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SUCCESSION PLANNING AT GE You dont get succession candidates if you dont start with a pipeline. - Gestrude G.

Michelson, an outside director, GE, in April 2002. THE SUCCESSOR In November 2000, General Electric Inc. (GE) announced that Jeff Immelt (Immelt), the president and CEO of GE Medical Systems, would be the successor to Jack Welch (Welch), the Chairman and CEO of the company. Welch was to retire in September 2001, after a successful 41-year stint at GE. A c c o r d i n g t o G E sources, Immelt would become the president and chairman-elect of G E , a n d a member of GE board and Corporate Executive Office, with immediate effect. The announcement ended the battle that was viewed on Wall S t r e e t a s t h e h o t t e s t c o r p o r a t e succession race of the decade. The three candidates for the top spot at GE were Immelt, W. JamesMcNerney (McNerney), CEO of GE Aircraft Engines, and Robert L. (Nardelli), president and CEO

of GE Power Systems. Neither GE nor Jack Welch revealed exactly why Immelt had been preferred over the other two.Welch himself went on record to say that the other candidates were equally capable of running GE.Welch wrote in his autobiography, that choosing between the final trio was the most difficult andagonizing [decision] I ever had to makeAll the three exceeded every expectation we set for them.T h e i r p e r f o r m a n c e w a s o f f t h e c h a r t s . A n y o n e o f t h e three could have run GE. 2 According toWelch, it was his nose and his gut, which prompted him to select Immelt. Analysts believe that the fact that Immelt was younger than the other two aspirants at 44 years of age, contributed to his selection. GE is known to favor steady leadership over a long period. SinceImmelt was six years younger than his rivals, he would have an opportunity to plan for a further 20y e a r s a t G E , l i k e W e l c h w h o b e c a m e C E O a b o u t t h e s a m e a g e , a n d s t a y e d a t t h e c o m p a n y t o implement his plans. Welch too characterized Immelt as a natural leader, and ideally suited to leadGE for many years, adding weight to this view. As soon as Immelt was selected to take over as CEO, the media began to make comparisons betweenImmelt and Welch, and some expressed doubts as to Immelts ability to match Welchs charisma or impeccable record. Many Wall Street analysis believed Welch was one of the most important andinfluential business leaders of the 20

th century, and clearly Immelt would have to work hard to matchthe performance of his predecessor. During Welchs tenure of two decades as CEO, GE transformed

itself from a manufacturer of light bulbs and appliances into an industrial conglomerate, with annualrevenues increasing from $27.9 billion to $130 billion. Given GEs record of effective leadership, and the care and intensity of its succession planning p r o g r a m ( R e f e r E x h i b i t I f o r a n o v e r v i e w o n s u c c e s s i o n p l a n n i n g ) , m o s t i n d u s t r y o b s e r v e r s expressed their confidence in GEs choice of Immelt. The fact that McNerney and Nardelli weret a k e n o n a s t h e C E O s o f 3 M a n d H o m e D e p o t , r e s p e c t i v e l y , w i t h i n w e e k s o f t h e i r l o s i n g o u t t o Immelt, was in itself taken by observers as testimony of corporate Americas confidence in leadersgroomed by GE. 1 Grow Your Own CEO,www.boardmember.com,March/April 2002. 2 Jack: Straight from the Gut, written by Jack Welch with john A. Byrne BACKGROUND NOTE The roots of GE can be traced back to Thomas Alva Edison ( E d i s o n ) , t h e i n v e n t o r o f t h e incandescent light bulb. Edison set up The Edison Electric Light Company (EELC) in 1872, toconduct experiments on electricity, and in 1879, he invented a carbonfilament lamp and directcurrent generator for incandescent electric l i g h t i n g . T h e E E L C w a s c o m p r i s e d o f a n u m b e r o f smaller companies involved in different business ranging from power stations and wiring grids toelectrical appliances. The EELC merged with The Thomas-Houston Electric Company 3 in 1892, toform General Electric (headquartered in Schenectady, New York).

In 1894, Charles Coffin(Coffin)

replaced Edison as CEO of GE. Coffin brought about a number of changes in the company by creating a rigid hierarchy and

organizing the company around differentindividu al works, or units dealing with specific product lines or jobs. He also

imposed rigidfinancial controls to keep the different units on track. By the end of the century, GE was able

toconsolidate its position by licensing its electric bulb technology to other companies.Gerard Swope (Swope),

who succeeded Coffin in 1922, played an influential role in making positivechanges in industrial relations at GE.

