A Tough Act to Follow at General Electric
Capping one of the most closely watched corporate-succession dramas ever, General Electric Co. on Monday tapped the head of its medical systems group to replace legendary Chief Executive John F. “Jack” Welch Jr. when Welch retires at the end of next year.
The naming of Jeffrey R. Immelt, 44, concludes a selection process that was eagerly awaited not only by the business world but also by millions of GE customers, suppliers, employees and stockholders. The decision was pivotal because of GE’s enormous global reach, its ranking as the world’s biggest company based on its stock value, and its remarkable record of improving sales, profit and stock price year after year.
Indeed, the job Immelt will inherit almost boggles the mind, not only because of GE’s gigantic size, but because of the renowned reputation of Welch, generally regarded as the world’s most respected business executive.
Welch, the subject of numerous books about his career and management principles, turned 65 last week and had been focused on finding a successor for nearly a decade. The result: Immelt’s future is full of potential while also fraught with peril.
That’s why Immelt’s first task won’t be so much improving on Welch’s track record, but merely matching it. And just meeting the standards set by an extraordinary predecessor is an achievement several other new chief executives have failed to do in recent years. Such familiar U.S. companies as Coca-Cola Co. and Procter & Gamble Co. have abruptly stumbled under new CEOs.
“These are huge shoes to fill,” said William Fiala, an analyst at brokerage firm Edward Jones & Co. in St. Louis. “All the indicators show that Jeff is a good fit. But we’ve seen many new CEOs go through what you would have thought would be smooth transitions that did not work out.”
Expectations are even higher at GE, which touches the lives of millions of Americans every day. Though most consumers know the Fairfield, Conn.-based company for its appliances and lighting products, the company also owns the NBC television network and GE Capital, a huge financial-services arm that’s involved in everything from car leasing to real estate.
GE also has several other divisions that make jet engines, locomotives, plastics, industrial power systems and the medical products that Immelt has overseen, such as medical diagnostic machines.
GE also is one of the world’s most widely held stocks, with millions of Americans owning itsshares directly, or indirectly through pension funds, 401(k) retirement plans and mutual funds.
And under Welch’s guidance, GE is now a company of superlatives. It recorded sales last year of $112 billion and, though it operates in many “old economy” industries, it still earned a profit--after paying every single bill--of $10.7 billion in 1999, the highest of any publicly held U.S. company. GE has more than 340,000 employees and operates in more than 100 nations.
Immelt was immediately named GE’s president and chairman-elect. He had been one of three GE executives considered favorites for the CEO’s job. Though GE never publicly identified who was in the running, it did not discourage speculation about who the three finalists might be.
Welch said Immelt won the job because he has the ability to keep GE moving apace, including his “team-building skills and technological background.” Immelt is “the right guy to take us forward for the next 20 years,” Welch said in an interview.
That’s another reason why Immelt was chosen--his relative youth. Welch has often talked of the next CEO having a long tenure, just as he did. Welch took over GE in 1981 at age 45, which will be Immelt’s age next year.
Medical Systems Group Leadership Is Cited
Immelt also is regarded for his grasp of new technologies and the way he solidly managed the medical systems group, helping it nearly double in size in just three years. He is known as a somewhat intense, workaholic executive but one with a keen sense of humor.
The Cincinnati native also aggressively bought and sold businesses to strengthen the medical systems group, which has annual sales of $7 billion. Such deal-making also has been a hallmark of Welch during his years as chief executive.
Immelt “is an extremely capable executive leader, as evidenced by his record as CEO of GE Medical Systems,” said analyst Martin Sankey, vice president of Goldman, Sachs & Co. in New York. “He compiled a strong record of generating growth and moving into new markets.”
A 6-foot-4-inch former high-school basketball player, Immelt is an 18-year GE veteran who has also had executive stints in its plastics and appliances groups. But he has little experience with GE’s other big divisions, such as aircraft engines, GE Capital or NBC. It is in those markets where Immelt will have the steepest learning curves.
“What’s critical in the next 12 months is for me to get out and see our customers . . . the people throughout GE, and to develop the kind of expertise I plan to have,” Immelt said in an interview. But he added, “I’m not going to sit back and be a portfolio manager. I thrive on change.”
