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CNBC EXCLUSIVE: CNBC TRANSCRIPT: GE CHAIRMAN & CEO JOHN FLANNERY SPEAKS WITH CNBC’S DAVID FABER TODAY

WHEN: Today, Friday, October 20, 2017

WHERE: CNBC's "Squawk on the Street" – Live from GE's Corporate Headquarters in Boston, MA

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with GE Chairman & CEO John Flannery on "Squawk on the Street" (M-F, 9AM-11AM ET) today, Friday, October 20th. Following is a link to the full video of the interview on CNBC.com: https://www.cnbc.com/video/2017/10/20/watch-cnbcs-full-exclusive-interview-with-general-electric-ceo-john-flannery.html.

All references must be sourced to CNBC.

DAVID FABER: THANK YOU VERY MUCH, CARL. WE'RE TALKING ABOUT MR. FLANNERY'S FIRST NAME, MAKING SURE IT'S JOHN. AND IT IS IN FACT. JOHN FLANNERY IS THE CHAIRMAN, AS OF OCTOBER 1ST, AND CEO OF GENERAL ELECTRIC. THIS MORNING, JOINING US HERE. OR I'M JOINING YOU HERE AT YOUR HEADQUARTERS IN BOSTON. THANK YOU FOR HAVING US.

JOHN FLANNERY: YEAH, THANKS FOR COMING.

FABER: ON OF COURSE, A DIFFICULT AND SOMEWHAT, AT LEAST SOMEWHAT DIFFICULT DAY.

FLANNERY: FOR SURE.

FABER: YOU KNOW, AT THE END OF YOUR CONFERENCE CALL JUST MOMENTS AGO, YOU SAID THE FOLLOWING. YOU SAID, "WE KNOW WHAT THE ISSUES ARE AND WE'RE GOING TO FIX THEM."

FLANNERY: YEP.

FABER: WHAT ARE THE ISSUES?

FLANNERY: SO, I'VE SPENT A REALLY 90 DAYS EXHAUSTIVE REVIEW OF THE WHOLE COMPANY. THE BUSINESSES, OUR CULTURE, CORPORATE SPENDING – EVERYTHING THAT THE COMPANY HAS BEEN UP FOR EXAMINATION. EVERY STONE TURNED. NO SACRED COWS. SO THAT'S WHAT WE HAVE BEEN DOING. AS I LOOKED ACROSS THE COMPANY, THERE ARE THREE THINGS THAT KEEP COMING UP THAT WE NEED TO WORK ON: CULTURE, OUR OPERATING RIGOR, AND CAPITAL ALLOCATION. IF YOU LOOK AT THOSE THREE THINGS AROUND THE COMPANY, MORE CANDOR, MORE TRANSPARENCY, MORE EXECUTION, TIGHTER OPERATIONS, MORE FOCUS ON WHERE WE'RE INVESTING, WHERE WE'RE PUTTING MONEY, WHERE WE'RE CONCENTRATING THE CAPITAL. THOSE THINGS COME UP ACROSS THE WHOLE COMPANY.

FABER: SO CULTURE, THAT'S AN INTERESTING POINT.

FLANNERY: YEAH. HUGE ONE.

FABER: AND YOU USED THE WORD CANDOR ACTUALLY IN YOUR OPENING REMARKS AS WELL. WHAT, PEOPLE WERE NOT BEING HONEST WITH EACH OTHER?

FLANNERY: NO, I THINK IT IS REALLY JUST A WORKING ENVIRONMENT AND STYLE AROUND CHALLENGING EACH OTHER. WHAT'S WORKING, WHAT'S NOT WORKING? WHERE SHOULD WE INVEST? I'M NOT SURE I AGREE WITH THAT INVESTMENT STRATEGY. WHATEVER IT IS, I EXPECT PEOPLE TO CHALLENGE ME ALL THE TIME ON THAT AND I CHALLENGE THE TEAMS ON THAT. I THINK THAT'S JUST A GOOD, HEALTHY DYNAMIC. THAT'S THE DYNAMIC I WANT TO HAVE, AND I HAVE HAD IN THE TEAMS I'VE LED IN THE PAST. SO, I THINK THAT'S A BIG STEP FORWARD TO FINDING OUT WHAT THE ISSUES ARE AND CHALLENGES. WHEN YOU DO THAT, YOU SOLVE FOR –

FABER: IS THAT SOMETHING THAT WAS NOT TAKING PLACE IN YOUR OPINION UNDER THE PREVIOUS MANAGEMENT TEAM?

FLANNERY: I THINK I JUST HAVE A DIFFERENT STYLE. I'M MOVING FORWARD WITH WHAT I'M DOING WITH THE COMPANY, AND I THINK AS YOU LOOK AT WHAT'S GOING ON RIGHT NOW, YOU'RE SEEING SWEEPING CHANGE. YOU KNOW, IF YOU LOOK IN TERMS OF CULTURE AND PEOPLE, WE'VE MADE CHANGES AT THE HIGHEST LEVELS OF THE COMPANY. WE'VE MADE CHANGES AT THE HIGHEST LEVEL OF OUR POWER BUSINESS. THE TEAM IS VERY CLEAR WHAT I EXPECT ON THE CULTURE AND HOW TEAMS PERFORM. SO THE CHANGE IS THERE. AND I THINK FUNDAMENTALLY, I KEEP COMING BACK TO, WE HAVE GOOD FRANCHISES. THE FRANCHISES ARE STRONG. WE JUST HAVE TO RUN THEM BETTER. AND I THINK AS WE DO THAT AND MOVE FORWARD, INVESTORS AND EMPLOYEES AND CUSTOMERS ARE GOING TO LIKE WHAT THEY SEE.

FABER: YOU'RE SAYING SWEEPING CHANGE. YOU HAVE ONLY BEEN ON THE JOB FOR THREE MONTHS.