He introduced many schemes such as group insurance, profitsharing, bonuses, pensions, homemortgage

assistance, and stock-purchase plans, which were widelyappreciate d. He consolidated GEs position in the industry

further. GE also became the first companyto establish unemployment pension plans, which guaranteed its laid-off

workers a stipend of $7.5 per week for a period of 10 weeks after layoff. Charles Wilson (Wilson), who

became CEO in 1940, undid most of the changes that Swope had brought about in industrial relations. After the Second World

War (1939-45), GE faced a major crisisin industrial relations due to the increasing clout of the trade unions. The crisis peaked with a

major strike in 1948, and a rift between bluecollar workers and GEs management was apparent. Duringthis

period, the trade union leaders became so powerful that they resisted efforts by GEsheadquarters to diminish their

authority.Ralph Cordiner (Cordiner), who succeeded Wilson in 1950, undertook a company-wide restructuringto

improve management practices at GE. He also promoted decentralization by breaking up GEsoperations into separate

departments. To indoctrinate managers in the new principle of decentralizati on, he established Crotonville

school in 1956. He also played a key role in thedevelopment of many important management techniques like

Management by Objectives (MBO),SWOT Analysis and Strategic Planning.Fred Borch (Borch) took over from

Cordiner in 1964. He contributed substantially to the growth of the company by making some major investments.

Borch added three new capital-intensive lines toGEs portfolio of businesses computers, nuclear power

and aircraft engines. By 1968, GE had become a conglomerate comprising of 190 departments manufacturing a

wide range of products.Borch also gave a lot of importance to strategic planning, and was instrumental in creating

46strategic Business Units (SBUs) within GE.Reginald Jones (Jones), who became CEO in 1972, accelerated the

companys shift from electromechanical to electronic technology. He also emphasized the need to be responsive to

theinternational environment and competition from overseas. Jones invested heavily in officeautomation in a bid to

increase productivity, and took some strategic decisions to strengthen promi sing businesses like plastics and

to divest the unproductive computer businesses.


3

In 1879, Elihu Thomson and E J Houston formed the Thomson-

Houston Electric Company.The company was involved in producing electrical equipment and building

electrical power stations.In 1981, Welch became CEO and began a major restructuring effort to cut redtapism within

thecompany, as part of which he cut more than 100,000 jobs a fourth of GEs work force. Hedecentralized operations and

adopted a strategy of operating only profitable ventures and divesting able ones. Welch emphasized that

GE should be No.1 or No.2 in all business, or . As a result, GE divested itself of several businesses like air-conditioning

andes and acquired others like Employers Reinsurance and Radio corporation of Americas, GE also introduced

the Six Sigma quality management program at its companies,elch, to make production processes more

efficient. In 1999, GEworth $17 bn.the turn of the 20, the company was operating in wide variety of businesses. Some of ness divisions

of the company were Aircraft Engines, Appliances, Aviation Services,cial Equipment Financing,

Commercial Finance, Employers Reinsurance Corporation, GEearnings of $12.7 bn were more than 8 times

the profit it reported in 1980 ($1.5s shares had risen over 5,096%, including the dividends, from the day Welch

took ng Immelt), each changing the course of GE to meet changing market requirements duringright time for more than 100

years.on planning is an ongoing, rigorous and challenging process at GE. GE adopted successionageme nt, but was

applied across all tiers of management. The managers of GEs variouses were encouraged to identify potential

candidates and fulfill their development needs, ands. The company used mainly annual performance reviews for ing

potential candidates, until the early 1980s. However, after Welch took over as the CEO,alytical tools and the

involvement of the top management in leadership development andart of succession planning at GE.

The Session C process was reportedly given as muchp development and succession planning program, and

hence used many tools as part of itsntiate talent. The major tools GE used were Vitality curve, 9Block andwww.fortune.

comal 70% players and bottom 10% players in all processes and levels across theectives and key initiatives

such as Six Sigma, ebusiness and customer focus.milarly, the 9 Block was also used to plot employees

ability to meet their formance targets against their demonstration of GEs values. According to GEir annual

performance rating and also to analyze their growth and successionof two HR professionals. This report is based on

extensive data & interviewsct of the managers performance & potential and identifies theer, on whom the report is prepared

gets the opportunity to readarious Sources.sment of the executives, the managers and the HR executives

assessed the individualss, of GE met with the CEOs and HR chiefs of the 13 GE businesses at their respectiveers, to

personally review the performance and progress of the top 3000 executives of thempany, with more focus on

the top 500 executives. The qualifications, achievements andexecutives were discussed in these sessions.elch

carried a briefing book that contained assessment of every top executivestogra phs, miniature biographies and

their selfassessment placed along with their mangerss. This helped him challenge the CEOs and HR

chiefs regarding their recommendations as toons and succession plans, forcing them to sell their ideas, and ensure that

the best talent wassion planning program, GE paid great attention to the identification of the rightvelopment

program for its high potential executives. Managers worked closely with HR vidual address the problem.

