Companies

How GE and Honeywell Traded Places

If you were into CEO worship in the Jack Welch era, you might convert to Cote-ism.

Dave Cote, who led Honeywell to new heights.

Photographer: Michael Nagle/Bloomberg

It's been a really ugly few weeks for General Electric Co. and its new chief executive officer, John Flannery. But it was still a shock for somebody who started paying attention to business news in the 1990s (me, that is) to read this from CNBC's Jim Cramer:

Even though there is a lot that's not great here, Flannery is going to make it look like a regular company. You're going to be able to look at it and say maybe it's not where Honeywell is but it can get there.

So if all goes well, GE can become a "regular company" again. And if it goes really well, maybe it can aspire to be like ... Honeywell International Inc.

This is more than a little disorienting. GE is a long-time corporate icon, and was still No. 7 on Fortune magazine's Most Admired List this year. Honeywell didn't even make the top 50. 1  Then again, if you look at the two companies' stock charts, you can see why GE might aspire to be like Honeywell.

GE Versus Honeywell

Cumulative total return, dividends reinvested

Source: Bloomberg

*Tracks AlliedSignal stock before December 1999 (when AlliedSignal bought Honeywell and took on its name)

I started this chart in July 1991 for a reason. That's when Larry Bossidy, the best friend and right-hand man of legendary GE CEO Jack Welch, took over as CEO of AlliedSignal, a chemical company that had transformed itself through acquisitions into a maker of aerospace and automotive parts and a hodge-podge of other things. For Bossidy it was a chance to run the show that he knew would never come at GE because he was too close in age to Welch. For AlliedSignal it was a chance to get some of that Welchian GE magic.

And it worked, pretty much. A few years later Bossidy was on the cover of Fortune, with a story by Shawn Tully that started with perhaps the most memorable description of a CEO's hair in business-magazine history: 

Dawn is breaking over Indiana as Larry Bossidy's Learjet swoops down toward his auto-brake division in South Bend. The burly, otter-coiffed CEO of AlliedSignal lounges in a thronelike white leather chair in the front cabin, munching a bagel and devouring data. The seating leaves no doubt who's boss. His CFO, chief technology officer, and general counsel -- who always board the plane before Bossidy to make sure he doesn't leave without them -- share banquettes in the rear, near the leader's in-flight exercise bike. Bossidy, in his electric-blue shirt, is savoring the day ahead: eight hours of grilling managers and hammering home his favorite message. "Growth is the biggest challenge," he declares, as if rehearsing to rouse the troops. "For managers it will separate the winners from the losers."

AlliedSignal didn't grow spectacularly, but it did grow, with revenue rising from $11.8 billion in 1991 to $14.5 billion in 1997. Then Bossidy capped off his tenure with the company-transforming 1999 acquisition of Honeywell, a maker of thermostats, alarms and aircraft controls and sensors. AlliedSignal took on Honeywell's more-recognizable name, and Bossidy tapped Honeywell CEO Michael R. Bonsignore as his successor.

Then ... things didn't go so well. The retired Bossidy was soon reportedly grumbling to board members that Bonsignore was in over his head, and the latter cut a deal to sell the company to United Technologies Corp. Welch, still at the helm at GE, swept in with a counteroffer. Bonsignore and Honeywell's board agreed to sell to GE, but Mario Monti, then the European Union's Commissioner for Competition, demanded so many concessions that Welch backed off. In July 2001, Honeywell's board pushed Bonsignore out, brought Bossidy back in and began the search for a permanent replacement.

Late the previous year, Welch had concluded his own epic search for a replacement, tapping Jeff Immelt, the 44-year head of GE's medical-systems business, as CEO-to-be. Honeywell's search got much less attention, and the company reportedly didn't get its first choice (United Technologies CEO Karl Krapek), settling instead on a GE veteran who had been CEO of auto- and aerospace-parts maker TRW for just a year, 49-year-old Dave Cote (pronounced CO-tee).

Both Immelt and Cote stepped down as CEOs of their respective companies this year. It's fair to say Cote's tenure went a lot better!

“This is one of the great CEOs of our time, yet he’s stayed below the radar,” declared CNBC's Cramer, who also happened to be Cote's next-door neighbor in suburban New Jersey, in 2012. That was in another Shawn Tully Fortune profile, which did not discuss Cote's hair but did go into some depth on his eclectic musical tastes (among the songs that came up on Cote's iTunes shuffle during an interview in his office: Jay-Z’s “Hard Knock Life,” Billie Holiday’s “God Bless the Child,” Neil Diamond’s “Forever in Blue Jeans” and John Coltrane’s “Giant Steps”). The article also described Cote as a relentlessly practical sort who had systematically whittled away at the cultural differences between the company's AlliedSignal side and its Honeywell side, made lots and lots of small acquisitions but no big ones 2 and, during the depths of the recession in 2008 and 2009, used unpaid furloughs to cut costs rather than slashing the workforce. Cote did adopt a Welch-like mantra -- "great positions in good industries" -- to sell his approach to Wall Street, but on the whole it seems like he didn't transform the company so much as make it run a lot better.

I'm wary of CEO-based explanations of corporate success. It could be that the biggest force at work in the shift in GE's and Honeywell's relative fortunes was just reversion to mean. Also, Honeywell remains much smaller than GE, with about a third the revenue, making it presumably less unwieldy. Still, if GE is now looking up to Honeywell, Cote probably should get some credit for that. Then again, so should Mario Monti.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
  1. It did score first among electronics companies, though.

  2. There was an attempt at a big merger in 2016, with United Technologies. But it didn't happen.

To contact the author of this story:
Justin Fox at justinfox@bloomberg.net

To contact the editor responsible for this story:
Philip Gray at philipgray@bloomberg.net

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