In this episode, Richard Lummis and I consider the recent revelations which came to light that during the tenure of the former Chief Executive Officer, Jeff Immelt and the saga of GE’s ghost jets. Immelt had an empty plane fly behind his jet on corporate trips. This ghost jet tracked Immelt’s jet and was designed to be available if there was a mechanical issue, which presumably could not be fixed sufficiently in time for the CEO’s busy travel schedule. There were several important lessons which every Board of Director can learn from these revelations going forward.

Thomas Gryta, Joann S. Lublin and Mark Maremont, writing in the Wall Street Journal (WSJ), said that a GE spokesperson noted the reason for the ghost plane ““This practice, which GE has discontinued, involved business-critical itineraries with tight schedules, multiple international stops and, in most cases, security concerns.”” The spokesperson then gratuitously added, ““We do not believe that the understandable criticism of this discontinued practice fairly reflects on Jeff’s dedicated service to GE for over 30 years.”” However the WSJ piece, citing un-named sources said, “While CEO, Mr. Immelt wanted a backup jet in case there was a mechanical issue that could lead to delays”. The cost to operate the ghost plane was about $6500 per hour, adding up to $250,000 to the cost of each flight.

The New York Times (NYT) reported that the practice occurred during his 16-year tenure as CEO of GE. Yet it was the subject of an internal whistleblower complaint in 2014. The WSJ reported, “The company told GE’s directors the company had reduced the practice in mid-2014 and that the continued use of the backup plane was limited to isolated situations such as travel to risky destinations. The board members were previously unaware, the people said, and some were dismayed to learn of the practice. “Obviously, this was an excess,” one of these people said.”

Here was a clear misrepresentation to the Board of Directors. Even if limited to ‘isolated situations’ there was a CEO’s behavior and practices which was so egregious that it took a hotline compliant to change and the company executives were less than truthful to its own Board of Directors that the practice could continue. It was not as if company executives had any lack of understanding that the practice was not approved by the Board. The head of the Board’s Audit Committee mandated the practice must end.

To hide what was going on, the company went out of its way to hide the ghost plane practice as “Flight crews were told to not openly refer to the backup planes, for fear of raising eyebrows, especially at the small airport facilities for private jets, the people said. One person said the flight manifest sometimes listed “Robert Jeffries” or “Jeffrey Roberts” as the passenger on the second plane, when in fact the seats were empty.” That certainly sounds like someone trying to hide something.

What about the excuse that it was for security? James Stewart, writing in the NYT skewered that reasoning by citing to Scott Davis of Melius Research who stated, ““Not even heads of state get that kind of treatment.” Moreover, if the security was such a concern, why was GE sending its CEO there in the first place. Stewart wrote, “No one I spoke to in the field of corporate security said that made any sense, especially in the instance when the second plane stayed in Anchorage while Mr. Immelt traveled to Asia. There are plenty of planes there that could be chartered in case of emergency, not to mention commercial flights with first-class cabins and ample security. Robert Strang, a corporate security expert and the chief executive of the Investigative Management Group, told me he had been conducting security audits for chief executives for 29 years and could think of no similar example.” Finally, “If a destination is so dangerous that it requires a backup plane, then a C.E.O. shouldn’t be going in the first place”. And it’s not as if Mr. Immelt had been traveling to war-torn Syria or Afghanistan.

Next was a point that Immelt himself raised which spoke directly to business leadership. In a letter to John J. Brennan, chairman and CEO of Vanguard and GE’s lead director, Immelt said, “Given my responsibilities as C.E.O. of a 300,000-employee global company, I just did not have time to personally direct the day-to-day operations of the corporate air team.” He added, “Other than to say ‘hello’ I never spoke to the head of Corporate Air in 16 years.” The CEO of the company goes 16 years without once ever having a substantive conversation with the head of the group mandated with handling his air travel? Frankly I do not know whether to laugh or cry at this statement. If it is true what does it tell you about the Imperial leadership style of Immelt. If he is not telling the truth, it tells you about the liberties he is taking with his facts.

Stuart Davis also raised some obvious issues. If the CEO or his underlings were willing to violate the Board’s edict of no ghost jets; what else is there? Davis was further quoted, ““You hear about this and you have to wonder what else they were spending money on. You really have to question the financial oversight and controls and internal audit. You have to question the entire organization.””

According to the WSJ article, “GE informed its board’s compensation committee each year about how much the company had spent to fly Mr. Immelt on corporate aircraft, the people said. But those total amounts lacked details such as how many flights the CEO took, the number of pilots involved or the cost of aircraft fuel, people familiar with the process said. Directors assumed that GE’s human-resources executives had reviewed details about Mr. Immelt’s personal and business trips, according to one person. The GE board’s compensation committee should have requested more detail about Mr. Immelt’s usage.” Even if the Board was initially misled by GE executives, it should have asked for the details to test the information presented to it, especially as it had been the subject of a whistleblower compliant involving the CEO.

All this would seem to indicate that no one was either (1) running the ship, (2) watching the ship being run or (3) was interested enough to find out what was going on. That is laid at the feet of the Board, in not asking direct, probing questions. It also points to the role of compliance to resolve whistleblower issues and to monitor on an ongoing basis to ascertain if the remediation has been followed or the company reverted to its prior conduct. Finally, any CEO’s excuse that as a 30-year employee, including 16 as CEO and he never had time to say anything other than ‘hello’ to an employee speaks to a CEO who is not only ignoring his employees but clearing communicating that I do not care about you or your job function at this organization. How is that for not only tone at the top but also conduct at the top.