FLANNERY: YEAH.

FABER: IT SEEMS A LITTLE EARLY TO BE TALKING ABOUT SWEEPING CHANGE. DO YOU THINK OF IT BECAUSE YOU HAVE ALREADY MADE SIGNIFICANT CHANGES IN LEADERSHIP?

FLANNERY: SO, I HAVE BEEN IN THE COMPANY 30 YEARS. SO I DIDN'T WALK IN OFF THE STREET WITH THREE MONTHS –

FABER: RIGHT. IT'S NOT LIKE YOUR PARACHUTED IN. UNDERSTOOD.

FLANNERY: AND I RAN THE COMPANY IN INDIA FOR SEVERAL YEARS AND GOT A SENSE OF THE WHOLE PORTFOLIO. AND THEN I ALSO WAS IN THE M&A AND STRATEGY. SO, I HAVE SEEN THE COMPANY FROM A NUMBER OF ANGLES FOR A LONG PERIOD OF TIME AND HAD IDEAS IN MY MIND ABOUT WHAT I WOULD DO IN THIS ROLE. SO IT'S THREE MONTHS IN THE ROLE, BUT YOU CAN SEE THE CHANGES ALREADY, I THINK, IN TERMS OF WHAT WERE DOING IN RUNNING THE COMPANY. PEOPLE CHANGES ARE THE FIRST START. IF YOU GO BACK AND LOOK AT WHAT I DID IN HEALTH CARE, WE HAD A LOT OF CHANGES IN PEOPLE AND THAT SEGUED INTO –

FABER: AND I WANT TO TALK ABOUT THAT AS A BLUEPRINT FOR WHAT IS TO COME, BUT YOU MENTIONED YOUR OWN BACKGROUND. OF COURSE MANY YEARS AT GE CAPITAL, IN DIFFERENT PARTS OF THE BUSINESS. WHAT GIVES YOU THE CONFIDENCE YOU'RE THE GUY WHO CAN ACTUALLY DO THIS? WHY IS JOHN FLANNERY THE MAN TO HELP TURN AROUND – AND IT IS THE WORD TO USE HERE – THIS IS A TURNAROUND. YOU SAID IT YOURSELF. GENERAL ELECTRIC.

FLANNERY: YEAH. SO, IN MY OWN CONFIDENCE LEVEL, I GO TO MY TRACK RECORD. IF YOU LOOK ACROSS A 30-YEAR CAREER IN THE COMPANY, I'VE EXECUTED IN A WIDE ARRANGE OF ENVIRONMENTS. IN FINANCIAL SERVICES, ALL AROUND THE WORLD, IN INDUSTRIAL BUSINESSES AND IN THE ACQUISITION AND STRATEGY WORK. SO, I CERTAINLY FEEL EXTREMELY WELL PREPARED WITH A TRACK RECORD THAT STANDS ON ITS OWN. THE SECOND THING I WOULD SAY IS, I WOULD CALL MYSELF THE INSIDER'S OUTSIDER. 20 YEARS IN FINANCIAL SERVICES, 15 OF THE LAST 20 YEARS OUTSIDE OF THE UNITED STATES. SO PEOPLE, THEY KNOW OF ME, DON'T KNOW ME THAT WELL. I THINK TO MANY PEOPLE IN THE COMPANY, I AM SOMEWHAT OF AN OUTSIDER. AND I'M ABLE TO COME IN WITH A FRESH SET OF EYES AND MAKE CHANGE. AND I THINK THAT'S THE ULTIMATE CHANGE AGENT IS REALLY LOOK AT THINGS FRESHLY, LOOK AT THINGS DIFFERENTLY, DON'T HAVE ATTACHMENT TO THINGS IN THE PAST. AND I THINK MY TRACK RECORD SHOWS THAT IN OTHER ASSIGNMENTS.

FABER: ALRIGHT, LETS TALK ABOUT CANDOR A BIT. IF I'M SOMEBODY WITHIN THE COMPANY AND I COME TO YOU WITH GREAT CANDOR AND SAY, YOU KNOW WHAT, OUR CAPITAL ALLOCATION DOESNT MAKE SENSE RIGHT NOW. PARTICULARLY AS IT RELATES TO OUR DIVIDEND. OUR FREE CASH FLOW – WE WERE RUNNING $2 BILLION SHORT OF THE $8 BILLION WE NEED TO FUND THE DIVIDEND. AND WE HAVE TO CUT IT BECAUSE THAT'S THE SMART THING TO DO. WE SHOULDN'T BE USING CAPITAL FROM OTHER AREAS, THAT ARE BETTER USED NOT FOR THE DIVIDEND. WHAT DO YOU SAY?

FLANNERY: YEAH. FIRST, I THANK THEM FOR THEIR INPUT. AS I THINK THAT'S A BIG PART OF THIS IS TO HAVE AN ENVIRONMENT WHERE PEOPLE ARE COMFORTABLE WITH THAT. WE'VE TALKED ABOUT THE DIVIDEND ALREADY. FROM A PHILOSOPHY PERSPECTIVE, MANAGE FOR TOTAL SHAREHOLDER RETURNS. SO THERE IS GOING TO BE A MIX OF OUR CAPITAL THAT GOES INTO A DIVIDEND. THERE'S A MIX THAT GOES INTO ORGANIC AND INORGANIC INVESTMENT. THAT HAS TO BE BALANCED. THE PROCESS, WE'RE GOING THROUGH THE FINAL COMPLETION OF OUR ANALYSIS OF EVERYTHING GOING ON IN THE COMPANY AND WE'RE GOING TO PRESENT THAT IN NOVEMBER TO THE INVESTORS.

