Business & Tech

GE’s Boston headquarters may soon feel a pinch

John Flannery has reportedly told top executives to prepare for cuts at headquarters and other parts of the company that do not produce revenue or profits.

STEPHANE DE SAKUTIN/AFP/Getty Images/File 2014

John Flannery has reportedly told top executives to prepare for cuts at headquarters and other parts of the company that do not produce revenue or profits.

New chief executive John Flannery has only been in charge of General Electric for a month, but he’s already making clear he will do what it takes to boost the industrial giant’s profitability.

The latest example: a report on Thursday that Flannery has told top lieutenants to prepare for cuts at the Boston headquarters and other parts of the company that do not produce revenue or profits. The report, from the Reuters news agency citing an anonymous source, said GE has already frozen hiring for certain technology positions.

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GE employees have been warned to expect budget cuts. In March, under pressure from activist investor Nelson Peltz, GE agreed to reduce spending by $1 billion in 2017, and another $1 billion next year.

When Flannery was named chief executive in June he said he would undertake a deep review of all company operations.

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Nick Heymann, an analyst who follows GE at William Blair & Co., likens Flannery’s review to raking a lawn to get rid of dead leaves.

“You’re not hauling out the lawn,” said Heymann, who expects the budget cuts to eventually exceed the $2 billion agreed to in March when Jeff Immelt was chief executive. “You’re definitely reinvigorating it.”

In July, less than two weeks before officially taking over on Aug. 1, Flannery told investors that he would have the results of the review in November. He said his team was taking a hard look at corporate spending, essentially repeating a process he used to turn around GE’s health care division when he led that group.

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“I think we’re having a more pragmatic perspective. . . rather than ‘build it and the growth will come,’ ” Heymann said.

On Thursday, GE officials declined to comment about the Reuters report beyond a brief statement repeating the $2 billion cost-cutting goal announced in March and the November timing for when Flannery will present the results of his review. The company stock is down nearly 23 percent since the beginning of the year.

Meanwhile, Fox Business Network’s Charlie Gasparino reported that Peltz might seek a board seat and possibly press for shedding more business lines. Gasparino cited sources close to Peltz, who leads hedge fund firm Trian.

Earlier this month, GE said it would delay completion of a new headquarters complex in Fort Point by two years. The $200 million project will now be done in two phases to save money.

Ann Klee, a GE vice president overseeing the project, said as recently as last week that the company remains committed to its original plan, a nearly 400,000-square-foot complex of three buildings dubbed “Innovation Point.”

Any job cuts stemming from Flannery’s review probably will be minimal in Boston, though. Although GE employs 300,000 worldwide, there are only about 250 employees at its Fort Point headquarters.

GE received a $25 million property tax break, spread over 20 years, from the city of Boston in return for the promise to employ 800 people at its new headquarters. But the agreement with the Walsh administration gives GE until 2024 to reach the hiring threshold, and GE officials remain confident they can hit the number by the deadline.

The size of the annual tax break ramps up steadily until reaching $1.5 million a year in 2025. If GE falls short of its employment goal, the incentive could be significantly reduced.

“It seems like a pretty good deal for the city,” said Sam Tyler, president of the Boston Municipal Research Bureau, a fiscal watchdog. “[Boston’s] protected somewhat. If not all the jobs come, they don’t get the full tax break.

State officials also agreed to contribute up to $125 million toward the project, but that commitment isn’t contingent on a hiring threshold.

Greater Boston Chamber of Commerce chief executive James Rooney downplayed any concerns that GE’s budget cuts could hurt the city. “It was a major win for Boston and Massachusetts to get a company like GE here,” Rooney said. “Companies of this scale go through these kinds of things all the time, and I don’t think anyone should overreact to it.”

Jon Chesto can be reached at jon.chesto@globe.com. Follow him on Twitter @jonchesto.
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