Neutron Jack's better legacies

Welch had the less-acknowledged talent of working productively with people he didn't get along with and meticulously planning his succession

Jack Welch, who died on March 1, enjoyed hallowed following among India’s male-dominated, mostly family-owned business universe for his macho, John Wayne approach to management, an image he did much to nurture carefully. Everybody, whether owner-managers or professional managers, wished they could be like “Neutron” Jack, abrasive, straight-talking, hiring and firing and closing businesses at will (of course, Indian labour laws make the last activity near-impossible). But it is a pity that few choose to emulate their idol’s less-acknowledged governance talents: Working productively with people he didn’t get along with and meticulously planning his succession.
 
Much of GE’s extraordinary performance under his stewardship was courtesy GE Capital, better known as Capital, the financial services behemoth that accounted for almost 40 per cent of GE’s earnings. Between 1991 and 1996, according to an assessment in Fortune magazine, “GE’s revenues would have grown just 4 per cent a year were it not for Capital, which more than doubled the growth rate to 9.1 per cent”. … “Wall Street’s confidence in Capital is the main reason GE stock is rising at a rate that makes the overall market advance look modest, up 123 per cent in two years, vs. 63 per cent for the S&P 500.”

 
The article was written a year before the man behind these exceptional numbers, Gary Wendt, stepped down for reasons that had nothing to do with performance. Variously described as quirky, blunt, demanding and detail oriented, he established business practices and management styles that gave GE most of its mojo. Welch, his boss, described him as “a brilliant entrepreneur”.
 

Coming from Welch, this is praise indeed, since it was an open secret that the two men didn’t get along at all (mostly bad chemistry, perhaps because the two were so alike). Yet it would surprise many to know that Wendt was very much on Welch’s shortlist of possible successors, with most putting him down as a cert. He was felled by an embarrassingly public — and landmark — divorce case, after which Welch asked him to step down, which he did in 1998 (in a twist of fate Welch was later involved in his own very public and awkward divorce case, this one prompting a federal investigation into his spectacular post-retirement benefits).

 
In a corporate culture riddled with yes-men, it is hard to think of the chief honcho of any Indian company — especially those that are family-owned and managed — even tolerating a dissident senior executive let alone giving him (and it’s mostly men still) the leeway to become a star in his own right. As for shortlisting him as a possible successor: Out of the question. Note the succession patterns in India’s largest corporations: If the successor is not a family/founder member, it’s usually a technocrat with a fine-tuned sense of survival who can be relied on to do the promoter’s bidding. If it’s not a family-owned conglomerate, star CEOs struggle to let go.

 
Tolerating and encouraging a rival was not the only uncharacteristic Welch touch. So was his succession planning. He retired in 2001 but the search for his successor began as early as 1994. The exercise was merged into the routine annual board-level assessments of senior executives but Welch widened and deepened its ambit by shortlisting candidates, tracking their performance and organising a series of social events (golf weekends and so on) so that the candidates could interact with board members.
 
It was an extraordinarily detailed process micro-managed by Welch (including stipulating the seating arrangements at corporate meets), though he may well have bulldozed the board into accepting his final shortlist of three. These were James McNerney, who headed the aircraft engine business; Robert Nardelli, chief of the GE business that makes turbines and generators for electric utilities, and Jeffrey R Immelt, head of the medical devices business, who finally got the top job (perhaps because he was the youngest of the three).

 
True, none of the chosen three shone in their subsequent careers. Jeff Immelt proved a sub-optimal choice for GE. Jim McNerney, who became Boeing’s CEO, made the fateful decision to upgrade the 737 series to 737 MAX instead of developing a new model (he stepped down as chairman in 2015 and so escaped the brunt of the criticism over the MAX’s disastrous performance). Robert Nardelli became CEO of Home Depot, the home improvement retailer, in 2000 and doubled revenues until his Welch-style management technique compelled the board to ask for his resignation seven years later.
 
Poor successors are a professional hazard for star CEOs. Still, the fact that the larger-than-life Welch’s stint saw a smooth succession certainly kept the giant global conglomerate on even keel. There was no eureka moment when the youthful member of a search committee and part owner of a group was abruptly appointed successor — only to be sacked four years later. No double extensions for an MD who then became chairman and appointed a successor MD who would retire before him. No promoter who stepped down as chairman and then stepped back up when the market regulator relaxed appointment rules. Welch did none of these but sadly, it’s his less attractive management style that will be remembered.