Former GE Chief Jack Welch Should Pay Back His $417 Million Golden Handshake

The former CEO of General Electric Co. should pay back the $417 million severance he was awarded when he parachuted out of the company in 2001.

That’s according to Bob Robotti, President, CIO and Founder of Robotti & Co Advisors, LLC who says General Electric Co. (NYSE: GE) is performing dismally and still has “systemic weakness” due to 83-year-old Jack Welch. Back in 2001, the almost half-a-billion dollar payout is believed to have been the largest severance package ever paid to any CEO in the history of corporate America.

Mr. Robotti made his comments ahead of his presentation on November 21 at a conference hosted by The Edge (who source underperforming companies for activist involvement, Special Situations and Spinoffs) on Why Your Investments Should Have a Catalyst at the Penn Club in New York.

Bob said, “It’s amazing how long a balloon can stay inflated. When Jack retired, the company had about a $400 billion market cap. Investors have already lost three times the current market cap. Jack Welch should do the right thing and give back his retirement bonus.

“When Enron filed for bankruptcy in 1999 and the world reacted in shock and pointed the finger of complacency at Arthur Anderson, I immediately pulled out the GE proxy statement for that year.

“Enron paid Arthur Anderson $35 million for their audit. It also paid Arthur Anderson $50 million for other services. This is a fact that many people highlighted, which contributed to Anderson’s lack of independence and failure to properly order Enron to this economic reality. 

“For that same fiscal year, GE paid their auditors $33 million for audit services. How can you possibly audit GE’s financial statements for less money than you would have audited Enron’s financial statements?

“The culture around GE in its ability to meet and beat quarterly earnings on a regular basis further should have caused people to question the reliability of the reported results. To this issue of co-opting the auditors, that same year GE paid $88 million for other services to their auditors.

“That’s almost 3 times as much for other services. How could that not have had an impact on their independence? Who asked that question?”

Robotti & Co Advisors LLC has over 35 years of outperformance as a trusted New York-based firm with long-term client relationships, which span generations. They are actively engaged with management and company boards, having seats at the table to help allocate capital on some of the companies they are involved in.

The types of companies that make Bob’s team sit up and take notice include “cyclical businesses going through extremely weak points in the cycle,” Bob said,“with differentiated business and the financial wherewithal to survive and thrive through those difficult years.

“The businesses are routinely available for purchase at substantial discounts to their earnings power and positioned to dramatically increase that earnings power through the difficult times.”

In addition, he has some timeless investment advice for the unsophisticated investor, insisting “Fear and greed are alive and well, and are the most important drivers of investment risk and investment opportunity.

“Broadly, all fixed income securities and many other yield-focused investments are, at best, priced for perfection. Remember Ben Graham’s selected reference at the very beginning of his security analysis.

“It’s a quote from Horace: ‘Many shall be restored that are now fallen in, many shall fall that are now in honor.’ Too often investors look to the market to inform them. But as per the saying, ‘Mr. Market is there to serve you, not to guide you.’”

Bob has taken an activist position in Tidewater, Inc. (NYSE: TDW), the international petroleum service company headquartered in Houston, where he has been leading a reform, but it’s not typical of his operating strategy.

He explained, “Our ideal investment is one where we believe the incumbent management and board fully understand the business opportunity and are focused on creating shareholder value. In that case there’s no need for external activism on the part of owners.

“However, in those situations where we believe there are clearly identifiable opportunities that management and the board are missing as owners, we have been (and always will be) vocal to the decision-makers with the compelling opportunities we identify.

“Our first step is always to open up a dialogue with management to offer advice or counsel, but if that fails to work, we are ready to become more active in the traditional sense.

“We don’t seek out activism, but as owners of a business we will advocate our interest as shareholders.”

In the 40 years he's been active in investing in public companies, Bob has learned a great deal, but he credits the best piece of advice he’s ever been given to his mentor Joe Reilly, a founder of Tweedy Browne.

Bob said, “Focus on understanding what you own, its valuation and the opportunity ahead. That’s what will determine your returns and what makes us so excited today. The rear-view mirror doesn’t tell you about the road ahead, and we have the behavioral discipline to focus on the forward journey over the long-term.”

Come hear Bob and three other fund managers speak on November 21, 2019, at The Edge’s value catalyst ideas conference, Why Your Investments Should Have a Catalyst, from 7:45 AM – 12:45 PM EST at the Penn Club of New York. The event is being held to support the Alzheimer's Association USA and the limited-space tickets can be bought with a discretionary donation to the charity. Reserve your ticket here.

Source: Forbes.com

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