FABER: NOVEMBER 13th IS WHEN –

FLANNERY: NOVEMBER 13th IS WHEN WE ARE GOING TO LAY OUT THE CAPITAL ALLOCATIONS BROADLY AND SPECIFICALLY THE DIVIDEND ON THAT. AND THEN THE LAST THING THAT'S REALLY EMBEDDED IN THAT QUESTION IS THE CASH FLOW FOR 2017 IS HORRIBLE. IT'S A $7 BILLION NUMBER. IT'S WAY OFF OF OUR EXPECTATIONS, ANYONE'S EXPECTATIONS. THAT IS NOT THE NEW NORMAL. $7 BILLION IS NOT THE NEW NORMAL. THERE'S A NUMBER OF STEPS WE'RE GOING TO TAKE TO IMPROVE THAT SIGNIFICANTLY IN 2018 AND BEYOND. HOW THOSE ALL COME TOGETHER WITH RESPECT TO THE DIVIDEND, WE'LL LAY OUT IN NOVEMBER.

FABER: JEFF IMMELT, ON HIS LAST CONFERENCE CALL, SAID THE DAY THEY CUT THE DIVIDEND – I BELIEVE IT WAS IN '09, I REMEMBER IT WELL I THINK I REPORTED – WAS THE WORST DAY OF HIS TENURE.

FLANNERY: YEAH.

FABER: YOU WANT TO HAVE A BAD DAY LIKE THAT?

FLANNERY: LISTEN, I LOOK AT ALL THE CAPITAL ALLOCATION THINGS QUITE RATIONALLY. IF IT MAKES SENSE TO PAY A DIVDENED, PAY A DIVIDEND. IF IT MAKES SENSE TO BUY A STOCK BACK, BUY A STOCK BACK. IF IT MAKES SENSE TO ACQUIRE A COMPANY OR SELL A COMPANY – SO I DON'T VIEW IT VERY EMOTIONALLY, REALLY. IT'S ALL AROUND WHAT IS THE BEST USE OF THE COMPANY'S RESOURCES – MANAGEMENT CAPITAL, FINANCIAL CAPITAL – AND HOW DOES THAT ACCRUE TO THE BENEFIT OF THE OWNERS. SO, I DON'T VIEW IT AS AN EMOTIONAL ISSUE. I VIEW IT AS A FINANCIAL ISSUE AND WE WILL DO WHAT MAKES SENSE FOR THE COMPANY.

FABER: I'VE GOT A REAM OF ANALYSTS' REPORTS RECENTLY THAT SAY WHAT WOULD MAKE SENSE IS CUTTING THE DIVIDEND.

FLANNERY: YEAH. SO, WE'LL COME BACK IN NOVEMBER WITH THAT.

FABER: SO THAT'S WHEN WE'RE GOING TO LEARN?

FLANNERY: CORRECT.

FABER: WE'RE GOING TO FIND OUT WHAT THE PLAN IS ON CAPITAL ALLOCATION AND WHETHER OR NOT THERE IS GOING TO BE A DIVIDEND CUT ON NOVEMBER 13TH.

FLANNERY: THAT IS CORRECT. YEAH.

FABER: YOU MENTIONED, OF COURSE, BEING ABLE TO IMPROVE CASH FLOW. A KEY TO THAT IS TAKING COST OUT.

FLANNERY: YEAH.

FABER: YOU'RE TAKING $1.2 BILLION OUT – I THINK THIS QUARTER WAS $500 MILLION.

FLANNERY: $500 MILLION.

FABER: ON THE WAY TO WHAT HAD BEEN PREVIOUSLY ANNOUNCED, $2 BILLION. BUT YOU KNOW, I LOOK BACK – WROTE THIS RECENTLY. THERE WAS $10 BILLION SPENT AT THIS COMPANY ON RESTRUCTURING OVER THE LAST FIVE YEARS. GROSS MARGINS ENDED UP DOWN 70 BASIS POINTS. NET MARGIN UP ONLY 120 BASIS POINTS. WHAT GIVES YOU THE CONFIDENCE THAT EVEN IF YOU DO THESE CUTS, THAT IT'S ACTUALLY GOING TO ROLL THROUGH TO HIGHER MARGINS AND, THEREFORE, HIGHER CASH FLOW?

FLANNERY: SURE. SO, I THINK TWO THINGS. IT GETS BACK PARTLY TO THIS CULTURE ISSUE. ONE OF THE BIG ISSUES IN CULTURE FOR ME IS CLARITY, ACCOUNTABILITY, AGGRESSIVE TRACKING OF OUTCOMES, ETC. SO THERE'S A CULTURAL THING ABOUT TYING OUT INVESTMENTS TO OUTCOMES. SO THAT IS A CULTURAL THING. I GO BACK AGAIN, IF YOU LOOK AT THE HEALTH CARE EXPERIENCE. GETTING THE MARGINS TO MOVE IS A FUNCTION OF SEVERAL THINGS. IT'S YOUR BASE COST, YOUR PEOPLE, YOUR STRUCTURE, YOUR OVERHEAD, YOUR PRODUCT COST, YOUR PRODUCT QUALITY. SO THERES A NUMBER OF THINGS. IF YOU LOOK IN OUR EXPERIENCE IN THE HEALTH CARE BUSINESS, WE HAD A VERY SIGNIFICANT EXPANSION OF THE MARGINS FROM JUST THOSE SOURCES. SO WE HAVE DONE THIS BEFORE. I HAVE DONE THIS BEFORE IN OTHER BUSINESSES, LARGE BUSINESSES, AND IT'S NOT THAT COMPLICATED.

FABER: THIS IS COMPANY FAT, TO USE FOR LACK OF A BETTER TERM?

FLANNERY: I WOULD SAY WE CAN CUT SPENDING. YOU'VE SEEN THAT. I THINK WE CAN CUT IT SUBSTANTIALLY.

