Succession Planning at GE

In 1994, years before he retired from GE, Jack Welch had started the succession planning
process. He developed a list of qualities, skills and characteristics a CEO should essentially
have. So, GE was ready for its nest CEO, years before it finally had to make the decision in
1999. The three candidates for the top spot at GE were Jeff Immelt the President and CEO of
GE Medical Systems, W.James McNerney CEO of GE Aircraft System, and Robert L.
Nardelli President and CEO of GE Power Systems.

SP is an ongoing, rigorous and challenging process at GE. GE adopted SP right from the mid
1900s. At GE, succession planning was not confined to only the top management, but was
applies across all tiers of management.

The managers of GE’s various businesses were encouraged to identify potential candidates
and fulfil their development needs, and transform them into efficient leaders ready to take up
top jobs at the company. As part of CEO succession planning, GE shifted its key candidates
from one business to another to enable them to gain experience across all its businesses.

During Welch’s tenure of two decades as CEO, GE transformed itself from a manufacturer of
light bulbs and appliances into an industrial conglomerate, with annual revenues increasing
from $27.9 billion to $130 billion.

CEO Succession Planning

The company mainly used annual performance reviews for identifying potential candidates,
until early 1980s. However, after Welch took over as the CEO, the SP process at GE became
a more systematic process, with the use of various analytical tools and the involvement of the
top management in leadership development and SP. Since early 1980s, the annual Human
Resource Reviews (popularly called Session C) had been at the heart of SP at GE. The
session C process was reportedly given as much importance as financial monitoring in GE.

The SP by Welch for his post had started way back in 1994, when Welch with help of Bill
Conaty and Chuck Okosky, both VPs, HR & ED, created a list of essential qualities, skills
and characteristics an ``ideal CEO’’ should possess. The list mainly included elements such
as integrity and values, vision, leadership, experience, edge stature, fairness, energy, balance,
insatiable appetite for enhancing knowledge, courageous advocacy, and most importantly,
stomach to play for high stakes and being comfortable operating under a microscope...

Jeff Immelt gets Selected

In Nov’2000, GE announced that Jeff Immelt would be the successor to Jack Welch, the
Chairman and CEO of the Company. Welch was to retire in Sep, 2001, after a successful stint
at GE. The announcement ended the battle that was viewed on Wall Street as the hottest
corporate succession race of the decade.
Welch wrote in his autobiography, that choosing between the final trio ``was the most
difficult and agonizing decision I ever had to make...all the three exceeded every expectation
we set for them. Their performance was off the charts. Any one of the three could have run
GE.’’ Acc. To Welch it was his nose and his gut which prompted him to select Immelt.
Analysts believed 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 favour steady leadership over a
long period. Since Immelt was six years younger than his rivals, he would have an
opportunity to plan for a further 20 years at GE, like Welch who became the CEO at about
the same age, and stayed with the company to implement his plans. Welch too characterised
Immelt as ``a natural leader, and ideally suited to lead GE for many years’’ adding weight to
this view.

Immelt Makes his Mark

During the first two years as GE’s CEO, Immelt had to face many problems on account of
September 11, 2001 attacks, the Enron debacle, and the global economic slump during the
early 2000s, which affected the company’s earning severely. As a result, GE for the first time
in 10 years,, failed to report double digit earnings growth in the fiscal 2002. Though Immelt
ws not help responsible for the company’s problems during this period, as them most of
triggered by the external environment, nonetheless he had to deal with the crisis.

The fact that McNerney and Nardelli were taken on as the CEOs of 3M and Home Depot
resp., within weeks of their losing out to Immelt, was itself taken by observers as testimony
of Corporate America’s confidence in leaders groomed by GE.