News & Events

Guest Speakers

Jeff Immelt and Keith Sherin, Chairman and CEO; Vice Chairman and Chief Financial Officer

October 7, 2009

TRANSCRIPT OF GE LIVE:

GE Live: Winning in Today’s Environment

Jeff Immelt | Keith Sherin, Wednesday, October 7, 2009

Carolyn Woo | Dean, Mendoza College of Business | Notre Dame

Good morning and welcome. I’m Carolyn Woo, the dean of the Mendoza College of Business at the University of Notre Dame. A very warm welcome to our friends, GE, and also to a number of the participating schools across the world. Joining us we have Duke, Dartmouth, Georgetown, IESA, Indiana, and NCEAD. So a very big Notre Dame welcome please to our GE friends and our schools who are participating.

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I’d like to say that GE is a guest of ours but actually GE is a partner of ours. We have about 900 Notre Dame alumnis placed within General Electric and we know it from our development records. And they account for one of the top donors to the university in terms of matching grants so first of all, they are very real partners to us.

Just in the last few years GE made 80 offers two years ago and 60 offers last year to our students, and as we look at it we have 150 interviewing slots this year. So I just want to say thank you for all the opportunities you provide.

In addition to opportunities, GE is also a partner to us in curriculum development. GE helped us with providing cases for our MBA deep dives. GE actually provided a workshop to us on corporate social responsibility, which was attended by our faculty and staff. And also provided an opportunity for our senior university staff on continuous improvement, so I just want to say thank you very much.

With us today are, first of all, we have Mary Thompson. Mary is a Notre Dame alumna from the class of 1985 in English. Today she is a reporter with CNBC and she will be our moderator this morning. We also welcome back Keith Sherin. Keith is the vice chairman and CFO of GE from the class of 1981 and a math major. We also welcome Mr. Jeff Immelt, who is the CEO/chairman of GE, also an applied math major from the class of 1978 from Dartmouth. Welcome to our GE friends. I’m going to turn the program over.

mary thompson | reporter | cnbc

Good morning everyone. Thank you for joining us. Thank you very much, Dean Woo, for your introduction. Welcome to GE Live, which is Winning in Today’s Environment. Jeff and Keith, great to see you both here.

Jeff:                         Hi Mary.

Keith:                      Nice to be here.

And for me, of course, it’s always a pleasure to be back at Notre Dame, although I must say every time I come back it’s changed so much I can barely find my way around. Feel the same way?

Jeff:                         A lot of growth.

Yeah, a lot of growth. All right, we have to get through a little trash talk, of course. Keith and my own Fighting Irish four and one this year, which is great. Jeff, Big Green? How they doing?

Jeff:                         Mary, uh, you know, we think about women’s soccer and we’ve got a good chance to win the women’s nationals.

Mary:                       You know Notre Dame is ranked in women’s soccer, Notre Dame is ranked in women’s soccer — 0 and three, but of course, the Fighting Irish could be very close to that were it not for some last minute heroics that they’ve had in the past couple of games.

                                In all seriousness, I understand you’ve spoken to the students here in this room before and that you do at least one of these big global shows once a year. I know that every opportunity for the students here at Notre Dame and participating remotely to hear from business leaders like both Keith and Jeff is an invaluable tool for them so they very much — or we assume, of course, that you appreciate their time. So thank you on behalf of the participants for coming.

Jeff:                         At least they dressed up for us, Mary, I’ll give you that much.

Mary:                       And I’m thinking, can you tell us if it’s a good sign or a bad sign? Are you nervous about the job market or are you positive?

Jeff:                         The economy’s tough. They’re so good looking, I know that for sure.

Mary:                       Okay, we’re going to get to some questions from the audience in just a couple of minutes, but given that I’m a journalist I get to have the first question. And Jeff, my first question is to you because you took over GE a few days before 9/11 and it was basically a baptism by fire, I think, right after that. Although if you look back at this year you could say that this was certainly a very trying time as well. As you look out and as you speak to these hopefully future CEOs and CFOs and business leaders, what would you say is the most important lesson that you’ve learned from this past year?

Jeff:                         You know, Mary, what I would say is, first, I think the world you graduate into is a different world than the one I graduated into in 1982. I think after a period of relative stability in the capital markets, the world was at peace, oil was $15 a barrel, we just have entered into an age that probably began when the tech bubble burst, you know, almost 10 years ago now, of more volatility, more uncertainty, more things happening on a global basis than ever before, and so you’re just going to enter an age where you’re going to have to be more flexible and more adaptable. And you know, no two crises are alike and just, you know, really, I’d rather have calm water, you know, of all things considered, calm is better than volatile. But I think what I’ve . . . I’ve learned the importance of people, that if you have good people around you you can make tough decisions even without all the right data in front of you. The importance of persistence, the importance to have a true compass that guides you even when times are tough and to stick with that. And the importance of adaptability. I mean, when you’re in a crisis, you know, what I could say about post Lehman Bros. day, really, which is almost a year ago, every day was a week, every week was a month, and every month was a year, right. So you were getting so much information so fast and you had to recalibrate yourself so quickly that it was really all about endurance and being adaptable in your thinking because you’d go home . . . Friday used to be my favorite day of the week, right. During the crisis you’d go home Friday and 15 banks were going to fail over the weekend. You wouldn’t know what to do and then you’d go to bed Sunday night watching you guys, you wouldn’t know what you were going to see the next morning, and unless you were flexible and persistent you just couldn’t make it through a time like that.

Mary:                       Just a quick question. What was your true compass during that time?

Jeff:                         I think I always played for the long term. You know, I run a company that’s got a great brand, a great people, and I always knew that someday the people would like me again, right. When you have to make tough decisions, you’re going to get criticized. And I always knew that if I made the right decisions for our investors, for the company for the long term, people might hate me tomorrow — and did — but someday they’d like me again. And that’s, you know, that’s, that was my compass. We were playing a bigger game than September 15th, that we needed to always keep that in mind.

Mary:                       Okay. This is a taste of what we’re going to hear from both Jeff and Keith later today, about what is going on in today’s business world, etc. Not mention everything else, of course, that we’re going to cover. I know that your questions probably span the globe literally, I’m sure. I’m sure you have questions about what’s happening in Asia and Europe, etc. But first what we want to do is meet the schools that are participating in today’s event. We have over 300 attendees in the room here at the Mendoza College of Business at Notre Dame and many more students watching outside of this room here, again, at Our Lady’s Campus. The event is also being webcast and there are thousands more who are going to be watching the event on their computers.

                                But right now, here at Notre Dame, here come The Irish!

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Mary:                       Okay, right now we are going to go to the nation’s capital and Georgetown University.

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Mary:                       Next up, right down the road here in Indiana, the Kelly School at Indiana University.

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Mary:                       Back east we go to the home of the Blue Devils of Duke.

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Mary:                       And a few hundred miles north of that we got to Jeff’s alma mater, that being, of course, Dartmouth in beautiful Hanover, New Hampshire.

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Mary:                       Now let’s go across the pond to France and meet the students from the European campus of INSEAD.

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Mary:                       We’re going to recruit them for the USC game. And we are also going to take a quick trip south to Spain where we meet the students at IESA. Is that correct? I hope so.

Jeff:                         IESA, yep.

Mary:                       IESA, okay.

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Mary:                       IESA. IESA, I apologize. IESA, I’ll get it right the next time. All right, sounds like we are ready to go here. We’re going to get great questions from the students in a few minutes but right now what we want to do is look at the big picture. So right off the top I want both of you to give your opening remarks. Just give us and idea of what, you know, we’ve heard specifically, I think, some of the deans of the schools say what they’ve heard from their students is they’ve heard a lot about what it means to be a good corporate citizen, what does corporate responsibility mean right now. So Jeff, we’d like to hear from you. What do you consider a good corporate citizen and how do you try to fulfill that role?

Jeff:                         Again, I think there’s a number of things that companies can do to rebuild reputations. You know, there was a Gallup poll that came out about two months ago. It had polled people — it was from the United States — to say, ‘Who do you respect? Who do you admire?’ And the military came at the top of the list, 80% of Americans admire the military. Big business was less than 20%. And so it just shows you where reputation sits today. And people are angry, they’ve lost their jobs, they’ve lost their money. So I do think it’s important that we stand for something and that we work hard to rebuild our reputations in the global economy.