FABER: DO YOU THINK YOU CAN CUT MORE THAN $2 BILLION YOU HAD ALREADY RECOGNIZED?

FLANNERY: WE EXPECT TO CUT MORE THAN THAT.

FABER: YOU DO?

FLANNERY: YES.

FABER: HOW MUCH MORE?

FLANNERY: WE WILL SEE AS WE GO.

FABER: WHEN WILL YOU KNOW?

FLANNERY: YOU KNOW, ON SOMETHING LIKE THIS, YOU'RE NEVER FINISHED IN A CERTAIN SENSE. YOU'RE CONSTANTLY LOOKING – IS THIS OPTIMAL SPENDING WHERE SHOULD WE SPEND ON R & D OR ADDITIVE OR DIGITAL. SO YOU'RE NEVER FINISHED WITH THIS – GOING UP OR DOWN.

FABER: WHEN YOU CUT COMPANY CARS OR CUT BACK ON THE PLANES, I MEAN, LISTEN, IT'S A COST, BUT IS IT MORE ABOUT SENDING A MESSAGE?

FLANNERY: DEFINITELY. IT'S NOT AN INSIGNIFICANT COST, BUT CLEARLY A MESSAGE, GUYS, WE'RE NOT PERFORMING FOR INVESTORS. THAT'S OUR TASK. SO WE DON'T FLY AROUND, YOU KNOW, PLANES AND COMPANY CARS. AND SO IT'S TO ME, I'TS PRETTY STRAIGHTFORWARD THING THAT WE HAVE TO TIGHTEN THE BELT, WE HAVE LEAD BY EXAMPLE AND WE HAVE TO RUN THE COMPANY LIKE WE OWN IT FOR THE BENEFIT OF OUR OWNERS.

FABER: JOHN, WE'RE GOING TO TAKE A BREAK IN A MINUTE, BUT I WANT TO JUST COME BACK ON THE DIVIDEND. I'M NOT GOING TO PUSH YOU ANY MORE ABOUT WHETHER IT'S GOING TO BE CUT, BUT I DID WANT TO COME BACK TO SOMETHING RELATED TO IT, WHICH IS THE DIVIDEND YOU RECEIVE FROM GE CAPITAL.

FLANNERY: CORRECT.

FABER: AND THE POTENTIAL DEFERRAL OF THE CAPITAL DIVIDEND AS A RESULT OF A PENDING DECISION ON INSURANCE RESERVE ADJUSTMENTS. THAT SOUNDS CONCERNING. IS IT?

FLANNERY: BASICALLY, AS YOU KNOW, THE STRUCTURE GE CAPITAL UPSTREAMS ITS EARNINGS, AND AS IT'S BEEN LIQUIDATING HAS BEEN UPSTREAMING MONEY TO THE PARENT COMPANY FOR SEVERAL YEARS RIGHT NOW. THERE'S AN ISSUE WITH OUR LONG-TERM CARE INSURANCE PORTFOLIO. THERE'S BEEN AN INCREASE IN CLAIMS IN THAT. WE'RE GOING THROUGH AN ACTUARIAL STUDY RIGHT NOW, AND WE EXPECT THAT HAVE THAT COMPLETED IN THE FOURTH QUARTER --- THAT WILL BE COMPLETED IN THE FOURTH QUARTER. DEPENDING ON THE RESERVE ADJUSTMENTS THAT ARE REQUIRED, IT WILL AFFECT THE ABILITY OF THE COMPANY TO MAKE DIVIDENDS UP TO THE PARENT COMPANY. SO FOR NOW, WE HAVE SUSPENDED THE DIVIDEND FLOW UNTIL WE COMPLETE THE WORK AND THEN WE'LL COME BACK TO IN THE FOURTH QUARTER –

FABER: AND THAT COULD CONCEIVABLY IMPACT AS WELL THE OVERALL DIVIDEND PAYMENT IF THE FLOW FROM GE CAPITAL TO THE PARENT WAS CUT?

FLANNERY: IT EFFECTS THE FLOW OF CASH TO THE PARENT COMPANY. IT DEFINITELY – IT EFFECTS THE –

FAVER: ARE YOU CONCERNED? IS THERE A WAY TO CAP THIS? MY COLLEAGUE JIM CRAMER HAS BEEN TALKING ABOUT THIS. IN THE PAST OTHER COMPANIES HAVE DEALT WITH THIS.

FLANNERY: THIS IS A VERY COMPLEX ISSUE. I WOULD RATHER COME BACK TO YOU GUYS WHEN WE FINISH THE WORK AND WALK YOU THROUGH THE TOTALITY OF IT.

FABER: ALRIGHT. SOUNDS LIKE YOU AND I ARE GOING TO HAVE ANOTHER SIT-DOWN, MAYBE EVEN IN A MONTH. BUT FOR NOW, WE ARE TAKE A QUICK BREAK AND COME BACK ON THE OTHER SIDE AND TALK ABOUT A LOT OF OTHER THINGS. JOHN FLANNERY, OF COURSE, CHAIRMAN AND CEO OF GE. WE'LL BE RIGHT BACK FROM COMPANY'S HEADQUARTERS IN BOSTON.

FABER: WELCOME BACK TO "SQUAWK ON THE STREET." I'M DAVID FABER AT THE BOSTON HEADQUARTERS OF GENERAL ELECTRIC, SITTING DOWN WITH ITS COMPANY'S CHAIRMAN AND CEO, NEW TO THE JOB FIRST CONFERENCE CALL TODAY.

FLANNERY: YEAH.

FABER: AND VERY STRONG WORDS PREPARING FOR THIS INTERVIEW, AND OF COURSE, I USED TO WORK FOR THIS COMPANY FOR MANY YEARS. MANY.

FLANNERY: I'M, WELL AWARE OF THAT.

