Skip to content

24 June, 2025

  • Saved Articles
  • My Account
  • Subscribe
  • Log In
  • Log Out

Board Agenda

  • Governance
  • Strategy
  • Risk
  • Ethics
  • News
  • Insight
    • Categories

      • View all
      • Governance
      • Strategy
      • Risk
      • Ethics
      • Board Expertise
      • finance
      • Technology
    • long-term stewardship

      Stewardship strategies

      In times of uncertainty and growing risk complexity, boards need to evolve beyond stability. Here...

    • clear cyber risk

      UK companies face a clear cyber risk

      Boards need a laser focus on digital risks—and the UK needs stronger audit, governance and...

    • public markets

      How can we boost public markets?

      Growing companies need adequate liquidity, together with smart regulation and corporate governance that is not...

  • Comment
      • View all
    • clear cyber risk

      UK companies face a clear cyber risk

      Boards need a laser focus on digital risks—and the UK needs stronger audit, governance and...

    • Warren Buffett CEO succession: what boards can learn from Warren Buffett

      The billionaire investor is handing the reins to Greg Abel, after a long, strategic succession...

    • gender pay gap Act now to close the gender pay gap

      This month, it is 55 years since the Equal Pay Act, yet pay inequality persists....

  • Interviews
      • View All Interviews
      • Podcasts
      • Webinars
    • UK Corporate Governance Code Board meetings ‘are not up to scratch’

      Nearly three-quarters of board members believe the board’s performance in meetings needs improvement, an expert...

    • financial sanctions Tariffs chaos drives boardroom focus on resilience

      Business leaders will prioritise the resilience of their organisations in the face of economic upheaval...

    • ai boards Corporate world has a ‘huge appetite’ for artificial intelligence

      AI could change boardrooms to the extent that directors’ duties would change too, a panel...

  • Board Careers
  • Resource Centre
      • White Paper Downloads
      • Book Reviews
      • Board Advisory & Corporate Services
    • Korn Ferry CHRO 2025 (Copy)

      On The Highwire: Being a CHRO in 2025

      Korn Ferry surveyed 750 senior HR leaders (including 450 CHROs) to understand their key priorities...

    • Boardroom Bellwether CGI 2025 cover

      Boardroom Bellwether 2025

      Boardroom Bellwether is the annual survey by The Chartered Governance Institute UK & Ireland (CGIUKI),...

    • ACCA sustainability reporting 2025 cover

      Sustainability reporting: risk and materiality 2025

      ACCA’s sustainability guide takes a practical approach to helping businesses with sustainability reporting.

  • Events
  • Search by topic
    • Governance
    • Strategy
    • Risk
    • Ethics
    • Regulation
    • ESG
    • Investor Relations
    • Careers
    • Board Expertise
    • finance
    • Technology

What the decline of General Electric can teach us about M&As

by Nuno Fernandes

GE has been pursuing M&As for over 20 years—with disastrous outcomes. A closer look reveals obvious governance failures.

General Electric logo on a GE aviation facility in Cincinnati

Image: Jonathan Weiss/Shutterstock.com

General Electric (GE), once the world’s largest company, announced recently that it would break up into three companies (focusing on aviation, health care and energy). What used to be the world’s largest conglomerate has faced 20 years of decline, where it was removed from main stock market indices such as the Dow Jones (where it belonged for more than a century), and destroyed billions of shareholder value in bad deals.

There are many good, quantifiable reasons for doing M&A deals. In my past research I document several reasons, including increasing a company’s product range, broadening its distribution, improving its manufacturing capabilities and reducing unit costs. Unfortunately, there are just as many bad reasons. They include boosting the CEO’s ego and salary, empire building, diversification for the sake of diversification, and doing a “strategic deal”—a catchall phrase for a transaction whose benefits cannot be quantified.

GE has been on an acquiring spree for more than 20 years. Many of its deals were equally “strategic”, with disastrous outcomes. The disastrous merger of GE oil and gas business with Baker Hughes in 2017 clearly showcases this. A $30bn acquisition in 2017, reversed two years later, at a cost of $10bn to GE’s shareholders.

GE governance and M&As

During the era when Jeff Immelt was CEO, the dominant GE strategy was of M&As, including the Baker Hughes example. Most of GE’s M&A activity was driven by international investment banks removed from the operational realities of the deal and the implementation of its promised synergies.

GE has paid, over the last 10 years, more than $7bn in investment banking fees, while it kept reshuffling their portfolio. There was a pernicious conflict of interest here, with success fees incentivising bankers to complete deals while disregarding the value creation those deals produce.

Most of GE’s M&A activity was driven by international investment banks removed from the operational realities of the deal

The continued dismal performance reveals obvious governance failures at the helm of GE. Where was GE’s board of directors, who allowed hundreds of deals to occur, mostly at a loss to shareholders? What was their expertise in evaluating these deals? Did they bother to ask the right questions?

Alternatively, did they simply trust the management, and the rosy business cases they were shown? Did they try to get independent advice? Or were they simply nodding their heads, as the CEO presented them “transformational” deals? A piece of market evidence, on governance and the “entrenched CEO” problem: when Jeff Immelt announced he was retiring, after 16 years at the helm, GE stock price rose 4%.

Deals can destroy director credibility

Many board members and top managers have worked on one, maybe two, highly consequential deals in their professional lives. M&As are complex, and the process in its entirety makes up some of the most challenging and risky endeavours they encounter in their capacity as members of a board.