                                You know, what I would say, Mary, is it starts with being competitive and having integrity. It starts with the foundations of the company. You cannot be a well known or a socially responsible company unless you’re a successful company, unless you can weather these cycles, you keep investing and that you protect the future. And so that’s the foundation of everything you have to do. And then beyond that you build reputation by being generous where you can. You know, in GE we give several hundred million dollars to the GE Foundation and to education and things like that.

                                The other thing you do is you build competitiveness so you train your employees. We spend a billion dollars a year on training. We make our employees all over the world competitive.

                                But ultimately, you’re going to graduate in a world that values solutions and systems thinking. You know, basically the first 25 years of my career were in a linear fashion — taking one business, growing it globally. That’s a linear problem. The economics of the 21st century are going to be about aligning investors, customers, employees, and society all on big themes. That’s where the growth is going to take place, that’s where the money’s going to be made, that’s where investors want us to go. And two or three that I’ve thought about in that regard and one is called ecomagination, Green is Green; that through innovation and technology we can solve an important problem of clean energy, global warming. We can make money for our investors, we can build our reputation, we could do all those things at the same time. When we started five years ago, nobody thought it was possible. Now they do.

                                healthymagination we launched earlier this year — affordable health care. How do you take a high tech presence in healthcare and use it to lower cost, improve quality, improve access — do it not just in the U.S. but globally. You know, these are the two pillars of the GE brand that are going to be very important in the future.

                                And the third on that I think about constantly is how do you take a quintessential American company and make us solve customer issues and societal issues in some of the merging markets around the world? India, China, Africa, Brazil, Latin America.

                                If we do those three things we’re going to be on top of the world from an investor’s standpoint and from a societal standpoint and from an employee standpoint and from a customer standpoint. So I think increasingly, Mary, corporate social responsibility has to align with business competitiveness and that’s the only way you can build reputation consistently.

Mary:                       Keith, do you see it any differently as a CFO as someone would as a CEO or is it the same?

Keith:                      I completely see it the way Jeff does. I think if you’re talking about the foundation of a company that you want to go work for or that you want to put your career into and dedicate a lot of your time and resources, you’ve got to look at the foundation — culture and values. And today when you talk about GE solving some of the world’s toughest problems with ecomagination and healthymagination, a commitment to education around the world, I think that’s the type of thing that you want to look for in the enterprise that you’re looking to go put a lot of your effort into to change the world. So I think culture and values is the foundation and how does a company participate in the world not just to make money somewhere but to also be a good citizen everywhere, and I think GE has those values and it starts at the top and we reinforce it with everything we do for our employees globally.

Mary:                       Could I just ask you quickly how this has changed since you entered the workforce? Being a good corporate citizen?

Keith:                      Well, I think we’re much more global, for one. I think today over half our revenues for the company are outside the U.S. and that makes you a lot more in tune with what’s happening in different cultures in different parts of the world. So being more global has enabled us to be much more externally focused. I think today employee citizens are more attuned to social responsibility. Our employees today, when we recruit at a place like Notre Dame or Duke or any of the other schools, you know, I know you want to be involved with something that matters to the world, not just something that’s a job where you get a paycheck. And I think all of our employees feel that way. When we launch something like ecomagination we get, it’s embraced by our employees. When we launched healthymagination it’s embraced by our employees. Our employees like to be involved in doing something that’s good for the company but also good for the broader stakeholders and they like to be involved in things that are good for solving those world’s toughest problems today. I think people are much more attuned today and it’s more of a priority for everybody.

Mary:                       Jeff, I want to ask you a question just about, you know, the current state of the economy right now. Many companies are struggling. GE obviously has had a struggle in the last year or so. But we have seen some economic indicators that are actually positive here in the U.S., others still a little bit negative. Some talk about a W recovery. Where do you see the U.S. . . . or the global economy right now and where is GE best positioned to take advantage of the positive signs that you’re seeing?

Jeff:                         You know, Mary, what I would say is that there’s four kind of environmental themes as it pertains to the global economy right now. The first one, and one that Keith can talk about in more detail, is the credit markets, the capital markets. I mean, basically what happened a year ago is that the capital markets fundamentally shut down and that was a precursor to a deep recession. I’d say the capital markets are actually getting better. There’s cash available, there’s more I would say certainty around the system and so we definitely see that taking place.

                                The second big theme really happens, I’d say, Mary, in the developed world. By that I mean, western Europe, the U.S., and Japan where consumers are in the process of saving more. I mean, they’re worried about unemployment, they probably had too much leverage going into the crisis, and already the savings rate in places like the United States has gone from a negative to maybe 6%, 7%. And so the consumer is stable but not, you know, not going out and spending more. And I think that means that the economy probably, in the developed world, is okay but until the consumer really sees this confidence we’ll be in a slow growth time period.

                                The third big theme is, you know, I always tell people if they saw what I got in economics in college they wouldn’t ask me about the economy so much. But there’s this thing called decoupling, right, and could the rest of the world grow if the U.S. was slow? That’s taken place. I mean, I just got back from a week or 10 days in Asia, Indonesia’s growing, India’s growing, China’s growing. These places really have, to a large extent, decoupled from the United States. That’s quite encouraging. I think that’s really great news and they are very robust right now.

                                And then the fourth thing is is we’ve just got, you know, government reform going on in Washington, DC, Brussels, Tokyo, Beijing, every corner of the world. So you’ve got healthcare reform, energy reform. It’s not just an American phenomenon. I think we just live in the era of more activist government and so these four things, Mary, are all kind of intersecting to the point where, you know, I’d say we’re realistic but quite optimistic about the things we can do in the next six to 12 months. But, again, it’s much better than it was six months or a year ago.

Mary:                       Thank goodness for that. On everyone’s mind who’s watching, of course, today is, you know, their future growth; your own personal future growth specifically — employment growth imagine is what you’re hoping for. You know, Keith, if you were going to hire someone, what would you say you’re looking for from an MBA candidate or even an undergraduate business graduate . . . I should say of an undergraduate business school.

Keith:                      Well, I know it’s one of the top priorities on your minds today all around the world. With this economy and with the financial crisis that we’ve been through, and then now the recession, you know, how is the job market? I know you’re interviewing. I think what you want to try and do is you want to try and present yourself as someone who can really make a difference to the enterprise that you’re applying to join. You’ve got to be passionate, you have to be energetic, you have to have a knowledge about the enterprise that you’re trying to join and contribute to so you show that curiosity that you want to learn. And you want to be able to get into a place where you can get a job to give you terrific we call it ‘domain experience’ in the company — something where you’re not a generalist but you’re technically building a foundation of skills that you can leverage through the rest of your career. And I think today if you were out on campus, and people are here interviewing I know, we’re looking for someone who really is engaged and wants to join that enterprise; not someone who’s just fishing around. And I know, I’m sure everyone’s doing their homework on the companies but you’ve got to come in with passion and energy and some knowledge, some homework that you’ve done about that enterprise and how why you’re the person who can make that enterprise better going forward. And it’s very competitive but I’d find something where you can build that domain knowledge would be the priority for me today.

Jeff:                         You know, Mary, I would just add to what Keith said. We feed off your energy. I mean, one of the reasons why we like recruiting, and we recruit in good times and bad, is that it gives us a renewal. You know, when I came in here today and saw some of our Notre Dame grads that are here in the audience, it pumps me up, you know, because, because they’re energized about their future and where it goes. And I think all this mumbo jumbo about business is bad and being vilified, you’re going to know that that’s crap and that you’re willing to kind of come in and rejuvenate and that this is a great profession and a great company, and your energy and passion renews us through all this activity — and now more than ever. I think this notion of the energy that the next generation of recruits brings to a company is massively important and essential for the future.

Mary:                       Okay. I want to talk a little bit, or at least allow you to have the chance to talk about one of the new initiatives that you launched at GE called healthymagination. You just launched it this spring, is that correct?

Jeff:                         Yes, yep.

Mary:                       Okay. How has it progressed over the last six months and how does this initiative help position GE for future success?

Jeff:                         You know, Mary, we’re unique in that we’ve got a big healthcare business so we’ve got, we are the world’s biggest diagnostics company. We also are a big legacy employer so we have big healthcare costs inside the company. We’re very much a global healthcare player so we see our healthcare business in every country around the world so we are deep domain experts in healthcare. And basically, the way the industry has worked — I would say for post World War II time period — it has been driven by high technology that would then trickle down to populations on a global basis. Not just in the U.S. but this would happen on a global basis. You know, what we’re convinced about is that healthcare’s going to have to go through a transformation; the transformation’s going to be around the three pillars of cost, quality, access. And that what you read about in Washington, DC, this is going to be important in the United States but, you know, we’ve got a billion dollar healthcare business in China, we’ve got a $400 million healthcare business in India, we’ve got big healthcare businesses in Turkey and Russia, in every corner of the world, and so they are all about cost, quality, access.