FABER: I WAS TALKING TO PEOPLE, AND THIS QUESTION CAME UP A NUMBER OF TIMES AND I'M GOING TO ASK YOU, WHICH IS, "WHY DOES GE -- WHAT IS ITS REASON FOR BEING ANY LONGER?" AND IT GOES TO THIS IDEA THAT THIS CONGLOMERATION OF DIFFERENT BUSINESSES, WHICH THERE USED TO SEEMINGLY BE A STRONG CASE FOR IN SOME WAYS DOESN'T SEEM TO HAVE THAT ANYMORE.

FLANNERY: YEAH.

FABER: SO WHY IS OR WHAT IS GE'S REASON FOR BEING, FOR LACK OF A BETTER TERM?

FLANNERY: LISTEN, DAVID, I'D ANSWER THIS TWO WAYS. IF YOU GO BACK 125 YEARS, THE COMPANY ITSELF HAS ALWAYS COMBINED INCREDIBLE TECHNOLOGY, INCREDIBLE INNOVATION, EXECUTION RIGOR, UNBELIEVABLE GLOBAL REACH, IN A NUMBER OF INDUSTRIES THAT HAVE CREATED AMAZING TECHNOLOGY DEVELOPMENTS, OUTCOMES FOR CUSTOMERS, AFFECTED THE LIVES OF BILLIONS OF PEOPLE AROUND THE WORLD. AND THE COMPANY HAS A SPECIAL ROLE IN THE WORLD. AND WHO WE ARE, HOW WE MATTER IN THE WORLD, THAT'S NOT REALLY THE ISSUE FOR THE COMPANY RIGHT NOW. WHAT MATTERS IS THE EXECUTION AND THE RESULTS AND HOW WE DELIVER IS THE CORE – THAT I'M FOCUSED ON. WITH RESPECT TO THIS QUESTION ABOUT BUSINESS UNITS AND HOW THEY FIT TOGETHER, A COUPLE OF THOUGHTS -- ONE IS, THERE'S A SIGNIFICANT AMOUNT OF SYNERGY IN THE THINGS THAT YOU SHOULDN'T THROW AWAY LIGHTLY AROUND CENTRAL RESEARCH, LEVERAGING TECHNOLOGY FROM ONE BUSINESS TO ANOTHER, COMMON BACK OFFICE OPERATIONS, BRAND, GLOBAL FOOTPRINTS, ETC. SO THERE'S REAL VALUE CREATED IN THE COMPANIES BEING TOGETHER. THAT SAID, WE HAVE TO PROVE DAY IN AND DAY OUT THAT THAT FORMAT IS OPTIMAL. I LOOK AT THAT ALL THE TIME. WE HAVE TOO SHOW THAT WE'RE SPENDING A CERTAIN AMOUNT OF MONEY TO BE AT A CENTRAL LEVEL AND THAT CREATES VALUE IN THE BUSINESS LEVELS. I LOOK AT THAT ALL TIME. THERE ARE BIG THINGS LIKE DIGITAL AND ADDITIVE, THOSE ARE MASSIVE GAME CHANGING INVESTMENTS THAT WE'RE ADVERTISING OVER A LARGE PORTFOLIO. IF YOU WERE TRYING TO DO THOSE CASE BY CASE, HEALTH CARE WAS AN EXAMPLE FOR ME, IF I WAS TRYING TO DO THAT ON MY OWN, NOT ON THE BACKS OF GE, THERE WOULD BE A MASSIVE DEBILITATING INVESTMENT FOR THAT BUSINESS UNIT. SO I DON'T REJECT ALL OF THE BENEFITS OUT OF HAND. AT THE SAME TIME, WE HAVE TO BE RATIONAL ABOUT THE FORM AND STRUCTURE OF THE COMPANY, AND I'M OPEN TO THAT AS WE SAID THIS MORNING ON THE CALL.

FABER: RIGHT. WELL, YOU KNOW THE ARGUMENT YOU'LL GET FROM SOME, AT LEAST. AND BY THE WAY, SOME OF THE PARTS, LET'S JUST THROW THAT OUT, BUT THE SIMPLE IDEA THAT SEPARATING BUSINESSES OUT GIVES THEM A GREATER FOCUS TO A CERTAIN EXTENT WHEN THEY'RE COMPETING AGAINST THEIR PEERS. I MEAN, DO YOU BELIEVE THAT TO BE THE CASE? HAS THE FOCUS NOT BEEN THERE AS MUCH?

FLANNERY: THAT CERTAINLY CAN -- THAT CERTAINLY CAN BE THE CASE. WE WANT TO SIMPLIFY THE PORTFOLIO, SO WE WENT THROUGH THAT THIS MORNING. AND THEN WE WANT TO RUN – YOU KNOW, YOU DON'T HAVE TO SEPARATE THINGS TO RUN THEM BETTER. YOU DON'T HAVE TO HAVE A SEPARATED COMPANY TO HAVE FOCUS AND INTENSITY AND WORK ON CASH AND WORK ON COST AND WORK ON MARGINS. SO I DON'T ACCEPT THE THEORY THAT THE ONLY WAY TO CREATE THAT IS TO SEPARATE PIECES. SO I UNDERSTAND THAT THEORY, I UNDERSTAND YOUR QUESTION. WE CAN MAKE THE COMPANY BETTER RIGHT NOW AND STILL HAVE ALL THE OPTIONALITY TO DO WHATEVER WE WANT WITH OUR PORTFOLIO—

FABER: ARE YOU COMMITTED TO THAT IDEA OR WILLING TO CHALLENGE IT AS WELL AS YOU CONTINUE THIS REVIEW?

FLANNERY: COMMITTED TO THIS IDEA?

