The Middletown Press (Middletown, CT)
A HARD ACT TO FOLLOW
For GE alumni, ‘Welch way’ difficult to duplicate
They were two of the brightest bulbs in a younger entourage of men General Electric slotted into its senior-most executive roles as Jack Welch’s retirement date neared in 2001, with Jeff Immelt lined up as his replacement and David Calhoun taking over GE’s jet engine manufacturer, replacing would-be Welch successor Jim McNerney, who left for 3M.
Of that original group, only Calhoun remains an undisputed captain of industry today, assigned in January the daunting task of eradicating the damage done to Boeing by finding fixes for design errors that grounded its new 737-Max jets after a pair of crashes.
For the rest, the grounding in “the GE Way” they absorbed as disciples of Welch would prove as much fable as philosophy, as they landed at the helms of major corporations on the edge of an economy that would surge through 2006 on the back of a bloated real estate market, but with varying records amid that boom and subsequent bust.
With Welch’s death last weekend at age 84, the GE legend’s lasting influence on corporate thinking was again front and center, with many crediting him for what would become an era of investor-first thinking that made many companies more profitable. It has been an approach many blame as well for holding middle-class worker incomes in check and chipping away at benefits that proved an effective retirement security net for previous generations.
Immelt was exhibit A in Connecti
cut, of course, beating out McNerney and Bob Nardelli for the conglomerate’s corner office in Fairfield and instituting major changes. Whereas the Dow Jones Industrial Average would eclipse by 2006 its previous peak during the Internet bubble six years previously, under Immelt GE would never approach its all-time high in 2000 under Welch, and after the company replaced Immelt in 2016, would slump to its lowest value since the 1992 recession.
“If I was to give anybody advice, it would be to follow a bum — it’s a lot easier,” Immelt said in 2017 during an appearance on Bloomberg. “I remember in 2000, Fortune did a retrospective of the 20th century, and the best manager of the previous 100 years was Jack Welch — so better have some confidence when you’re going to take this job, because those are pretty big shoes.”
‘Session C’ meetings
But other companies had big shoes to fill themselves, some of them the best known names in corporate America. Noting successes by Welch underlings like Larry Bossidy who increased AlliedSignal’s stock eightfold in the 1990s, headhunters came calling, creating a “family tree” of GE pedigrees not unlike the coaching trees of NFL legends like Bill Belichick, Bill Parcells and Bill Walsh.
GE Power Systems chief Bob Nardelli left to lead Home Depot, which saw archrival Lowe’s gain on it during his tenure. After negotiating a severance package in 2007, Nardelli would take the challenge of a turnaround of debt-saddled Chrysler, with the company declaring bankruptcy within two years as the Great Recession hit its trough.
McNerney had a far more successful run, leaving GE Aviation’s predecessor company to lead 3M four years before getting recruited to take over Boeing’s top job. While the aircraft maker’s stock would drop during the recession, the company’s shares would more than double in the decade McNerney led Boeing, even as GE’s lost a third of their value during the same stretch under Immelt.
Dave Cote at Honeywell, Lawrence Johnston at Albertson’s, Gary Wendt at Conseco, Mike Zafirovski at Nortel — those were some of the bigger names leaving GE to take top jobs elsewhere as the Immelt era dawned at GE. In 2005, Fortune would report that of nearly three dozen former GE executives who went on to lead publicly traded companies, only half of those companies were beating the S&P 500 in what was at the time a bull market.
“An important quality [was] his relentless focus on the quality of management development,” said Jeff Sonnenfeld, who over the years invited Welch to speak to his students at the Yale University School of Management. “Every 90 days, he had these ‘session C’ meetings where he would go through intensive reviews of the talent in the pipeline . ... He produced a great flock of talent that came out — the disciples of Welch are, for the most part, a pretty impressive group.”
But Sonnenfeld noted that the “Welch way” did not prove universally transferable, as that group of managers went on to run their own companies that as a group were generating more than $300 billion in annual revenue at the time.
That was not a product of the era — Sonnenfeld points out the managerial foundation Greenwich resident Reuben Mark laid at Colgate-Palmolive, with the New York City consumer product giant having enjoyed a mostly uninterrupted run of stock gains during his tenure and those of his successor CEOs that overlapped the Welch and Immelt years.
John Trani provides the most relevant Connecticut case study, with The Stanley Works predecessor company of Stanley Black & Decker recruiting him from GE Medical Systems, replaced by Immelt who would make the most of the opportunity as a springboard to the top job.
The Stanley Works would have mixed results during Trani’s tenure there, with the company’s chairman John Opie — himself a former GE executive under Welch — settling on Georgia-Pacific executive John Lundren to replace him. Lundgren’s dozen-year run included its landmark acquisition of Black & Decker, with Jim Loree selected as CEO following Lundgren’s retirement in 2016, having followed Trani to the company and rising to chief financial officer.
Three years ago in an interview with the Hartford Courant, Loree recollected his own first impressions of Welch as a 23-year-old junior manager at GE.
“I had the opportunity to sit across from him in management reviews,” Loree told the Courant. “He’s just an incredibly bright, articulate man who put forth a vision . ... I was pulling allnighters if I was meeting with Jack Welch the next morning. I’ve tried to emulate him.”