                                So what we try to do, Mary, is just broaden our product breadth, right. That’s what healthymagination was about — a hundred innovations that are going to really improve cost, quality, and access by at least 15%; drive much more into healthcare information technology and services to help our customers become more productive; change our own employee healthcare plan to make us better consumers of healthcare. You know, try to see the 360 degrees of healthcare because this is going to be an important industry for GE for not just a year or two but for the next 10, 20, 30 years and we want to be part of the solution as healthcare changes not only in the U.S. but on a global basis.

Mary:                       Okay. Keith, in the Wall Street Journal today there was a lot of coverage about commercial real estate, two things — that it’s going to hurt banks again in the coming months and also that office vacancy rates are rising. This, of course, was an Achilles heel for GE for quite some time during the spring. Two things. First of all, how does GE’s own commercial real estate portfolio look right now? And then second of all, how are you preparing for a possible encore onslaught of questions from the analysts and investor community about this?

Keith:                      Well, I’d say things are much better, obviously, as a foundation. I mean, when you talk about some of the pressure that we’ve had as a company — obviously we’re a large financial services player — if you go back to the September time period, with systemic risk and capital markets freezing up we had a lot of defense to play around liquidity, around what are the risks in GE Capital, around our rating, around our cash flow. There were so many things. Today we have made a tremendous amount of progress on all those areas. And in terms of liquidity we used to have $90 billion of short term borrowings of commercial paper — today we have $50 billion. We used to back that up with $60 billion of bank lines — today’s it’s 100% backed up by bank lines. We had, you know, $16 billion of cash in September of 2008 — today we run the company with $50 billion in cash. So when you step back and you look at some of the challenges we faced, including commercial real estate, they were against a backdrop of many other uncertainties. And so I think with the strength of the company, we’re generating a lot of cash flow. We put a plan together last year that said we were going to generate $14 to $16 billion of cash flow — we did that in the fall. We committed to that, we’re actually delivering on that. Against that backdrop, you know, things like the pressure in GE Capital have narrowed dramatically. I think commercial real estate is still an Achilles heel for the global economy. Certainly the large financial institutions have a lot of exposure to it. If you’re anywhere near construction and development lending you’re really in trouble because those projects are having trouble being financed and they’re not cash flowing. We have a very, very tiny part of our portfolio that’s in that space. But as the economy is tough and as lease vacancies go up and as commercial real estate values go down, obviously as the world deleverages asset values have come down. We’re going to work our way through the real estate portfolio. I think the team’s done a great job. We obviously, the only way to deal with the real estate issue for us is to be completely transparent with our investors about our equity and our debt book, and we’ve done a lot of that to try and calm investors about it. But I think it’s still a continued pressure. I think you could see that the government’s concerned about it — they’re looking at additional programs to provide liquidity, whether it’s the TARP (sounds more like TALTH ???) program expanding or the P-FIT(???). Those are very good things. If we can get those into new originations, I think that would help a lot. But economically everybody’s going to face a continuing challenging commercial real estate.

Mary:                       I was going to say another deep dive like that and . . .

Keith:                      We’re going to have another deep dive I’m sure. We’re going to continue to give all the transparency we can around GE Capital. I mean, at the end of the day when there’s uncertainty and volatility, as Jeff said, the only antidote is complete transparency and we’ve done a lot of that.

Jeff:                         Transparency just is so important. It’s just one of those things — you’ve just got to be comfortable sharing with investors and the public where you stand. We’ve tried. It’s never perfect but we’ve tried our best and I think the more people know about everything, including commercial real estate, I think the more comfortable they get that they know we can manage through it. Right.

Mary:                       Thanks to both of you for this. I think right now what we want to do, of course, is get to the schools. I know all of you have your questions. We have students standing by at microphones around the world, at our remote sites of course and here at Notre Dame. We’re going to take as many questions as possible, but my understanding is that if we don’t get to all of them today, they can be submitted to business school leaders and then they will be answered at a later time and the schools will make the answers available to all of the students.

                                The first question comes from Notre Dame. If you’d introduce yourself, too, before you ask the question we’d appreciate that. Go ahead.

John Gregorio:        Hi. My name is John Gregorio and I’m a first year MBA student. And my question is as we’ve matured into a global society, businesses are increasingly conducting their research and innovation around the world, and what can we do as future business leaders to ensure that the United States keeps its competitive advantage? And what is GE doing to ensure that it remains one of the most competitive and innovative companies in the world?

Jeff:                         So for us, I mean, the luxury we have is one of size and breadth. We’re not only a big company with a big research budget but we’re also a broaden company. We’re in aviation, energy, healthcare, transportation, in a number of different industries. We’re a large researcher in the United States. We’ve hired lots of engineers in this country. We also have a big engineering base in India, China, really every corner of the world has some GE product development, some GE technology in it. You know, the first thing I would say is that innovation’s important. If you choose a career in the industrial space, you better be good at product selection, you better be good at product management, you better be good at motivating engineers. When you’re in business school you learn a lot about professional management but you better be very comfortable with technology if you want to progress your career in that field. So (a), I’d say you’ve got to spend a lot of money in technology.

                                The second thing I would say is that you’re going to have to globalize some of that if you want to be successful, right. So we’ve got to be in China, we’ve got to be in India.

                                The third thing I’d say is that the only future for the United States, right —in some ways I run a global company with global investors, global customers, and I’ve got to make sure that we cover the global bases. But I don’t think any multinational company can succeed unless the U.S. also has some vision for its future. The U.S. has to have a new vision. We have to have a vision as an exporter, right. Right now, 7% of our GDP are exports in the United States; in Germany it’s 40%, right? Four percent of American students are studying engineering — in India that’s 30%. It’s ridiculous. We’ve allowed our manufacturing base to erode. We’ve allowed our education system to erode. We’re not graduating enough engineers. All of these things at some point are going to have to be resolved for the U.S. to have a different vision of its future or else we’re going to get protectionism, right. When people are afraid they want to have protectionists. That is the worst thing that could ever happen to the U.S. economy.

                                So my view is, look, I love globalization for my company. I’ve enjoyed it personally. I’ve learned a lot as a person, having the ability to travel the world. We will continue to do engineering in France, in Spain, in China, in India, all those places because that’s where we need to grow. But we also, as a company — as GE — have a vision for what we’re going to do in the United States. We’re going to make things here, we’re going to engineer things here, and we’re going to be a big exporter for the United States for a long time to come. But we need some help. We can’t be the only ones carrying this banner. This is actually, I think, quite important and something that has to take a new stage or have a new spin. Not just to have a pro American point of view, but for the global economy to work the U.S. is such a big market it’s got to have its own vision for how it fits in that global economy.

Mary:                       Do you have anything you want to add to that, Keith?

Keith:                      No, I think it was very well handled.

Jeff:                         Keith has listened to this lecture before, you know, so unfortunately he’s . . . ‘do I have to listen to this again?’

Keith:                      We’re backing it up I think if you look. Where are we right now? It’s a tough economy. What are we doing? We’ve made a commitment to a new battery technology and we’re investing in a plant in Schenectady, New York that has additional capacity. We’re investing in Michigan. Why? Because we can get engineers there who are terrifically talented, who can make us more competitive, and you can deal with some of the disruption that’s gone on in the auto industry. So it’s not just about long term competitiveness; we’re actually taking the actions today under Jeff’s leadership and the company’s committed to it. We need to invest in technology to be more competitive and then all the infrastructure around that — education and prioritization and research and development commitments have to be supported. But we’re committed to it as a company.

Jeff:                         I was in India, I was in Delhi last week, and I was at a roundtable with Mukesh Ambani who runs Reliance, one of the biggest companies in India, a person I have immense respect for. And the comment I made to my Indian CEOs is that they have to have some vision themselves for how they’re going to invest in the U.S., right. They’ve enjoyed 20 years of foreign direct investment in India. They’re going to have to have their own vision for where they’re going to go in the world’s biggest economy. It’s not going to be a one-way street. And I think smart people, Mary, get that.

Mary:                       Now we want to head down to Georgetown for our second question.