FABER: THE IDEA THAT GE SHOULD REMAIN TOGETHER ESSENTIALLY AS A CONGLOMERATION OF THESE BUSINESSES BECAUSE THERE IS A BENEFIT – FROM IT.

FLANNERY: I'M OPEN TO – I'M COMMITTED TO IMPROVING THE OPERATIONS OF THE COMPANY. AND THEN MOVING FORWARD FROM THERE, THROUGH WHATEVER OPTIONALITY MAKES SENSE FOR THE OWNERS OF THE COMPANY. SO I'M NOT WED TO THE CURRENT FORMAT. IF YOU LOOK AT THE COMPANY OVER 100 YEARS, WE'VE LOOKED DIFFERENT AT DIFFERENT POINTS IN TIMES, WE'VE BEEN IN DIFFERENT INDUSTRIES, YOU KNOW THAT IN THE LAST 10 OR 20 YEARS A LOT OF THAT. SO I'M NOT WED TO ANY CURRENT FORMAT. I AM WED TO RUNNING THE COMPANY INCREDIBLY WELL AND THEN MOVING FORWARD FROM THERE TO THE RIGHT THING FOR INVESTORS. SO WE'LL SEE ALL THESE COME BY.

FABER: SO WHEN YOU SAY IN YOUR PREPARED REMARKS, "WE WILL HAVE A SIMPLER, MORE FOCUSED PORTFOLIO," WHAT DOES THAT MEAN?

FLANNERY: SURE. SO WHAT WE ANNOUNCED THIS MORNING $20 BILLION OF DIVESTMENT, ASSET VALUE. SO WE HAVE A LOT OF BUSINESSES, TOO MANY BUSINESSES, THAT TAKE TIME AND MANAGEMENT RESOURCES AWAY THAT DON'T HAVE REALLY A PROSPECT FOR A LARGE SUBSTANTIAL REWARD. SO THERE'S GOING TO BE, I WOULD SAY, A SIMPLIFICATION AND A REDUCTION IN THE NUMBER OF BUSINESSES THAT WE HAVE BROADLY IN THE COMPANY, TIER-TWO, TIER-THREE PNLs.

FABER: OKAY. BUT PEOPLE SHOULDN'T TAKE THAT THAT YOU'RE GOING TO SPLIT THAT APART IN A MORE MEANINGFUL WAY. I MEAN, NOT THAT $20 BILLION ISN'T A SIGNIFICANT SUM.

FLANNERY: YEAH. WELL, WE SAID WE'LL CONTINUE TO EVALUATE THIS. AND I THINK, FROM MY MANAGEMENT PHILOSOPHY, AND FINANCIAL PHILOSOPHY, YOU HAVE TO LOOK AT THIS ALL THE TIME. YOU KNOW, IT'S NOT A QUESTION FOR OCTOBER OR NOVEMBER OR DECEMBER. IT'S AN ONGOING QUESTION ABOUT WHERE ARE RETURNS, WHERE CAN WE INVEST, WHERE ARE WE COMPETITIVE, WHAT OTHER FORMATS MIGHT UNLOCK VALUE. SO I'M OPEN TO DOING THAT OVER TIME THE FIRST PORT OF CALL IS WE HAVE TO RUN THE COMPANY BETTER. THAT I CONTROL, WE CONTROL, AND THAT'S WHAT WE OWE AS THE STEWARDS OF THE COMPANY, FIRST AND FOREMOST.

FABER: SO TO AN EXTENT YOU'RE GOING TO BE SOMEBODY WHO CHANGES THINGS HERE, I WOULD ASSUME YOU HAVE THE SUPPORT OF YOUR BOARD OF DIRECTORS.

FLANNERY: YEAH.

FABER: BUT YOU HAVE AN AWFULLY LARGE BOARD OF DIRECTORS. THERE WAS ONE ANALYST WHO WROTE RECENTLY, I THINK IT'S THE TOP – YOU HAVE 18 MEMBERS ON THE BOARD, IT'S THE LARGEST OF THE TOP 50 COMPANIES IN THE COUNTRY. IS YOUR BOARD TOO BIG? SHOULD YOU BE FRANKLY FIRING SOME OF YOUR BOARD?

FLANNERY: A FEW THINGS. AS WE SAID AT THE OUTSET, WE'RE LOOKING AT EVERY ASPECT OF THE COMPANY, THAT INCLUDES EVERYTHING INSIDE THE COMPANY AND THINGS EXTERNAL TO THE COMPANY INCLUDES THE BOARD EVERYTHING IS UNDER REVIEW. THE BOARD HAS ENCOURAGED ME, AS NEW CEO, TO LOOK AT EVERYTHING IN THE COMPANY THAT WOULD BE THE FIRST POINT. THE SECOND IS WE HAVE A LARGE BOARD BECAUSE WE HAVE A COMPLEX COMPANY ON SOME LEVELS. WE ADDED A LOT OF PEOPLE IN THE FINANCIAL CRISIS, SO THE COMPANY ITSELF IS LARGER. BUT THE LAST THING I WOULD SAY, WE HAVE ADDED ED GARDEN FROM TRIAN TO THE BOARD. I'M VERY MUCH LOOKING FORWARD TO IT – HE STARTS NOVEMBER IS OUR FIRST MEETING WITH HIM. I'M LOOKING FORWARD TO THAT DIALOGUE. I THINK IT'S HEALTHY TO HAVE A LOT OF PUSHBACK AND DEBATE BETWEEN MANAGEMENT AND THE BOARD. I THINK HE'S GOING TO ADD A LOT OF THAT. AND TO YOUR POINT, IT IS A LARGE BOARD AT 18 PEOPLE. AND IT CERTAINLY IS ONE OF THE TOPICS UNDER DISCUSSION RIGHT NOW.