Commenting on this, Steve Bertamini (Bertamini), CEO, GEciency, or do we take more of a counseling or

mentoring type approachwww.hu manresourcesmag azine.com.auTwi ce a year at theed talk about a new assignment for someone whontly

reviewed the growth of their talent pools. Commenting on the rationale for this,rough process you really do have a

group of peopleip development. These, which focused on training executives in managing a multi-functional

organization; theiness and leadership skills required to compete in global environment; and the

Executivee courses, aimed at enabling them to gain a comprehensive understanding of top-gement Program,

participating managers were required to take two-d to come upch exercises helped managers to gain extensive leadershipe

other, with few or no transitional problems. As part of this, in the final stage of thecutive Development leadership

development process, GE conducted officer workshops atpart of this program, GE sent its managersses to

visit competing companies in Asia and Europe, to analyze the quality,pliance with GEs corporate values viz. Passion,

Curiosity, Teamwork, Resourcefulness, countability, Commitment, Openness, and Ability to Energize, were

the key factors for www.boardm ember.com,www. humanresourcesm agazine.com.autin g on the importance of values in GEs

leadership development and succession planningon as to whether an individual is a genuine leader or a manager who

simply gives workers aent of successors for every managerial position across its 13es. Commenting on this, Bertamini

said, If a person is promoted or is not performing, wety (Conaty) and Chuck Okosky (Okosky), both vice-presidents,

HR and Executiveent, created a list of essential qualities, skill and characteristics and ideal CEO

shouldosses. The list mainly included elements such as integrity and values, vision, leadership,, and most importantly,

stomach to play for high stakes and being comfortableelch submitted a list of 23 potential CEO candidates, to the

managementent committee of GEs board in the same year. The candidates list included names of e presidents of GE to high

potential managers, all ranging between the age group of 36O candidates to take over, in case something happened to him.

The older es on his list of 23 potential CEO candidates were in the list largely because they couldrds, all the key decisions

made by GE with regard to the careers of the potentialin mind. According to GE sources, during this period,; they have put into

various jobs acrossal-time assessments of how the process of succession was going on to the board everybruary and

September each year from 1995. To have a closer look at the potential CEOn exercise, spent a whole day with each of the

potential candidates and his team (from, gave Welch feedback on the candidate.www.h umanresourcesma gazine.com.aust

of 23 had narrowed down to eight serious candidates, after retirements,e kept throwing new tests in front of them. The

eight who remained contenderselch and his team to help selection of CEO successor best complementary

mix of corporate executive officer skills.and personal view of the contenders before the finalch had been closely monitoring and

interacting with them for years. For example,ead, Welch had private dinners with each of them in mid 1999, where he

asked them their e course of dinners in early 2000 with the top three, and this time concentrated ons, which included

issues like currentions, business environment issues, their opinions of other two contenders, what theyy

would leave GE, if they werent chosen; two of them made it clear that they would.elch to understand that one of his basic

objectives of CEO selection retaining allunrealistic. According to Welch, any one of the three contestantse, to

try retaining them at GE, when. Moreover, as the competition for the postclose, he felt that it would be in the better

interests of the new CEO (and chairman), if thes chairman of this company has to be filled with self-confidence and full of

enthusiasm. Ielch and John A Bryne.d the three to come up with a list of their s in case they were chosen for the top position or

left, which, he explained was in the best. Due to its effective succession planning program which helped it to have anagerial

and leadership positions, choosing their successors had beenating officers, Dave Calhoun, John Rice and Joe

Hogan, who would succeed McNerney,li and Immelt respectively, when they stepped down as CEOs of GE

Aircraft Engines, GEmedical businesses into a model for the future of GE. He also credited Immelt for ect blend of

intelligence and edge and also a unique trait of being comfortable in hiss problems during this period, as most

of eless he had to deal with the crisis. Immelted on customer service, for which GE introduced a new program dubbed

At theat its employees would be committed to this initiative, GE made improving customer elchs

leadership style, he felt that the economic environment in the earlyvices, Immelt was getting out of that business as

he felt that there was less potential for es. Immelt also focused more on retaining managers in the same divisions for longer

periodsWelchs practice of rotating managers fast across various divisionspotential means of growth.ng to

analysts, Immeltss focus on long-term planning was apparent from the heavy bets heent industry, which he believed had a

high potential for growth in the years toivendi Universal Entertainment to form NBC Vivendi, with combined

revenues of over $13s focus on R&D and innovation was attributed to his belief that in the light of economics to

support various GE businesses. Immelt said, Were keeping the technology robust, andAmersham, as the CEO of GE

Healthcare unit, came as a shock as it went against the century oldehind his decision to break the tradition and

bring in an outsider to head a GE business.. Here, in one swoop, its given to anelch. Analysts felt that unless something

went terribly wrong, Immelt was sure toO of GE and implement his long-term plans to transform GE into the

21www.fortune.c omscribed as a process through which managers identify and help groom their ording to

analysts, organizations which implement succession planning benefittime, and lack of

continuity.succe ssion plannwith assessment. The processnt involves identifying several factors like individual

talents, skills andthe requirements of a specific position., the managementst implement a development

plan, which identifies various aspects which theential candidate(s) must develop to move on to the next stage of

managementoug h succession planning for CEOs is not entirely different from successiontions are huge.

Typically, the responsibility of CEO succession planning restswhich covered a survey of 100 retired CEOs, nearly

30% of the CEOs did not have anyn plan. Analysts felt that leadership succession becomes a problem when

companies do notber 2003, there was no successor to take his place. The company hadng to analysts, a fumbled CEO

succession plan hurts the morale of the companys staff and, Pfizer and American Express.www.co mmercedatabase.com-

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