Trevor Hill:              Hi, my name is Trevor Hill. I’m a second year MBA student. In last year’s annual report you mentioned that having 50% of the company’s earnings come from financial services was too high and that GE really needed to focus more on its core. My question to you is how do you define the company’s core and what changes will be made to capital finance to support growth in those areas?

Jeff:                         Well, we’re taking care of the 50% . . . the hard way.

Keith:                      Good strategy, lower the percent by lowering the earnings. You know, I think it’s a great question for us and I think as we’ve gone through this financial crisis and we’re dealing with a global recession, we’re going through a reset in the company. And when I think about it, it comes down to one word. It’s focus. And for us in GE Capital the focus is going to be around things that are connected to GE. We have a tremendous aviation business and we have a tremendous aviation financial services business. We have a tremendous energy business and a lot of domain expertise and we have a great energy financial services business. We’ve got a great healthcare franchise, as Jeff talked about, and we’re going to be really good in healthcare financial services globally. So that’s a real core, things that are connected to GE.

                                The other part of the core are activities where we have a competitive advantage versus the large global banks. We have a middle market financing capability where we have originators and distribution capability that blanket small and medium enterprises all around the globe that the banks cannot do. They don’t underwrite assets, they don’t deal with the actual, tangible collateral, they don’t have the relationships at the distribution level on all the infrastructure on small and medium enterprises. And we provide a lot of that capital. We’re very good at it and we’re going to stay there.

                                So we’ve defined a set of businesses in GE Capital, a focused core that takes us from around $650 billion of assets in financial services down to about $400 billion of investment by 2012. And we’re going to be more competitively advantaged because we’re more focused and I think that’s probably the most important thing we can do in financial services.

                                You know, maybe you could talk a little bit about the rest of the portfolio around financial services.

Jeff:                         You know, the first thing I would say, just for all of you that are planning your career, there is going to be a financial service industry, right. I mean, you know, all of this vilification on Wall Street and stuff like that, maybe some of it’s deserved, right, but people need capital. Capital is the foundation of competitive economic society and there is going to be a financial service industry. There’s going to be more reform, probably more capital required. All that’s good. None of that’s bad. Those are good things. So if you had a dream to go to work in financial services, don’t abandon that, you know, don’t abandon that dream. So I would say we’re going to have a focused financial service business because we’re good at it. We think it’s good for our investors and we think it helps the company in the long term.

                                Other than that, you know, we’re just going to be the world’s globalization, technology, innovation, focus on infrastructure, media, financial services. We’ve got leadership businesses that are globally deployed. We’re a technology leader. We’re a big solutions provider. We’ve got great leaders. And so I think those fundamentals of the business and those fundamentals of the company will keep going forward.

Mary:                       I have to jump in here with my own question and it may be selfish of me to ask this. You did mention media in there but there are reports out there that NBC could be sold too.

Jeff:                         I hadn’t heard any of that.

Mary:                       I know, isn’t that amazing. But my question is this. For years you’ve always said this is a core part of General Electric. What’s changed in your thinking?

Jeff:                         You know, what I would say, Mary, is that if you look at what we’ve done as a leadership team over time, we’ve invested a lot in NBC. We did the Universal deal, we bought Bravo, we bought Oxygen, we did Telemundo, we’ve done an incredible amount over time. I’ve always thought, and I think particularly in the reset world, you know, you’ve got to continue to go forward in all of your businesses as you look at them. We happen to have a partner right now in Vivendi that is, you know, has an option to take their 20% stake and put them back to us. You know, I don’t know whether they’re going to do it or not. They’ve been a great partner over time. And as they do that we’re going to go through strategic considerations, like do we do an IPO, do we take on partnerships, do we look at other things. But it’s all with the notion of how would you make NBC-U even stronger for the future. So that’s all I’ve said and all I’m saying.

Mary:                       I’ll leave it at that. Now let’s go to the third question. This comes from, of course, Indiana University.

Lucia Goerth:          Good morning. Thank you so much for having us here. I’m Luccia Goerth, a second year student, class of 2010. And here is my question for you. You have been named world’s best CEO twice by Barron’s and as a CEO you lead GE, America’s most admired company. We all have dreams, just like you had in 1982 when you graduated from Harvard Business School. What makes you the best? And what suggestion do you have for us to be successful as leaders as we step out of MBA?

Jeff:                         So what I would . . . First of all, what I would say is the one thing that I got, you know, I don’t remember one thing I learned when I was a business school student. Not one. I mean, I really, I really, I can’t do the cap, I can’t do market segmentation anymore, I can’t do the capital asset pricing model anymore, I can’t do any of those things. In fact, the one class that I hated, really, because I thought it was so soft, right, was organizational behavior. Right?

APPLAUSE

                                So I never paid attention. I always doodled. And now that’s all I do, you know. There’s like this certain perverted . . . my friend here, there’s a certain perversion because all I do now is organizational behavior. I wish I had studied harder. So I don’t remember a gosh darned thing. But what getting an MBA did was give me self confidence that I could try things and fail, and for as many good articles that have been written about me there have been bad ones, right. And so it’s this foundation that you build when you’re your age and this education that you get that’s really a ticket to lifelong learning, called an MBA, that gives you the confidence, hopefully, that you never get too full of yourself on the good days and retain your self confidence on the bad days. And believe it or not, that is one of the values of an MBA.

                                Other than that, I would really say to all business school students is do what you want to do. Follow your path. You know, I wanted to be a manager when I graduated from business school. I didn’t, you know, thinking about being CEO of GE is just too weird and I was never quite that weird. So there’s so much luck and everything else. But I always wanted to be a good manager. I didn’t . . . So if I wanted to be a good manager you go join a company that’s good at management. If you want to be a consultant go join a consulting company. If you want to be a venture capitalist, go be a venture capitalist. If you want to run a hedge fund, go run a hedge fund. People that follow their true calling always are happiest. But if you want to be a good manager, don’t join a consulting company. And if you want to be a CEO, don’t join a hedge fund, right. In other words, this notion of kind of like the triple ricochet of your career, you know, that somehow I’m going to gratify myself today. You know, I guarantee you if you go run a hedge fund you’re not going to be CEO of GE someday. It ain’t going to happen. So my idea is don’t believe in this kind of triple bank shot in your career. Figure out what you want to do. The one reason to come to business school is you get two years to think about yourself fundamentally. I mean, you get two years to discover who you are. I cut 22 year olds a lot of slack that they’re not quite there yet because I remember what I was like at 22. But at the end of your MBA school you’ve got to be good to go. You know. You’ve got to kind of be ready, you know, I always thought it was a good idea . . . You know, I actually, I discovered leverage when I was in business school. I had $50,000 of debt. I was good to go, you know. When I graduated I was ready. So my only advice to business school students is really, have a vision for yourself and follow that vision. And if you do that you’re not going to fail on your own terms. And that’s my only advice.

Mary:                       Okay. Now we go to Duke who’s standing by with a question. Go ahead, Duke.

Uli Ang:                   Hi, good morning. My name is Uli Ang. I came from China. And my question: In this current economy situation every day is different. It’s better if our country like China. So my question is how does GE cope with this kind of situation? And what’s the GE strategy for China in following 10 or 20 years? Thank you.

Jeff:                         You want to . . .

Keith:                      Go ahead, you were just there.

Jeff;                         So I think if you think about, you know, one place that’s changed the most in my, the arc of my career, it’s China. So I probably went there the first time in 1985, almost probably 25 years ago and to see the progress that’s been made in China over the last 25 years is just remarkable. It really is a testament that the government of China is really among the best in the world. They tend to be the best people that graduate from schools. They work as a team, they work with a unified vision. They’re in their eleventh five year plan, you know, and basically if I went back over the 25 years I’ve been going to China, if it comes down to one concept: Do exactly what the government tells you to do. You know, if you follow their five year plans, you will have made a success in China over that time period. So you’ve got a really remarkable success as it pertains to the country and economy of China. They have massive reserves. They still have challenges but massive financial strength in the world today.

                                I would say the next generation, next five or 10 years are going to be about, for companies like GE, fully developing the country, so you’ve got to get out of cities like Beijing and Shanghai and into the western and northern parts of the city [sic], number one. So you’ve got to fully develop your enterprise. Number two, you’ve got to align yourself in solving some of the big challenges in China, like the environment. I mean, we talk about green investing in the U.S. This is a country that has massive needs for green investing, green technology, that they have to solve. I mean, the entire northern part of the country has no water. The ability to do a water reuse clean energy is going to happen in China, number two. And number three, there’s going to be big partnerships between multinationals like GE and some of the state owned enterprises in China, with creating global joint ventures and those type of relationships.