FABER: ALSO AROUND ARGUMENT TO BE MADE THAT THIS BOARD SHOULD BE HELD ACCOUNTABLE FOR THE PERFORMANCE OF THE COMPANY.

FLANNERY: LISTEN, AS I SAID, EVERYTHING IS ON THE TABLE. AND WE'RE WORKING THROUGH THAT RIGHT NOW. SO THE BOARD HAS BEEN SUPPORTIVE OF CHANGE. THEY HAVE ASKED ME TO DO WHATEVER I THOUGHT MADE SENSE. THEY HAVE BEEN HIGHLY SUPPORTIVE OF WHAT I HAVE BEEN DOING AND WE'LL MOVE FORWARD FROM HERE.

FABER: SO FROM A GOVERNANCE PERSPECTIVE, THAT'S ANOTHER THING WE SHOULD AT LEAST EXPECT THAT YOU ARE REVIEWING CLOSELY, NOT JUST CULTURE, NOT JUST CASH.

FLANNERY: YOU SHOULD EXPECT THAT ON AN ONGOING BASIS IN ANY COMPANY.

FABER: ANY IDEA WHEN WERE GOING TO HEAR ABOUT IT? I WOULD ASSUME THAT'S THOUGHT A NOVEMBER 13th ISSUE.

FLANNERY: IT'S JUST AN ONGOING ISSUE IN ANY COMPANY, TO SEE WHAT MAKES SENSE. SO WE'LL DO THE SAME.

FABER: POWER WAS OF COURSE GETTING TO THIS QUARTER ITSELF, AND YOUR STOCK IS ONLY DOWN 2.6%, YOU MAY BE HAPPY TO KNOW. I DON'T KNOW WHAT YOUR EXPECICATIONS ARE.

FLANNERY: NO. I'M NOT HAPPY ABOUT IT.

FABER: COMING IN, I'M SURE YOU EXPECTED IT WOULD BE DOWN.

FLANNERY: DOWN IS BAD.

FABER: DOWN IS BAD. POWER WAS "REALLY BAD." THOSE ARE YOUR WORDS, NOT MINE.

FLANNERY: YEAH.

FABER: WHAT GIVES YOU THE CONFIDENCE YOU CAN ACTUALLY FIX IT IN ANY GIVEN TIMEFRAME THAT INVESTORS ARE GONNA CARE ABOUT?

FLANNERY: SURE. THREE THINGS WHEN I LOOK AT THE POWER BUSINESS. I LOOK AT AM MACRO INDUSTRY ENVIRONMENT, I LOOK AT OUR FRANCHISE AND POSITION, AND I LOOK AT HOW WE HAVE RUN IT. MACRO ENVIRONMENT IS CHALLENGING. CLEARLY, A LOT OF THINGS ON, YOU KNOW, PENETRATION OF RENEWABLES, OVERCAPACITY, THERE'S A CHALLENGING END MARKET THERE. WE HAVE BEEN SLOW TO REALIZE THAT. SO AT THE SAME TIME, IF YOU LOOK AT ANY FORECAST FOR THE NEXT TEN YEARS, THERE'S STILL GOING TO BE POWER GENERATION, 1%, 2% GROWTH, IN ELECTRICITY COMING FROM GAS POWER GENERATION. SO THERE'S A BUSINESS THERE, THERE'S A BIG GLOBAL BUSINESS THERE. U.S. CHALLENGE. SO THE MACRO STORY, I WOULD SAY, IS CHALLENGED BUT NOT GOING AWAY. OUR FRANCHISE IS, I WOULD CALL, A PREMIER FRANCHISE IN POWER. WE HAVE PREMIUM TECHNOLOGY WE HAVE 50% SHARE. WERE WINNING IN THE MARKET ALL AROUND THE WORLD WITH THE TECHNOLOGY. AND WE HAVE AN INCREDIBLE INSTALL BASE. 30% OF THE ELECTRICITY IN THE WORLD COMES OUT OF GE EQUIPMENT. I MEAN, THAT'S A MIND-BLOWING ASSET TO WORK WITH. WE CAN UPGRADE, WE CAN REPLACE SOCKETS. WE CAN APPLY DIGITAL AND – SO THE FRANCHISE IS GOOD. WE HAVEN'T RUN THIS BUSINESS WELL. WE'RE WAY TOO OPTIMISTIC ABOUT WHERE THE MARKET WAS GOING. WE'RE TOO AGGRESSIVE ON BUILDING INVENTORY INTO A WEAKENING MARKET. AND WE GOT STUNG THIS QUARTER. IF YOU LOOK AT THE RESULTS, BIG DROP IN EARNINGS AND A HUGE DROP IN CASH. WE'VE CHANGED THE LEADERSHIP TEAM COMPLETELY IN THAT BUSINESS AT EVERY LEVEL YOU CAN THINK OR CARE ABOUT. RUSSELL STOKES IS RUNNING THAT BUSINESS FOR US RIGHT NOW. HE'S A TREMENDOUS OPERATOR. I HAVE A LOT OF CONFIDENCE IN HIM. WE'RE SPENDING A LOT ORMANAGEMENT TIME IN THE POWER BUSINESS. SO IT'S A HEAVY LIFT. IT'S NOT GOING TO GET BETTER OVERNIGHT. WE EXPECT THESE ISSUES TO PERSIST INTO 2018. BUT WE KNOW WHAT WE NEED TO DO IN THE BUSINESS. WE'VE GOTTA TO RIGHT SIZE THE COST FOR THE ENVIRONMENT THEY'RE IN, AND WE'LL MOVE FORWARD. IT'S A BIG MISS FOR US AND I THINK THAT ONE MESSAGE FOR EVERYBODY TODAY IS, IF YOU LOOK AT OUR THIRD QUARTER EARNINGS, THIS ONE IS HORRIBLE FOR – IN TOTAL, AND ESPECIALLY IN POWER, BUT THE REST OF THE COMPANY DID QUITE WELL.