Acquisition targets being overvalued is one of the main reasons companies destroy value mergers

Given the fundamental role that board members play, they must themselves be knowledgeable about the process that companies should put in place to maximise their value creation following an M&A. Members of the acquiring company’s board must exercise caution and avoid appearances of going overboard. Specifically, investors will be closely scrutinising them for ominous signs of empire building or overpayment.

I would like to offer board members a few pieces of practical advice taken from my latest book. To start, they should not have blind faith in the valuations of investment banks, which are often driven more by success fees than an interest in seeing a deal flourish. Acquisition targets being overvalued is one of the main reasons companies destroy value mergers.

Board members should be able to confidently supervise executives on potential transactions and challenge their opinions regarding a deal. They should be thoroughly knowledgeable about the specifics of each deal, and how to best create value through it. Or they should be able to get external, and independent experts, to help them in their governance/supervisory tasks.

Accountability in integration

Another important advice is to focus on customers, and have clear accountability in integration. The large M&As that GE led turn out to be complex for a number of reasons, and the integration and communication (with customers, employees, and other stakeholders) revealed several fatal flaws.

GE’s assumption was that the natural fix to performance problems was to buy something

Top players (those few that create value through M&As) use internal teams to identify the synergies in each team member’s area of expertise. Moreover, they later assign the same team members to lead the integration effort, thereby establishing clear accountability for achieving the synergy goals. Nothing of this was done at GE.

Finally, it is key to understand that diversification does not add value. It is not the job of management to diversify the company, by acquiring companies in different sectors or with different product/service lines, with no clear synergies. Shareholders are capable of doing this by themselves.

GE’s assumption was that the natural fix to performance problems was to buy something. Whereas perhaps the problem was simpler, and had to do with customer centricity and inefficient corporate structures. The GE story highlights how constant M&As and deal-making may be good for professional portfolio managers; in companies, it simply allows for distraction, and hiding of underperformance.

Successful M&As are increasingly vital to the growth and profitability of many companies. However, there are recurring, unsuccessful patterns found across many calamitous mergers. Board members are the final guardians of shareholder value. Moreover, a good board member should learn from past failures, in order to be able to steer their companies away from value-destroying deals.

Nuno Fernandes is full professor of finance at IESE Business School, member of the audit committee at the European Investment Bank, and author of The Value Killers: How Mergers and Acquisitions Cost Companies Billions—And How to Prevent It.

  • Facebook
  • Twitter
  • Google+
  • LinkedIn
  • Mail

Related Posts

  • Board priorities 2022: a checklist for directors
    January 12, 2022
    notebook on boardroom table

    The pandemic continues to impact agendas, but climate, data security and succession are some of the other priorities demanding board focus.

  • B&M names Alex Russo as its next chief executive
    June 17, 2022
    B&M logo

    Russo is the group’s chief financial officer and has held senior leadership positions at retailers including Asda, Tesco and Kingfisher.

  • Directors need to ‘up their game’ on ESG strategy
    April 4, 2022
    Board members looking at corporate reports

    Study says 70% of board directors say they are “not at all” or only “moderately“ effective at integrating ESG concerns into company strategy.

  • Britvic NED joins B&M
    June 21, 2023
    BandM B&M b&m

    Hounaïda Lasry will join the board of the retailer as a non-executive director in September, subject to shareholder approval.

Search


Follow Us

Register Free

Stay in the know! Register to access the latest governance news; plus receive updates about our events and podcasts – Sign up here

 

Most Popular

Featured Resources

wef global risks 2025

The Global Risks Report 2025

The 20th edition of the Global Risks Report reveals an increasingly fractured global...
Supply chain management cover

Strategic Oversight in Supply Chain Management: A Guide for Corporate Boards 2025

Supply chains have become complex, interdependent and opaque and—according to research...
OB-Cyber-Security

Cyber Security: What Boards Need to Know

Maintaining firewalls, protecting servers and filtering malicious emails rarely make...

The IA’S Principles Of Remuneration 2024 2025

This guidance from the Investment Association is aimed at assisting remuneration...
Diligent 2024 leadership tech cover

Leadership, decision-making & the role of technology: Business survey 2024

This research report by Board Agenda and Diligent sheds light on how board directors...

Director Reference Guide: Navigating Conflict in the Boardroom

The 'Director Reference Guide' on navigating conflict in the boardroom provides practical...
Nasdaq 2024 governance report cover

Nasdaq 2024 Global Governance Pulse

This Nasdaq survey gathered data from more than 870 board members, executives, and...

Becoming a non-executive director (4th edition)

Board composition is the subject of much debate, while the role of the non-executive...
art & science brainloop new cover

The Art & Science of Creating an Effective Board

Boards are coming under more scrutiny and pressure than ever before from regulators,...
SAA First time NED guide

First Time Guide for Non-Executive Directors

The role of the non-executive director has never been more vital: to advise, support,...

Register Free

Stay in the know! Register to access the latest governance news; plus receive updates about our events and podcasts. Register


  • Editors & Contributors
  • Editorial Advisory Board
  • Board Advisory & Corporate Services
  • Media Marketing Solutions
  • Contact Us
  • About Us
  • Board Director Network
  • Terms & Conditions
  • Privacy Policy
  • Cookies
|

Copyright © 2025 Questor Media Group Ltd.

  • Terms & Conditions
  • Privacy Policy
  • Sitemap