It’s no secret General Electric is in the process of getting out of banking.
As the Washington Post reported on April 10, General Electric announced that day “it will sell most of its GE Capital assets over the next two years, shedding businesses in a sector where it has had a tough time generating acceptable returns.”
Investors immediately applauded the move, as well as GE’s announcement of a share buyback, by bidding up GE shares to their highest level in roughly two years. (They’ve since retreated slightly.)
It’s anyone’s guess, of course, who ultimately will acquire these businesses, but, apparently, according a story featured in today’s print edition of the Wall Street Journal (and posted online yesterday; subscription required), GE officials aren’t taking any chances as far as losing key talent in advance of any deal.
“General Electric Co. may be getting out of finance but, until then, it is trying to keep its bankers,” the WSJ piece leads off.
According to the report, GE has offered retention bonuses to select executives, as most companies commonly do, but is also requiring bidders interested in purchasing its $16 billion leveraged-finance operation to agree not to hire GE’s employees for 12 months.
The story continues …
“GE is in the difficult position of trying to keep people in the finance businesses it has said could take as long as two years to sell. Losing its top deal makers would erode the value of the operations that once contributed half of GE’s annual profits, and could result in lower offers. Unlike GE’s industrial businesses that sell sophisticated machinery like jet engines, locomotives and gas power turbines, much of the strength of the finance operation rests on its bankers.
Those terms, considered restrictive for a deal of this type, have caused some suitors to balk, according to people familiar with the matter.” [The Journal article quotes one source saying bids for GE Capital’s private-equity arm, known as Antares, were due Thursday.]
The WSJ article goes on to note that the “restriction that GE asked prospective buyers of the Antares unit to sign is unusual because it is a ‘nonhire agreement,’ meaning bidders would be prevented from hiring a GE employee, even if they didn’t initiate the approach. That prohibition applies to any ‘officer or key employee’ of the leveraged finance business.”
A GE spokeswoman told the Journal that the terms are appropriate and that the company continues to have a large pool of potential suitors. But experts point out that a formalized agreement like this is somewhat unorthodox.
“While this is not an uncommon practice, especially in private-equity deals and bidding, it is more typically in the form of a gentleman’s agreement and rarely pursued for enforcement,” Jason Hanold, CEO of Hanold Associates, a Chicago-based search firm, told me yesterday. “It is questionable whether the courts would enforce this, and it’s reasonable for employees to consider a departure from a company that is offering itself up for bid.”
Hanold suggested that GE needs to be cautious of the negative impact on engagement for their existing employees, including those who have no intention of considering another employer. “Employment at will means something and implies departure at will. A company that sends the message about employee growth and development is bringing more specificity to that message with this stand: ‘We care about your growth, development, future financial success and hope you thrive … as long as it is within the confines of our organization [and] unless we sell the business in which you are employed.’ ”
That creates an emotional detachment that’s difficult to heal, he added.
Guess we’ll have to wait and see if GE suffers any repercussions. But in the meantime, on an entirely unrelated and non-HR topic, to each and every mother out there reading this, a heartfelt Happy Mother’s Day! (My apologies for not coming up with a better segue.)