Welch himself won a race to succeed his predecessor, Reginald H. Jones, and there was widespread doubt about whether Welch, a chemical engineer by training, could fill Jones’ shoes.
Instead, the pugnacious and aggressive Welch surprised everyone by turning GE on its ear. Though the company was profitable when he took over, Welch was convinced that GE was doomed to labor under excessive bureaucracy, hidebound management and slow-growth markets unless the company was completely reinvented.
So Welch proceeded to sell and buy hundreds of companies, dramatically changing GE’s businesses. He also established management tenets that are widely emulated today, such as destroying as many bureaucratic layers as possible, making do with the least number of employees, insisting that each division be first or second in its industry in terms of market share, and keeping vigilance on changing market and technological trends to ensure that rivals don’t get an edge over any of GE’s business.
That’s meant tens of thousands of GE employees lost their jobs over the last 20 years. It also once earned Welch the nickname “Neutron Jack,” in reference to the bomb meant to kill people but leave buildings intact.
But GE is now not only the most profitable U.S. company but, under Welch’s reign, a $1,000 investment in GE’s stock in 1981 is now worth $38,400. The company’s overall stock market value today--$494 billion--is the highest among all publicly traded corporations, including Microsoft Corp. and Cisco Systems Inc.
Analysts said Immelt benefits from being immersed in Welch’s techniques for nearly 20 years, in addition to having his own leadership skills. And Immelt will get another year of on-the-job training from Welch because Welch postponed his retirement for several months to complete GE’s proposed $45-billion purchase of Honeywell International Inc., a maker of aerospace components, chemicals, plastics and industrial controls.
Analyst Fiala said there was another factor that prompted Welch and the rest of GE’s board to choose Immelt. “You got the feeling that he had that charisma you look for in a strong leader,” Fiala said.
But whether Immelt can also extend Welch’s record of motivating GE’s work force is an open question. Welch was famous for getting everyone from executives to assembly line workers to listen, talk and be open to new ideas, so that GE kept maneuvering with the ambition of a small, hungry enterprise.
The other two executives under consideration for Welch’s job were Robert L. Nardelli, president and CEO of GE Power Systems, and W. James McNerney, head of GE Aircraft Engines.
Many expect those two to now leave GE so that they can pursue CEO jobs elsewhere. GE anticipated the same; in June it named new chief operating officers for power systems, medical systems and the jet-engine group to provide management stability behind the three contenders for Welch’s job.
“These are two people that have got a zillion options to deal with now,” Welch said. “Every head-hunter in America is calling them. We’re prepared for any eventuality, but it’s their choice.”
Their departure is not expected to hurt GE, which analysts said is operating at peak performance, with continued strong earnings growth, a fat order backlog, deep management ranks and its newest rush toward using the Internet to slash billions of dollars out of GE’s operating costs.
Yet much credit also goes to GE Capital, which is involved in everything from auto financing to real estate to aircraft leasing. The group not only helps give GE consistent profit growth, it also generates the cash that helps GE invest in other parts of its business. So it will be crucial that GE Capital continue to flourish under Immelt, analysts said.
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Times wire services were used in compiling this report.
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Next in Line
A look at the successor to General Electric Chairman John F. Welch Jr.
* Name: Jeffrey R. Immelt
* Born: Feb. 19, 1956
* Education: Dartmouth College, bachelor of science, applied mathematics; Harvard University, master of business administration
* Career: Joined GE in 1982. Held leadership roles with GE Plastics in sales, marketing and global product management. Most recently was president and CEO of GE Medical Systems.
* Family: Wife Andrea and daughter Sarah Ann
* Quote: “I love working with customers.... Sales has really influenced everything I do. It has instilled in me the important traits of operating with a sense of urgency and listening to people.”
Source: Associated Press
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* LEADERSHIP MATERIAL
Jeffrey R. Immelt is seen as the consummate company man. C3
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* LEADERSHIP MATERIAL
Jeffrey R. Immelt is seen as the consummate company man. C3