                                I’d say those three things have to be your vision for where you go in China. But people in my generation, depending upon the industry, we’ve got to leave for you a fully formed business strategy to how you can compete and win in China because in some way, shape, or form in your lifetime this is either going to be the first or second biggest economy in the world and you can’t have a successful global enterprise without knowing how to win and play in China.

Keith:                      I’d add a twist on this from a leadership perspective. Jeff and I have been traveling together a long time. Ten years ago we sat in China after he became the CEO and we saw that this opportunity for growth was going to outstrip anything else that we could go after as a company, and there wasn’t a single bit of inertia in the company to go and attack that. In other words, if we didn’t go there, and Jeff set a goal of a certain amount of revenue by a certain time — it was an outrageous goal, it was a stretch goal — we put a resource plan together that said we need more leaders in China. We measured how many officers we had, how many senior executives we had. We went twice a year and we monitored every single program we had and we forced basically a non global company to shift its center of gravity to China where people had enough authority and autonomy and decision making capability that they could actually bring resources and products and investment into the country so that we could build a foundation to compete the way we’re talking about today. And now we’re in a regeneration. I think we need another whole regeneration of the strategy for the next 10 years. It’s really, it’s going to be the most amazing economic force in our lifetime. We are going to compete with the Chinese or we’re going to partner with them and we ought to understand how to operate in that environment and how they operate around the rest of the world. And the only way to do that is to be there, be local, be dedicated, and be relentless in terms of how you approach China. And I think there’s a leadership lesson here about how do you change the inertia and momentum of a company? You’ve got to set really tough stretch goals and then you’ve got to relentlessly follow it with a passion. I’d say we’re a third of the way along the journey somewhere. We’re not done.

Jeff:                         You know, we both grew up in — Keith and I — in quintessential kind of American families. I grew up in Cincinnati, Ohio. I fundamentally never went outside of a hundred mile radius of my home until I went to college, right. And then I’ve spent the 27 years of my career in Turkey and Moscow and Beijing and Bangalore and that, I gotta tell you, as a human being I’ve learned so much. I’m such a different person and it’s so enriching personally to experience and learn and so I just think for all of you at your age, you’re going to, you know, don’t fight these things. Learn so much from it and you’re going to be so much better for having these experiences that Keith and I have had as we’ve kind of grown up in a global company. It’s just a lot of, it’s a lot of fun and it makes you a different person.

Keith:                      And it’s not just China.

Jeff:                         No, it’s everywhere. In France, Germany.

Keith:                      It’s Spain, it’s Brazil, I mean it’s a global economy.

Jeff:                         Yeah, I mean, Spain’s going through a tough time right now but I remember my first trip to Spain before it joined the European Union, you know, it was very underdeveloped. It’s just, you see all these things happen in 20 years, which is really a moment in time almost.

Mary:                       I want to actually bring the focus back to the U.S. And you talked about how you can’t fight certain things. Here in the U.S., of course, there’s been more of push towards green energy and I know that GE is supportive of cap in trade but there are some who say this is not the way to go. First of all, I have two questions for you. How has the recession impacted the business for renewable energy? And then what’s your argument to those that say cap in trade isn’t the right solution right now?

Jeff:                         You know, Mary, fundamentally the company and all of us believe in cap in trade because, for a couple of reasons. One is we believe in the science of global warming. The second thing is we think it’s a big job creator, it’s a big competitiveness point. The technology can have a big impact. And we believe it’s the right thing to do. So there’s three reasons why we kind of embraced ecomagination and Green is Green. The economy certainly makes it slow down, right? There’s not as much capital, the demand for electricity goes down, people aren’t buying as many cars. It’s a natural thing to see that people have their attention in other areas. Nonetheless, our fundamental ecomagination products are way outpaced the growth of the company and continue to be popular not just in the U.S. but the rest of the world.

                                But ultimately the argument I would make is, in other words, if you decide you’re not an environmentalist, that it’s a bunch of mumbo jumbo from the left wing or whatever your, whatever your political leanings are. If you want to have some kind of philosophical debate or something like that, which I don’t really care that much about. I’d say it’s about economics in the end. There are going to be massive jobs created in clean energy, whether it’s wind or nuclear or coal gasification or water reuse or superefficient gas turbines. And this country is either going to win in those places or they’re not going to win. The Chinese are going to win, the Europeans are going to win. You’re either going to win or lose and that’s going to be decided soon. And right now, as a country, we’re not positioned to win. We’re having yesterday’s debate today instead of moving forward aggressively. And in the end this is about millions of jobs and economic growth. And you know what? If you don’t believe me, fine. We’ll keep investing and we’ll keep winning, you know. But what’s frustrating to me is, look, we had a Republican president for eight years — I’m a Republican. Oil prices got to $150 a barrel and we haven’t put one shovel in the ground in this country to build a nuclear power plant. Not one. And we’re probably further away from that today than we were five years ago. You know, it’s just . . . you know, why? There’s no price signal for carbon. There’s no knowledge of what it can be. It’s too high risk for utilities. I rest my case. In other words, you’re either going to go forwards or backwards. And we’ve said in GE, using our own capital, we’re going to own green energy. And I would tell any of you in there, if you like green energy this is the place to come to work. And anybody else will be second. Right. We’ve got the money, we’ve got the will, we’ve got the horsepower, we’ve got the people, we’ve got the team, we’ve got the brand. And we put our money where our mouth is and we’ll see how it goes.

Mary:                       Keith, how important or how critical is government involvement, not only here in the U.S. but abroad as well at this point, in getting the green businesses up and running? And what happens if the government says, “We have other priorities right now”?

Keith:                      Well, it’s about competitiveness. I think today, in the stimulus bill last year or earlier that was passed, there is a tremendous amount of resources dedicated to energy efficiency — the SMART grid, wind technology, solar technology, battery technology — and I think that’s very helpful. So I think we do have some elements where the government, especially in the U.S. and in other countries as well, the government has supported green technology and that’s huge. But the wind industry in this country actually had more gigawatts installed in the last couple of years than they’re going to have in the next couple of years, even though the administration has changed and there’s more of a focus on renewables. So the government has a bigger role to play. I think we need a stronger renewable energy standard. But the incentives that have been put in place are just starting now to flow and will help the energy, the wind energy business in the next couple of years.

                                Globally this is a competitive issue. Jeff said it in China. China’s going to install more wind gigawatts than anyone in the world. They’re doing more nuclear power plants than anyone in the world. They’re investing in coal gasification and we’re stuck here and it’s about energy efficiency but it’s also about energy security and it’s about technology and jobs and I think we have more to do from an energy investment perspective and, as Jeff said, GE’s going to invest in it. We’re going to compete globally in it but the government could do more with some more standards that will incentivize people to make sure they get more renewable energy in their capacity.

Jeff:                         How many people here have heard some politician talk about green jobs? Pretty much everybody. One of the phrases we have in GE is, “To do something you have to do something.” That’s actually . . . So I think the time for rhetoric is kind of over and now it’s the time for action.

Mary:                       Okay. We want to get back to the students, of course. We have someone standing by at Dartmouth. Go ahead.

Gucci Cappell:        Well, good morning. My name is Gucci Cappell and I’m a first year at the Tuck School of Business at Dartmouth. And actually I believe that many people in the wider public have sort of lost faith in the financial markets, be it the general public, probably even some MBA students. And you already touched on those areas but I have three specific questions I would like you to expound on. The first one is how is GE, as a publicly listed company, affected by this lack of trust? Then I would like to know whether GE has changed its way of financial reporting to address this loss of trust? And finally, I would like to understand whether for GE the importance of the shareholder versus other stakeholders has changed given today’s environment?

