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Beware the consequences of holding managers to aggressive or unachievable goals

Article published in the Philadelphia Business Journal in the on May 12, 2024.

Why do some managers commit fraud, violate antitrust laws or make business decisions that are not in the best long-term interests of their company? They do so because of intense pressure from their senior leadership to meet short-term financial goals that overshadow these managers’ sense of honesty, ethics and integrity.

I just finished reading New York Times Bestseller “Power Failure” by William D. Cohan, a book that chronicles the history of 132-year-old General Electric Corporation. As I was reading this book, what stood out to me were rich lessons for all CEOs on how to both lead and not to lead a company.

GE, once one of the largest and most respected companies in the U.S., went into slow decline from 2001 through 2020. In 2021, it was announced that GE would split into three separate companies, ending an important era in U.S. industrial history. The companies would be designated GE Aerospace, GE Healthcare and GE Verona, an energy company.

After Jack Walsh was named chairman and CEO of GE in 1981, there was significant pressure to meet aggressive quarterly and annual earnings per share goals and EPS estimates by Wall Street research analysts. If GE’s EPS were to fall short, the stock price would suffer, as would management’s compensation. The pressure on all levels of GE management to meet the company’s quarterly EPS goal was intense.

When the business or market environment changed making it harder to achieve an earnings goal, Welsh and subsequent GE CEOs stuck with the goal, challenging the managers of GEs businesses to offset the adverse business or market conditions and make their financial numbers. Nothing wrong with that.

However, if managers didn’t make their numbers, they were often sidelined or fired. Avoiding a negative impact to their careers was the incentive to violate SEC regulations or commit other illegal acts.

Photo credit: Getty Images (Sirikult)

GE prided itself for teaching leadership to high-potential managers at its corporate training center in Crotonville, New York. I wonder if the attendees were taught about the 1960 electrical equipment supplier price fixing scandal involving GE, where seven executives within that industry were sentenced to prison. Had the attendees been taught about the case, perhaps they would not have been so aggressive in crossing the line of honesty, ethics and integrity in meeting their earnings goals.

In 2009, The SEC charged GE with accounting fraud, “alleging that it misled investors by reporting materially false and misleading results in its financial statements.” Robert Khuzami, director of the SEC’s Enforcement Division, said, “GE bent the accounting rules beyond the breaking point. Overly aggressive accounting can distort a company’s true financial condition and mislead investors.”

A December 2010 report by the Organized Crime and Corruption Reporting Project outlined instances over the years of actual and alleged violations by GE of U.S. and foreign law, resulting in fines paid by GE.

In December 2020, the U.S. Securities and Exchange Commission announced that GE agreed to pay “$200 million to settle charges for disclosure failures in its power and insurance businesses.” Stephanie Avakian, Director of the Division of Enforcement, stated, “Investors are entitled to an accurate picture of a company’s material operating results. GE’s repeated disclosure failures across multiple businesses materially misled investors about how it was generating reported earnings and cash growth as well as latent risks in its insurance business.”

The Securities and Exchange Commission announcement stated that “GE failed to tell investors that its reported increase in current industrial cash collections was coming at the expense of cash in future years.” In addition, the announcement stated that GE “lowered projected costs for claims against its long-term care insurance portfolio … at a time of rising costs from long-term health insurance claims.” Both actions pumped up current year earnings at the expense of future year earnings.

GE’s culture is widely known for developing corporate leaders. Does that culture include obeying GE’s Code of Conduct titled “The Spirit and the Letter” (meaning following both the spirit and letter of the law)?

The GE board is responsible for holding the CEO accountable for abiding by the company’s Code of Conduct. The board turned a blind eye. As a former CEO, had these events occurred during my watch, my board would have fired me.

The lesson taught by GE? Beware of the unintended consequences of threatening to sidetrack a manager’s career if they don’t achieve aggressive goals. Always disclose to shareholders adverse material facts about your company. Sooner or later, those facts will come out.

Stan Silverman is founder of Silverman Leadership and author of “Be Different! The Key to Business and Career Success.” He is also a speaker, advisor and widely read columnist on leadership. He can be reached at

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