Friday, September 21, 2001

How Immelt was picked to head GE

Welch tells of agonizing process in book

By Mike Boyer
The Cincinnati Enquirer

        Retired General Electric chairman Jack Welch transformed GE from a bureaucratic industrial conglomerate into a lean, high-growth company while eliminating tens of thousands of jobs in the process.

        He made thousands of acquisitions — some home runs, such as the 1985 RCA purchase, and others miserable failures, such as the 1986 Kidder Peabody purchase.

        All that pales next to what Mr. Welch says was his toughest decision in 20 years as one of the nation's most watched CEOs: picking his successor.

        “Making the pick was not only the most important decision of my career, it was the most difficult and agonizing one I ever had to make,” Mr. Welch writes in his new book Jack: Straight from the Gut.

        The decision culminated years of planning and evaluation with the naming Nov. 24 of Finneytown native Jeffrey R. Immelt. Mr. Welch, who formally retired Sept. 7 to complete Mr. Immelt's succession, writes that he informed GE's board of directors that he favored Mr. Immelt during a late Sunday night board meeting almost a month earlier in Greenville, S.C.

        “I felt Jeff had the perfect blend of intelligence and edge and epitomized the trait that's so important to me — he was really comfortable in his own skin.”

        Mr. Immelt was picked over two other finalists, W. James McNerney, former GE Aircraft Engines president and now 3M chairman, and Robert Nardelli, former head of GE Power Systems and now Home Depot chairman.

        Of the 23 GE managers identified as possible future CEOs in 1994, only nine remain with GE, Mr. Welch writes.

    WASHINGTON — Jeffrey Immelt, chairman and chief executive of General Electric Co., bought 25,000 company shares after stock markets plunged earlier this week.
    Mr. Immelt, a native of Finneytown, bought the stock Tuesday for $35.11 a share, according to a Form 4 filed with the Securities and Exchange Commission. He now holds 196,515 shares. GE shares closed Thursday at $30.37, down $2.13.
        A key player in the succession planning also has a Cincinnati tie. Bill Conaty, GE's senior vice president for human resources since 1993, previously held the same post at GE Aircraft Engines, based in Evendale.

        Mr. Welch writes that Mr. Conaty caught his eye for his handling of the Israeli Air Force purchasing scandal at GEAE in the early 1990s, when former Israeli Gen. Rami Dotan and GEAE manager Herbert Steindler were charged with diverting U.S. aid for jet engine purchases into private bank accounts.

        The highly publicized case, which involved GEAE whistle-blower Chester Walsh, resulted in GE paying a $69 million criminal fine, the disciplining of 21 GE managers and Mr. Welch testifying before Congress.

        “The only good thing that came out of it was that I found Bill Conaty,” Mr. Welch writes. “He bore the brunt of the disciplinary action, making sure that everyone was treated as fairly as possible.”

        During the almost yearlong evaluation that preceded Mr. Immelt's selection, Mr. Welch wrote that he concluded early that it would be impossible and unfair to keep the two executives not picked.

        To solve that problem, he hit upon the novel solution of naming successors for each of the three first, so that when the choice was made, the transition would be seamless.

        “Well, are you telling me I'm either up or out?” Mr. Welch said one of three finalists asked.

        Despite media attempts to paint the final selection as a competition among Mr. Immelt, Mr. McNerney and Mr. Nardelli, Mr. Welch said all three remain friends.

        Mr. Welch said GE decided to complete Mr. Immelt's selection over Thanksgiving weekend instead of two weeks later to minimize the publicity.

        To maintain the secrecy, Mr. Welch had Mr. Immelt and his wife and daughter fly to his Florida home Friday, Nov. 24, with Mr. Immelt using the alias James Cathcart, son of a longtime GE board member. They also flew on a charter rather than a GE jet and landed at a airport not usually used by GE jets.

        But Mr. Welch said he waited until 2 p.m. Sunday, Nov. 26, to notify Mr. McNerney and Mr. Nardelli that they weren't selected.

        “They had given 1,000 percent,” Mr. Welch writes. “Now I had to give two of them the worst news of their careers — and I had nothing else to give them, other than encouragement that they would make great CEOs somewhere else.”

        Mr. Welch said he flew first to Cincinnati, where he met Mr. McNerney around 7 p.m. in a hangar at Lunken Airport.

        “I picked Jeff,” he told Mr. McNerney. “If there's anyone to be mad at, be mad at me. Put my picture on the wall and throw darts at it. I can't even tell you why. It's my nose and my gut.”

        Mr. Welch writes that Mr. McNerney joked about there being no recount, but added, “I want you to know I wanted the job, but I also want to tell you I think the process was fair.”

        Within 10 days, Mr. McNerney was named to head 3M.

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