Keith:                      Well, it’s a great question. And this crisis, as Jeff said earlier, business has got a low reputation. And for GE specifically, you know, our whole goal is we worked through this financial crisis and the economy that we’re in today. We’re working on rebuilding the trust of our investors. The only way to do that is by making statements of things that you think you can accomplish and then backing them up with your actions, and providing complete transparency around how you’re operating. And we’re focused on that. We talked a little bit about financial services as one example. In April of this year we wanted to give some transparency around financial services. We gave a six and a half hour analyst meeting and we had complete disclosure about everything we had. The worst problem we were facing at the time around commercial real estate was the first thing we covered and we’ve continued that. In our financial filings we’ve expanded our information dramatically. If you look at a 10Q or a 10K from GE today versus three years ago they’re twice as thick. I’m not sure that’s added to the effectiveness for all the users who have to read it and analyze it but the information is there. And then to follow it up in GE Capital, we came back in July and we were able to do a two hour meeting around all the issues in financial services, instead of a six and a half hour meeting. So again, back to transparency, back to disclosure, back to communicating directly with investors about the things that are important to them. And we’re all about rebuilding investor trust. And it’s not just shareholders, it’s not just the equity holders. For us, we’ve got $500 billion of debt, so when you talk about stakeholders in GE, the shareholders are important, the bond holders are really important. When you talk about GE operating in the world the communities everywhere we operate are important and we really have done a great job on initiatives in our local communities to kind of build a reputation of not just being only about business — we’re about business and about doing good things in the community. Probably one of the biggest initiatives there is around education. We have a developing futures program that we’ve been working on in the GE Foundation for a number of years. We’re into a $150 million commitment around education and we are helping students in K through 12 improve their scores in math and science. And we don’t just give grant money to the Louisville school district or to the Cincinnati school district; our employees are engage. We have leaders from the businesses in those cities who go and work with the school district and they’re committed and they work with the teachers and they work with teacher education and professionalism. They work with IT, they work with sourcing to help that school district be more competitive. So we’re engaged in the community as well to rebuild trust and to build the reputation of GE and people like being a part of that. So I think it starts at the top and making sure that you’re doing everything you can with investors to build trust and back up your statements with actions. And it permeates through the organization by having a good culture and values that employees like to participate in.

Jeff:                         I would add just a little bit. I think Keith gave a great answer. I would add just a little bit. You know, the first thing I’d say is there’s no crime in making money. In other words, I’d hate to have you graduate from here and have you think that you’re going to join a world where earning a profit for your investors isn’t important. It is important. And that’s not a crime, it’s a good thing. Competitiveness, productivity — these are all good things, you know, first and foremost. I would add there are a couple of other elements to rebuilding trust. Ultimately, transparency around executive compensation and accountability around executive compensation — you’re never going to fully rebuild trust until everybody stands up and . . . Sometimes you’re going to make a lot, some, more times than others based on how the company performs but there’s got to be transparency and logic to how that works, that hasn’t always existed.

                                And then I just think the other part is one of the roles of business is to create jobs. And at a time period where unemployment is so high globally, there’s got to be some vision for what do we do from a standpoint of competitiveness and job creation, not just in the U.S. but globally. And these things, I think, are also part of reputation.

Mary:                       We want to go across the pond now to INSEAD in France. You have a question, please.

Umberta Miguel:     Bonjour. Umberta Miguel from INSEAD. I’m [UNCLEAR] and I’m from the December ’09 batch. My question for you is what is GE’s secret in driving innovative thinking in this large conglomerate? In particular, how do you design the employee motivation so that they look across divisional boundaries and how do you design the incentives so that innovative thinking is rewarded at different levels?

Jeff:                         So I think it’s always hard with a company our size that you don’t lose your spark or your ability to innovate, not just from a technical standpoint but also from an idea or management standpoint. One of the key parts about, or one of the advantages to a big company as it pertains to innovation is funding. You know, in many ways I’m my own venture capitalist. Keith’s my banker. We invest maybe $6 billion a year in technology. We’ve got central research, we’ve got distributed research, we’ve got one site in the U.S. where we’ve got 2,000 PhDs, we’ve got one site in India where we’ve got 2,000 PhDs and 3,000 engineers so we’ve got this incredible pool of smart people that are well funded with the best tools in the world. So it helps to have great people and lots of them.

                                The second thing we do is we try to pull ideas out of the pile. And, I mean, one of the things I do is I run this process called Imagination Breakthroughs and we identify, you know, 50 projects inside the company that I’m kind of the sponsor for. Some of those are small ideas, some of those are big ideas but it’s a way that I can reach down and get ideas to make sure they don’t get buried and that we have a process to turn them into big ideas over time. So we actually create processes around innovation so that we can spread ideas and share ideas broadly across the company and make sure they get funded.

                                And then the last point I’d make is that we’re humble enough to know that we’re not going to invent everything at GE. One of the things we’ve done in green technology is we’ve reached out to venture capitalists, we co-invest with venture capitalists, we invite venture capitalists to spend days on end at our research centers. And so we try to be a really good partner. I mean, we try to be, you know, have the knowledge that we’re not going to invent all the great ideas but if we’re a good partner, a trusted partner, we can multiply our innovation over many different platforms and companies. And so I think it’s a combination of funding, process, a process that allows people to take swings inside the company and metrics that support that, and having what I call just an open architecture philosophically that embraces entrepreneurs, the startup companies. You know, I get asked this a lot when I go to schools. You know, we’re not always the best company to take an idea from zero to $20 million. Sometimes somebody in the garage can do that better than GE can. But to get it from $20 million to a billion dollars with global distribution support, we are the, you know, we strive to be the best in the world at driving technology, commercializing technology, taking it down the cost curve, and things like that. We didn’t invent wind turbines — you know, that’s been going on for 20 years. But in the space of five years we’ve become number one in the world in wind energy because we can take this innovation, you know, in other words, we’ve got a team of people in Germany that basically started the Wind business that we now own. That team of people, these original entrepreneurs, still work in this business today. Still work in the business today. Probably 15, 20 years after they founded it. Only today they’re in a $7 billion business. They’ve been able to see their factory grow, their ideas spread, their capabilities multiplied. And the combination of their vision and entrepreneurial spirit and our scaling effect is sometimes what it takes to take these great ideas and globalize them.

Mary:                       All right, IESA has been waiting very patiently with a question, so go ahead please.

Emmanuel Ixenos: Good morning from IESA, Barcelona, North Campus. My name is Emmanuel Ixenos. I’m from Greece. And my question would like to take you back to the green energy debate, and especially we have seen that you have announced recently that you have purchased a unit on Norway in Nordic countries, and an aggressive expansion strategy in western Europe in offshore wind generation. We would like to hear more about what are the opportunities, what are the pitfalls of green energy and where do you think in these industries lie the greatest opportunity for expansion and for us, future MBA students, where should we look into? Thank you.

Jeff:                         So again, you’ve already heard that we really think this is going to be one of the real growth industries of the 21st century. For it to be successful, you really need kind of four things at the same time. You need big local market investment so that people are experimenting with new technology. You need good innovation, good technology, cost competitive supply chain, and supportive public policy. And basically green investing takes, in some way, shape, or form, all those four things have to come together to build a competitive structure for green energy because, you know, fundamentally the way energy works is that you’re making a decision today that may take place over the next 30 years. And without having some knowledge of what public policy is, or government policy is, you’re never going to be able to make smart decisions as you go through that. So you need all four of those things.

                                Europe, where you guys are, and where INSEAD and IESA is, has been very good about that. Europe has set a very clear roadmap between now and 2020 in terms of what they want to get done. The tariff structures of the countries support that. They’ve spawned an entrepreneurial climate in western Europe that has spawned really thousands of companies over the past decade and will continue to do that. They’ve got industrialists like our competitors, like Siemens and other people that are involved. And so when those four things happen, you’re going to get a green infrastructure and a green industry. What could create the whole thing to fall apart? You know, I would say one of them is general, right. Fifteen dollar oil, right. If you think we’re going to go back to two decades of $15 an hour oil, the return on investment doesn’t look quite as good as it did when oil is $50. Now, you know, we’ve got, Keith and I have economists and people like that that’ll say that’s probably not going to happen, but that’s one of the things that could dramatically slow down. And then I think the other one is, you know, I for one hope that there’s a renaissance of the nuclear industry but that would all get stopped immediately if there was a safety incident or an economic incident around a nuclear power plant. So there’s certain technologies that have, that have those type of dynamics. But as a 25 year old, right, which is basically how old I was when I graduated from business school, I don’t think you can go wrong if you pick a green energy future. I just, I don’t think you can go wrong with that. And personally, I’d be in favor if more of you wanted to do that than wanted to go to work on Wall Street. I think that would be a fantastic future and that’s what we need, is more innovation and more people that want to plot their future in that.

Mary:                       A very strong endorsement of the industry. All right, what we want to do now, we’ve had some great questions but we have time for basically what is a lightening round with the rest of the schools. So one more question, hopefully from each one of the schools. I just ask that both of you keep your answers a little bit shorter. We’re going to go right back to Notre Dame, who starts off our lightening round. So go ahead.

