As Larry Culp, the CEO of General Electric (NYSE:GE), nears the one-year mark of his tenure, he can probably sleep a little bit easier. Not because GE's stock has recovered -- it's down more than 65% over the last three years. And not because GE has suddenly started to outperform. Its Q2 revenue, adjusted earnings, and free cash flow all saw year-over-year declines.

Instead, Culp just got a huge vote of confidence from activist investor Nelson Peltz, whose Trian Partners has a major stake in GE, not to mention a board seat. Here are three reasons that's a big deal for the company, its investors, and especially its CEO.

A worker inspects a large turbine

General Electric, once a top blue-chip stock, has underperformed the market lately. Image source: General Electric.

1. Why it's a big deal for Culp

Any CEO loves to get compliments from big investors, and Peltz's statement was unmitigated in its praise. "I think Larry Culp is a star. I think he knows how to run a business," said Peltz, following up with: "Larry is fantastic. He's putting together a great management team. He's got a stupendous board."

With Peltz's public statement, Culp can probably rest easy that he's not going to meet the same fate as his predecessor, John Flannery, who was unanimously dismissed by the board just over a year into his tenure.

Flannery, a longtime GE Insider, uncovered a hornet's nest in the C-suite after taking over from CEO Jeff Immelt in 2017. Immelt's tenure, while initially promising, had been marred by a series of poorly timed or poorly executed business decisions. These included beefing up the company's oil and gas business just before oil prices collapsed in 2014, and acquiring the power unit of French company Alstom, a purchase that failed to produce the synergies or bottom-line boost that Immelt had projected.

Within six months of Flannery's arrival, all hell broke loose. GE revised Immelt's rosy earnings forecasts way downward, restated two years of financial results, triggered a Securities and Exchange Commission investigation, slashed its dividend by 50%, and announced a previously unforeseen $6.2 billion insurance charge.

Flannery created a turnaround plan, but the highest public praise he seems to have gotten from Peltz -- who by this time had secured a board seat for fellow Trian partner Ed Garden -- was that he supported Flannery's plan, and that it was "onward and upward" at GE. Not exactly a ringing endorsement.

Having Peltz on his side means Culp has a very powerful ally, both in the boardroom and in the investor community.

2. Why it's a big deal for GE

Peltz is usually referred to as an "activist investor," and there's a good reason. Peltz's Trian Fund has taken big stakes in some of the nation's largest businesses, particularly consumer goods companies, and has tried (with varying degrees of success) to shake things up.

In 2017, for example, Peltz was upset that Procter & Gamble, in which Trian had bought a major stake, was underperforming. He waged the most expensive proxy fight in U.S. history, eventually (and narrowly) securing a board seat. Earlier, in 2016, he had sparred with -- and eventually ousted -- CEO Ellen Kullman of DuPont, after a failed proxy battle to place Trian nominees on the board. He was also instrumental in the successful breakup of Kraft Foods and a less successful breakup of PepsiCo

But Peltz's rocking of the boat can touch off a lot of uncertainty at a company. Conflict among investors or board members can cause big problems. Executives can be left wondering which way the company is headed: toward breakup, wholesale selling off of assets, or a completely new strategy. For example, during the proxy fight with Peltz, P&G CEO David Taylor publicly warned that his proposals could "derail the transformation we're leading."

With Peltz expressing approval of Culp and his management, GE looks like it won't be facing that kind of conflict, at least for now. 

3. Why it's a big deal for investors

Peltz is an investor himself, and a savvy one. His moves may be controversial at times, but there's no denying that he has shareholders' best interests in mind when he gets involved with a company. He also has a long history of being willing to work with a company for years on turnaround plans.

GE is a bit different from the cases of P&G and DuPont in that there wasn't any kind of proxy battle...or even a skirmish. The company welcomed Garden onto the board with no pushback. With Peltz clearly a fan of Culp, there shouldn't be any boardroom conflict for investors to worry about. 

A harmonious boardroom and C-suite that's in agreement about the best way forward for the company -- with the stamp of approval from a major shareholder -- is a very good thing for investors, especially after the chaos that has marred GE for the past couple of years.

A tough row to hoe

Just because things seem peaceful in the boardroom doesn't mean that GE's stock is going to be calm. Share volatility has skyrocketed over the past three years. And with the company looking at 2019 as a "reset year," there's no guarantee that its stock performance is going to turn around anytime soon. Investors should still be wary about buying in. Existing investors, though -- not to mention Larry Culp -- can probably breathe a little easier at least. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.