Jeffrey Immelt

Jeffrey Immelt is an extraordinary capable executive. I don't know this through personal interaction but it is a safe bet anyway. As your probably know, Immelt succeeded the legendary Jack Welch to become the Chairman and CEO of GE in 2001, when he was still in his mid-forties.

Ge is a giant -- revenues in excess of $160 billion in 2006 producing everything from airplane engines to the NBC television network. It does business in over 100 countries and employs about 300,000 people worldwide.

GE is also famous for its management development program and fierce succession planning particularly focused on the CEO position. Immelt has generally earned good marks for his performance as CEO, although beating the value creating run of his predecessor may be next to impossible. So, without doubt, he is highly capable. I would further venture to say that he is also a high integrity leader as well.

Last week, the Wall Street Journal did a piece on Immelt, focusing on the GE CEO's visible pro-environment stance and his commitment to convert GE into a eco-friendly economic force. This is no easy challenge given the magnitude of GE operations and its troubled history of polluting the Hudson River.

Immelt's commitment to eco-friendly business practices, services and products has been branded Ecomagination. Both in and outside of GE, there has been considerable push back. Customers and his own management team would prefer to just get on with business. Competing in the global marketplace and meeting GE's financial performance benchmarks are hard enough without adding the burden of the Ecomagination program.

Immelt is not an eco-crusader at all costs and is attempting to balance a variety of goals and constituent interests. What this means is that he would not depress revenues or earnings performance for the sake of Ecomagination. His team must do both. It is not uncommon for managers at all levels working at GE or almost any other company for that matter, to have both tangible and intangible goals. For example, a sales director might be charged with hitting a revenue target as well as creating a more diverse sales staff by employing more women and people of color. So, the GE focus on financial targets and Ecomagination is not that unusual.

Immelt publicly admits that he does not want the Ecomagination program to alter the economic flow of the company. But determining the economic flow of the company, especially looking out past 18 months, is very difficult, even for a company of GE's sophistication. And most eco-friendly practices, products and services require a 3-5 year framework (or even longer) to be justified financially. Investing in alternate energy programs today requires a belief in the continued rise of traditional energy prices over the next 5-10 years. You may intuitively believe this but how do you actually measure this belief -- because targets and evaluation of managers depends entirely on measurement to be fair and objective.

So maybe that is why the GE leadership team is unwilling to share Immelt's eco-friendly leap of faith. Let's turn away from GE to GM to further illustrate this point. Imagine you are the general manager of the Cadillac Escalade SUV. A few years ago, your sales were booming and you were more than willing to accept higher revenue targets for coming years -- and if you wanted your capacity expansion plans approved by the finance department, you had no choice but to put these higher revenue numbers in your own forecasts.

All is going good until gas exceeds $3 gallon and fuel efficiency becomes front and center with the consumer. You are left holding the bag as Escalade sales slump. Back to GE. Suppose you invest significant R&D money in alternate energy programs expecting oil prices to rise over the long term (a safe bit). But then to your surprise, OPEC increases daily oil production and oil prices fall over the near term. The economic justification of your R&D is now questionable in the near term. Immelt won't let you off the hook, even if you and he agree that the world will eventually run out of oil and these R&D investments will pay off. As a GE executive, you must deliver both near and long term results.

And that is the tricky part about managing the economic flow of the company. It all depends on your assumptions and how far out into the future you look. Assumptions are the numerical alchemy of the forecasting business. Under any set of asumptions, you don't want to be left holding the bag.