Jack Johnson:        Hi, my name is Jack Johnson and I’m a first year MBA student here at the University of Notre Dame. There’s been a lot of talk today about the rapidly changing business world. How can large corporations learn from some of the recent ethical scandals and create a strong set of company values?

Keith:                      I think it’s a great question that, again, as you look at what you want to do with your life and your career you ought to really decide what the values are of the company that you’re joining. For us it’s easy. It starts at the top. We have to set the tone. It’s one strike and you’re out for our leadership team. We communicate that way every meeting. We start off our meetings with a discussion about the values of the company. There’s nothing more important than the reputation of the company. We do business in tough places in the world. We’re in Nigeria, we’re in Angola, we’re in places where sometimes bribery is accepted. We don’t allow our employees to participate in it. They know it. And then you’ve got to put an infrastructure around it. So our leaders have to not only have the right behavior but they have to put a process and an infrastructure around that behavior to make sure that the red flags are picked up and that the compliance infrastructure can be successful even though there are risks all over the world. You know, I would take recently, if you look at some, a large competitor from Germany had a massive problem on ethics around the world. We compete with them all over the world. We have done a complete review of areas where we overlap and I’m really pleased to talk about our record around ethics and integrity, even though the world we operate in is tough in some places because the values start at the top and everybody in the company is committed to that culture. We reinforce it with our discussion, and then we back it up with our process. We have auditors and we have ombuds people and we have a lot of infrastructure around it. If there is an issue people can raise it and we’ll go work on it and solve it. But you’ve got to look at the core culture of the company that you’re talking about joining and making sure you like those values because that’s going to be where you’re going to put a big part of your life.

Jeff:                         I would just add — and I think Keith gave a great answer — but for all of you students, you know, we still have to take risk. In other words, my fear is that somehow this all gets confused and that people don’t want to take risk anymore. I actually think that we, as businesspeople, have to continue to take risk. We can’t take reputational risk but we should take financial risk. And my real — I know at GE we think this is a great time to invest and we want to make sure that we are taking the right appropriate business risk and that, I just think that all of the economies, global economies are going to slow down if people are too afraid to take risk again to drive growth, because without that I just think this won’t be the type of economy we really want.

Keith:                      I know you want a short answer. There are places in the world, places in the world where we have a competitive advantage because of our integrity policies, and we use that with governments all around the world and they really want us to invest in the country, not in someone else individually in that country. And it’s a real advantage for us and we’re proud of it.

Mary:                       Okay, we want to go back to Georgetown for another question please.

TJ Winter:               Hi. My name is TJ Winter and I’m a first year MBA student at Georgetown University’s McDonough School of Business. And my question is really kind of a follow-up on some of the themes you’ve been expressing to us today. So GE Energy had a particularly good quarter last quarter with 13% profit growth, but this is a very capitally intensive industry and as customers for this business have trouble getting financing due to the credit crunch, what can GE as a whole proactively do?

Keith:                      You know, one of our competitive advantages, obviously, is having a financial services business with an industrial capability. And even at the beginning of this year, at the height of the financial crisis, we circled $10 billion of capital in our origination in GE Capital to be able to support our industrial businesses, to be able to support our Energy business, our Aviation business, and our Healthcare business. The reality is we haven’t had to use that capital yet because the demand hasn’t been there. I think today, if you have a good project, if you have cash flows, you have an off-date contract, you have something that’s going to generate future economic growth, you can get financing. You can use, for international projects we use XM, we use COFAS, we use JXM. But if you have a good project you can get financing. I think the credit crunch is really affecting companies and consumers at the low end of the credit spectrum because, as Jeff said, people are taking a lot less risk today. But we do have an advantage and if you do have a good project you will get financing.

Jeff:                         I totally agree. I think in addition to that, not just in the U.S. but governments around the world want to stimulate public–private partnerships in energy so, you know, just in the last, you know, we’ve got a couple billion dollar order in Iraq, we’ve got a $2.3 billion order in Kuwait, we’ve got a chance to re-electrify Pakistan, we‘ve got big businesses in India. So globally, as governments, where the governments are setting up the partnerships and things like that, the demand for energy is quite robust.

Mary:                       Okay, we want to go back to Indiana for their second question. Go ahead please.

Matt Callahan:         Hello, my name is Matt Callahan and I am a second year student at the Kelly School of Business. Recently the S&P cut GE’s rating from triple–A to double–A+ and this is the first time this has occurred in the last 50 years. I was wondering what kind of impact this has had on GE’s brand and value with both customers and investors, and what GE’s doing to overcome this impact?

Jeff:                         What did you say your name was again?

LAUGHTER

Matt Callahan:         I’m sorry, my name is Matt Callahan.

Keith:                      I don’t know about the impact. I am a little scarred from the experience, I can tell you. Look, triple–A was a really important part of our brand. And when you got into the financial crisis, there was basically no large financial enterprise globally that was going to have a triple–A. The rating agencies determined that the risk wasn’t going to enable them to put that rating on a company. For us, we’re a double–A+. We’re one of the highest rated companies in the world. We’ve looked at the brand surveys recently and we still have the fourth most valuable brand in the world. I think that the challenge around this really was in the period of uncertainty, so when you’re going through a period where investors and other rating agencies are questioning what your rating is going to be and you don’t have the certainty of what it is, that was the worst period for us. When there was the speculation you might lose three or four notches, you might have liquidity events that go with a downgrade, that was the worst period. I think today bondholders are thrilled to have us out there in the marketplace. We’ve done all of our funding for 2009; we’ve pre-funded 95% of 2010. Our credit spreads have come back in. We changed our liquidity profile, as I mentioned earlier, so we’re a very highly rated company and we’re proud of that. It’s important to us. But it’s that period of uncertainty and the speculation that went with it that really drove us crazy. I think today we’re back to a stable place and we’re proud to be a very highly rated important company globally.

Mary:                       Do you think it hurt your brand because you were the CEO . . .

Jeff:                         Oh look, I think there’s no doubt, Mary. You know, like I said, you’ve got to make, we had to make some tough calls as we went through this that hurt personally and professionally and you hated to do. But it goes back to what I said before, is that I’m driving a really great car and it’s going to be a really great car a year from now or two years from now or five years from now and people will be writing books about Lehman Bros. and all this other stuff and we’re going to be on top of the world, you know. And they’ll look back and cut me some slack over some of the stuff that we had to do as we went through this. That was always kind of what I thought. It’s just, you know, when you’re a CEO, sometimes you can’t say ‘let’s wait till tomorrow to make that call’ or ‘let’s form a team to do it’ or ‘I’m not here right now’, you know. And as you, you’ve got to make the decision, you’ve got to make it now, you’ve got to make it with little, with little information and you’ve got to have enough self confidence that you can stand up for the good and the bad. And that’s the job. If you don’t like that you should go do something else really. But if you, there’s so many other good parts about being a CEO that it makes some of the other stuff become learning experiences, right, and you just deal with it.

Mary:                       Okay.

Keith:                      When you talk about brand, I think the brand that we operated under in the crisis was the franchise of GE. We’re in a 125 year old company that’s got amazing businesses with tremendous people and the decisions that we made were all under the guise of how do you keep the franchise safe and secure and around for another 120 years. And that brand is going to be more important over the long term for us.

Mary:                       All right, we want to go back to Duke University. Please state your question.

Josie Hsu:               Hello. My name is Josie Hsu. I’m first year MBA student. My question is as a global leader in healthcare, how will healthcare reform affect GE? What will GE gain and what will GE lose? Thank you.

Jeff:                         You know, I again urge all of you, just like I was talking about clean energy and things like that, in some way, shape, or form everybody in this room is going to have to learn healthcare. You know, it’s just such a big part of the economy, whether you’re worried about your employees or your own business or you’re in the industry, healthcare is just such an important part of everything we do. It’s a very complicated challenge that President Obama has taken on. It is, impacts millions of people, it’s got lots of impacts on the economy. And so I think when you . . . And we’ll be working on healthcare for a decade. In other words, this is not going to, there is not a silver bullet that is going to be, you know, change healthcare. There’s a bunch of dimensions about healthcare. There’s a wellness part, right. If you’re a country that has big obesity issues, that has a big diabetes component, your health, you’ve got a big part that has to do with wellness. You’ve got a big part that has to do with markets and how markets work. You’ve got a part that has to do with technology and how technology gets delivered. You’ve got a public policy aspect. I think what the President’s talking about now is really what I would call really more health insurance reform. It’s more about how the money flows in the system and not as much about delivery or wellness or things like that. I think those things are going to have to be delivered over time. It’s not a perfect process. It’s probably not going to be a perfect bill. But when I look at it I think it’s more important that we go forward on healthcare and not backwards. This problem’s not going to get any easier a year from now or six months from now or two years from now.

