Was GE’s New CFO a Risky Choice?

Carolina Dybeck Happe's background makes her an unusual choice to run finance at the struggling conglomerate, a research report suggests.
David McCannJanuary 10, 2020
Was GE’s New CFO a Risky Choice?

Every executive hire carries some degree of risk. But General Electric, with its recent hiring of Carolina Dybeck Happe as its new CFO, may have taken on more risk than necessary, a new report suggests.

Carolina Dybeck Happe

“We think GE’s new CFO choice may add doubts about GE’s ability to post substantial progress in 2020,” wrote Management CV, a research firm that evaluates corporate executive teams on behalf of subscribing institutional investors. “The size and scale of the challenge before her dwarfs her prior experience.”

Happe, whose starting date has yet to be announced, had been finance chief for international shipping giant Maersk. In its most recently reported fiscal year, Maersk had revenue of $39 billion, making it roughly a third the size of GE. But while it’s a substantial and complex company, Happe had been there less than a year.

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Prior to Maersk, Happe worked for 15 years — the last 7 as CFO — across two different stints at Assa Abloy, a Swedish manufacturer of locks and entry systems. The company, which currently has about a quarter of Maersk’s revenue, was largely built by acquiring and integrating a number of small companies.

Of course, few people have experience running finance at a company of GE’s size. However, the company may have been better off hiring a finance chief from another large industrial conglomerate, according to Renny Ponvert, chief executive of Management CV.

One such company is Danaher, where GE’s current chief executive, Larry Culp, served as CEO for 14 years.

For GE, Happe “is kind of a ‘high-beta’ choice, to put it in stock market terms,” Ponvert tells CFO. “It’s not that she isn’t a good CFO or can’t necessarily do the job. It’s that there’s a lot of potential risk. She doesn’t have the caliber résumé you might expect.”

Of particular concern for Ponvert is that Happe is not, by trade, an accountant, whereas accounting has been an “Achilles heel” for GE for a number of years, he notes.

The Securities and Exchange Commission launched an investigation into GE’s accounting in January 2018, after the company took a $6.2 billion after-tax charge related to GE Capital’s insurance portfolio. GE later restated quarterly financials for 2016 and 2017.

In October 2018 the SEC widened its investigation to include a $22 billion charge GE took related to acquisitions in its power business.

Happe is “a very unusual choice for a company whose accounting and finance are going to be the focal point for everything it does in the coming year,” Ponvert says. “Culp is dealing with a systematically bad set of books, so his CFO is an unusually critical, high-visibility person, while [Happe] is largely unknown outside Sweden.” She is, though, a charismatic executive, he allows.

The timing of Happe’s hiring may be problematic as well, as GE had finally been gaining some traction with investors recently. The company’s stock price rose by about 50% during 2019 after dipping below $8 a share.

Happe’s predecessor at GE, Jamie Miller, who’s expected to step down after the company’s February SEC filing, was likewise an unusual candidate for the job based on her credentials, according to Ponvert.

But Miller did dramatically reduce GE’s debt and divest a pile of unwanted assets, including the company’s troublesome Baker Hughes stake. “She did a lot of positive things, and her long tenure at GE and insider knowledge really helped her ferret out some of the worst problems,” says Ponvert.

“Now,” he continues, “they’re bringing in an outsider. Even if [Happe] is the smartest person in the world, she’ll probably need a year to figure out all the elements of GE that she needs to run.”

At the same time, though, Happe is advantaged in not being tainted by an historical association with GE’s accounting, Ponvert says.

Another silver lining, he notes, is Happe’s compensation package. A key element is an initial equity grant of $8 million that will vest all at once, in four years, but only if the company hits share-price targets. Culp, too, is working under such a “golden handcuffs” compensation arrangement.

Asked to comment on the Management CV report, GE pointed to the press release it issued upon announcing Happe’s hiring in November.

“Carolina is a proven global CFO with a superior track record of delivering results and creating value,” said Culp in the release. “She is a high-impact executive who brings a compelling blend of strategic and capital allocation discipline, well-honed operating skills, and transformational leadership abilities. She will be a strong partner as we execute our deleveraging plan and improve our operating results to position GE for sustainable, long-term value creation.”

While she was at Maersk for just 10 months, Happe faced some challenges that will be familiar at GE. Her focus there was on deleveraging and on helping the company regain credibility with investors after being battered by a severe decline in trans-Pacific shipping. “Maersk is embroiled in its own set of operating problems and serial management churn,” the Management CV report noted.

At GE, a key task for Happe will be helping Culp execute his mission of downsizing the company’s corporate footprint and decentralizing decision-making.