FABER: DID ALRIGHT.

FLANNERY: I DON'T WANT TO LOSE SIGHT OF THAT EITHER.

FABER: OVER THE COURSE OF OUR INTERVIEW, YOU SPENT A LOT OF TIME TALKING ABOUT THE THINGS YOU HAVE SEEN THAT HAVE GONE WRONG. YOU USED THE WORD "HORRIBLE" TO REFER TO POWER, NOT NECESSARILY ACROSS THE BOARD. IS IT AN INDICTMENT OF THE LAST MANAGEMENT TEAM? DID THEY JUST SIMPLY DO A LOT OF THINGS WRONG?

FLANNERY: YOU'RE TALKING WITH RESPECT TO POWER?

FABER: I'M TALKING WITH RESPECT TO JEFF IMMELT AND THE MANAGEMENT OF GE OVER THE LAST 16 YEARS.

FLANNERY: LET'S TALK WHERE WE ARE RIGHT NOW. WE HAVE A QUARTER WHERE MOST OF THE COMPANY IS DOING QUITE WELL. WE HAVE AN ISSUE IN THE POWER BUSINESS. DO I THINK OUR POWER BUSINESS TEAM MISSED THE MARKET? YES. DID THEY NOT COST COSTS? YES. DID THEY BUILD TOO MUCH INVENTORY? YES. IT'S QUITE A LOCALIZED ISSUE I THINK IF YOU LOOK AT IT. IT'S SEVERE IN ITS NEIGHBORHOOD, IF YOU WILL, BUT IT'S NOT A SWEEPING THING ACROSS THE COMPANY.

FABER: AND HOW LONG IS ALL THIS GOING TO TAKE?

FLANNERY: YOU TELL ME. YOU KNOW, LISTEN, MY EXPERIENCE IN HEALTH CARE, I THINK, WAS MAYBE A ROAD MAP. THE FIRST YEAR IS HARD. THERE'S A LOT OF CHANGES IN PEOPLE A LOT OF CHANGES IN EVERYTHING – CULTURE, AND THEN THINGS START TO MOVE FORWARD. SO I'M EXPECTING THIS TO BE, YOU KNOW, ULTIMATELY A MULTI-YEAR JOURNEY. I'M QUITE ACTUALLY OPTIMISTIC ABOUT WHERE WE'RE GOING TO END UP. THE FIRST YEAR IS TOUGH, A LOT OF WORK TO DO, HEAVY LIFTING TO DO, BUT THE TEAM IS DETERMINED. ONE THING THAT HAS BEEN GREAT ABOUT THE JOB, I HAVE BEEN HERE 30 YEARS, MANY MANY PEOPLE HAVE BEEN HERE 30 YEARS. PEOPLE LOVE THIS COMPANY. THERE'S A PRIDE IN THE COMPANY. THERE'S A PASSION FOR THE COMPANY. THERE'S A COMPETITIVE DRIVE RIGHT NOW. NOBODY LIKES WHERE WE ARE. NOBODY WANTS TO STATUS QUO. AND SO I'M ABLE TO HARNESS THAT AND IGNITE THAT. AND WHEN I GO AND SEE THE EMPLOYEES AND THE CUSTOMERS, PEOPLE HAVE A LOT OF GOODWILL FOR THE COMPANY. WE HAVE TO MAINTAIN THAT AND EARN THAT, BUT SO IT'S GOING TO TAKE SOME TIME, BUT IT'S GOING TO HAPPEN.

FABER: AND FINALLY, LET ME END WHERE I KIND OF STARTED, WHICH IS YOU KNOW, IF YOU'RE A DOCTOR AND YOU'RE TREATING SOMEBODY, YOU NEED TO DIAGNOSE THE PROBLEM PROPERLY TO TREAT IT PROPERLY. DO YOU FEEL LIKE YOU HAVE DIAGNOSED THE PROBLEM AT GE PROPERLY?

FLANNERY: YES. YEAH. ABSOLUTELY.

FABER: YOU THINK YOU KNOW WHAT IT IS?

FLANNERY: YES. AGAIN, I KEEP COMING BACK TO, THERE'S – WE'VE GOT MULTIPLE BUSINESS UNITS, WE'RE GOT MICRO ISSUES IN EACH ONE, BUT CULTURE, OPERATING RIGOR, CAPITAL ALLEGATION, DOING THOSE THREE THINGS BETTER, AND REALLY WORLD CLASS ARE REALLY OPERATIONAL ISSUES, THEY'RE IN OUR CONTROL WHEN WE DO THAT, I KNOW WE'LL RESTORE THIS TO BE IN A GROWTH PLATFORM AND A VALUABLE CREATOR FOR INVESTORS. AND PEOPLE ARE GOING TO LIKE WHAT THEY SEE. BUT WE HAVE TO DO THE WORK, AND I KNOW IT IS SHOW ME TIME.

FABER: OF COURSE.

FLANNERY: NO WORDS ARE GOING TO GET US OUT OF WHERE WE ARE, IT IS ONLY THE RESULTS.

FABER: WE LOOK FORWARD TO OF COURSE CATCHING UP WITH YOU PERIODICALLY ALONG THE WAY AND APPRECIATE YOUR WILLINGNESS TO SPEND TIME WITH US TODAY. THANK YOU.

FLANNERY: MY PLEASURE. THANKS.

FABER: YOU'RE VERY WELCOME. JOHN FLANNERY, THE CHAIRMAN AND CEO OF GE.

For more information contact:

Jennifer Dauble
CNBC
t: 201.735.4721
m: 201.615.2787
e: jennifer.dauble@nbcuni.com

Emma Martin
CNBC
t: 201.735.4713
e: emma.martin@nbcuni.com

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