                                Having, you know, Keith and I were in our Medical business when Secretary Clinton took it on in the mid ‘90s. That failed. If we go through another failure right now, we might be a generation before we really take healthcare on. That would be dangerous for everybody in this room. So I think as imperfect as the options are, I think this is a good first step about getting more people into the system, doing it in an effective way, sharing the pain more or less universally. Believe me, these reforms will not be necessarily helpful for GE specifically, but we operate in a system that has to start addressing its issues and so I quite hope that we move forward as we think about where healthcare needs to go. This is not going to be easier a year from now, right. You’ll go at it this year or there’ll be the 2010 election, everybody’s going to wait and say, “Let’s wait for 2011. In 2011 these issues just get two years worse. So now is the time to take it on and like I said, I think I give the people in Congress some credit for taking it on.

Mary:                       Okay. We want to go back to Dartmouth with another question from Tuck. Go ahead please.

Tatiana Mills:           Hi Tatiana Mills, second year student at Tuck. So GE’s a highly diversified conglomerate and my question would be how much do the single business unit benefit from each other? And what the management does to leverage the highest possible synergies between the business units, especially in terms of innovation. Thanks.

Keith:                      Well, we do get a lot of synergy between the businesses. It’s a great question. Why does GE exist together? Out of the $6 billion that we invest in new technology and investments in product and content a year, over 75% of that is in common platforms. So if you look at our gas turbine technology and associate it with our Aircraft Engine business, our Power Generation business, our Oil & Gas distribution business, there’s an awful lot of synergy there. So we get a tremendous amount of leverage from our scale in engineering and R&D. We also get a lot of leverage from spending a billion dollars on training a year. We use people from all different parts of the company in different industries to give us good experiences and good leadership in new industries. And finally, one of the more interesting things I think about GE is that we have company to country partnerships where we go, for example, into Abu Dhabi and we arrange a joint venture in Commercial Finance with the leadership in Abu Dhabi. They’ve agreed to be a top 10 shareholder of the company. We are absolutely winning all the aircraft engine orders for the airline in the region. We have a clean energy partnership in Masdar City where we’re a partner with them on both appliances and energy generation in a carbon-free zone. And those are the types of things that a GE can do. We do it in China, we do it in India, we do it in the Middle East, and that’s a real advantage that the scale of GE brings together for us.

Jeff:                         I think Keith’s right. We spend a lot of time and effort to spread the ideas that make, you know, try to make GE make sense. I guarantee you at the six schools that are online today, somewhere you’re going to have a strategy professor that will argue to you that GE shouldn’t exist, that conglomerates are out of favor and blah, blah, blah, you know, and I urge you to have a great debate as you do it. But I think we have to earn our right to exist and so one of the things Keith and I always do is we look at our Energy business versus its peers, our Healthcare business versus its peers, our Financial Service business versus its peers, the media business versus its peers on margin rates and return on total capital. And if all the stuff Keith just said doesn’t translate into economic value creation, you know, we’re not a good owner of that business and we should be self aware enough to understand that. But by and large, over time, we’ve been able to translate all the things Keith mentioned into real economic value creation by return on total capital and margin rates. And ultimately I think we’ve got to be self disciplined enough to say we’ve got to be creating competitiveness or else the conglomerate model doesn’t make as much sense. And we try to do that.

Mary:                       Okay. We just want to say this concludes actually the question portion from the schools. Again, if you have another question you submit it to your business leaders and we’ll try to get you an answer to that question in the future. I actually have one that I want to address to Keith, and I know that we spoke about this, I think it was in the spring that we met with you, but how has your approach to risk management changed in light of the financial crisis of the last year.

Keith:                      I’m really glad to be speaking with you today instead of in the spring about that issue. We’ve had to relook a lot and if you aren’t learning when you go through a crisis like this you’ve got a real problem. We’ve stepped back from all the things that we saw. I think number one from a risk management perspective was around liquidity risk. We sit with the rating agencies all the time. In July of 2008 we had meetings with them. We’d get reports about our liquidity. Everything was great. And yet when you go through this crisis you realize that what we planned on as GE risk was overwhelmed by systemic risk and I think that that’s been the number one thing, that a systemic risk can wipe out anything you have on a PowerPoint chart about your backup plan for a specific company risk. So liquidities had to be number one, first and foremost.

                                And then from a broader perspective we had to really step back and say how do we think about enterprise risk management? Prior to the crisis we honestly downplayed it a bit. We thought we have an amazing risk management capability in our GE Capital businesses. It’s more focused on credit and collateral and specific asset risk. But today you’ve got to step back and say how should the board of directors down through the management leadership team think about enterprise risk? How much financial services exposure can you afford to have without putting your cash flows that you pay to your shareholders as dividends at risk and protect the industrial franchises that you have? And we’ve had to really remodel all that. We’re working with some outside consultants. We’ve got a new enterprise risk manager in the company and Jeff and I are really debating it and thinking about it in a much broader way from the board of directors on down — how do you think about enterprise risk management for a company that has multiple businesses and what type of metrics should you put in place to deal with system risk.

Mary:                       All right, great. Jeff, before you go, we want to just ask you a couple of final thoughts. In particular, what you see as the short and long term financial outlook. And also, to the students who are watching us today, what should they expect when they enter the marketplace?

Jeff:                         So what I would say is that in many ways your timing is perfect. I really mean that. I think this whole world’s going to be reinvented. I’m totally a believer in a reset has taken place; that the reset is a good thing, not a bad thing; that companies and people get a chance to renew themselves in a crisis like this; and that all of us are going to emerge in a better way. I would say this has been a humbling experience for CEOs and it’s been a humbling experience for business schools, right. To have to rethink where the global economy’s going to, where the financial markets are going to go, and plan your own way accordingly.

                                But at the same time, I’d have to say, if you feel like I do, is that I’m hungrier today than I’ve ever been. I’m more anxious to make a difference. I’m more anxious to create the future. I’m going to try harder, work harder, go around the world, innovate faster, and you’re going to be needed in that effort. You know, if you ask me, Mary, what’s the world going to look like in two years, if I was being totally honest with you, I’m going to say, “I just don’t know.” In other words, there’s a lot going on. It’s really hard to predict exactly where it’s going to go. You better be comfortable with that. But I do know that we’re going to need good people. We’re going to need great people who want to just recreate companies and products and markets together and that’s where you come in, all of you business school students come in. So I wouldn’t be sitting there, you know, most of you, let’s say if you went into a two year program, right, you matriculated in the fall of ’07, right, and you’re going to graduate in ’10 and you’re sitting there saying, “I screwed up,” right? “The world was great when I went here. I thought I was going to enrich myself, become a rich person when I graduated and now this crisis took place.” I think that’s the wrong attitude. I think this is perfect. Your brilliant plan is coming together, right, your brilliant plan is all nesting together and all you’ve got to do is be cool, right. Just don’t worry, be cool, things will work themselves out during the recruiting season. We’re going to recruit as many people this year as we did last, maybe more. And then I would say you and I together, and Keith, we’re going to plot out a global strategy, a technology strategy, a financial service strategy to win in the 21st century and I’m very confident that we can do that. But you’ve got to, you’ve got to believe in this reset world and you’ve got to believe that you have a role, personally, in renewal. And you have no installed base, right. You’ve got no history with it. So in many ways you’re the most valuable resources we can have as we go through this.

Mary:                       Anything to add to that?

Keith:                      I’m going to just close by, for me, saying thank you very much, Dean Woo, for hosting us. I thought it was fantastic and I love what you do here at this school and what you do with the students. I think it’s terrific. And thanks for having us. We love the partnership so thank you.

Mary:                       And I want to thank both Jeff and Keith for being with us today. I hope you, everyone, enjoyed it. And also for submitting your questions we appreciated them as well. So thanks to everyone, all the students who participated, it was a great session. Again, thank you to Notre Dame.

END OF “winning in today’s environment” Global Employee webcast n jeff immelt n Keith sherin at Notre dame n October 7, 2009, 2009


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