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GE Succession a Leadership Lesson

Emphasis of its CEO on choosing and grooming his replacement is serving as a wake-up call at other firms.


Longtime General Electric Co. Chairman and Chief Executive John F. Welch Jr. did for corporate succession last week what Al Gore has done for dangling chads: Turn the esoteric into a hot topic, however fleeting.

OK, so the circle of people talking about how corporate America chooses its leaders is a bit smaller than the global buzz over the most arcane aspects of presidential vote counting.

But for many of the nation's movers and shakers, the anointment of inside front-runner Jeffrey R. Immelt as heir to Jack Welch's corporate legacy catapulted their own succession planning to the fore.

"GE was the Super Bowl of CEO succession planning. It was a wake-up call for companies that haven't thought about the next generation," said Stephen Unger, a managing partner in the Los Angeles office of Heidrick & Struggles, an international executive search firm.

For the Record
Los Angeles Times Tuesday December 5, 2000 Home Edition Business Part C Page 3 Financial Desk 2 inches; 36 words Type of Material: Correction
GE-Honeywell--A story published in Sunday's Work Place section incorrectly reported the number of people that would be employed by the combined General Electric Co. and Honeywell International Inc. The combined company will employ about 460,000 people.
For the Record
Los Angeles Times Sunday December 10, 2000 Home Edition Work Place Part W Page 2 Financial Desk 2 inches; 37 words Type of Material: Correction
GE-Honeywell--A story published in last Sunday's Work Place section incorrectly reported the number of people that would be employed by the combined General Electric Co. and Honeywell International Inc. The combined company will employ about 460,000 people.

And, according to those who study and assist executive transitions, after years of neglect, it's about time corporate leaders started focusing on passing the baton. A smooth and orderly CEO transition, they said, can be the difference between successfully moving a company into its next phase and any number of disasters, including productivity losses, the erosion of shareholder confidence and employee exodus.

"I was just telling a client of mine who just lost a person that there is a great lesson in GE," said Jane Howze, managing director of the Alexander Group, a national executive search firm. "In today's job market, part of every manager's performance criteria should be succession planning.

"It's never been harder to recruit people," she said. "I've been in [the] executive search [field] for 20 years, and I'm finding you're making 50% more calls to get a good candidate. And what's the antidote to that? The antidote is to grow your own."

Demand for executive talent is at an all-time high and increasing for a number of reasons, including the proliferation of new companies, the aging of the baby boomers at the helm of many corporations, early retirement and the rapid sacking of executives who fail to improve profits within a few quarters.

Last month, 111 chief executives left American firms, led by "dot-com" departures. That's a 59% increase from a year ago, according to a report released Thursday by outplacement firm Challenger, Gray & Christmas Inc.

Not surprisingly, the feeding frenzy for the GE also-rans, Robert L. Nardelli and W. James McNerney Jr., began the day of the announcement. The finalists are expected to have their pick of top jobs elsewhere as have dozens of other Welch proteges.

"Most companies would be glad to hire anybody in the [GE] top 10," said Jeff Christian, CEO of Christian & Timbers Inc., the firm that presented Hewlett-Packard Co.'s board with eventual CEO Carly Fiorina last year.

"The winners are the people who make hiring and keeping the best people a top priority, and that's exactly what Jack Welch did," Christian said. "His primary strategic goal was hiring the best people around, developing them and training them and knowing who the stars were."

Yet many boards of directors and chief executives have failed to address the question of who would replace the top boss, much less any other key player, transition experts said.

"There's been so many other pressures on corporate leaders that I think they've been distracted in this regard," said Gary Kaplan, founder of Gary Kaplan & Associates, a Pasadena-based executive search firm.

One reason for the lack of attention is that succession planning is a bit like writing a corporate will. "Who likes to participate in their own death?" said Warren Bennis, a professor of business administration at USC.

Yet succession planning isn't something businesses can afford to ignore, he said, "if they are going to be in the phone book in 2002."

The fact that Welch had his pick of strong inside candidates was no accident.

"He chooses the right people," Bennis said, adding that he is known for interviewing the finalists for the top 500 positions at GE.

"That is what Jack Welch is famous for. He has said he spends 50% of his time on developing people, and that's about 49% more than most CEOs do," said Bill Byham, chief executive and chairman of Development Dimensions International, a Pittsburgh-based international human resources consulting firm that specializes in leadership development.

For the better part of a decade, Welch, 65, has been intensely focused on determining and preparing his successor, saying in a 1991 speech, "From now on, [choosing my successor] is the most important decision I'll make. It occupies a considerable amount of thought almost every day."

Allen Salikof can relate to that mission. As chief executive and president of Cleveland-based Management Recruiters International, Salikof oversees executive searches in 1,060 offices in 23 countries. The company had $750 million in revenue last year. This year, his job includes searching for his own replacement.

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