The Wall Street Journal
By Joann S. Lublin
April 15, 2014 12:01 AM
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Jeff Immelt may give up leadership of General Electric Co. sooner than his expected 20-year tenure, as he and fellow directors re-evaluate the right term for its chief executive, people familiar with GE’s thinking said.
The CEO, who has run the industrial conglomerate for nearly 13 years, has led several board discussions about shortening the expected tenure for GE’s next chief executive to between 10 and 15 years, the people said.
And while Mr. Immelt maintains strong support on the board, directors increasingly expect that he will step down before reaching the two-decade mark in 2021, the people said.
Mr. Immelt, who turned 58 in February, hasn’t said he is ready to go, and would likely give directors notice well ahead of time, the people said. But directors now realize that it is too taxing for any person to spend two decades managing the $258 billion company whose businesses include incubators, jet engines, light bulbs and loans in more than 170 countries.
Through a GE spokesman, Mr. Immelt declined to comment on his plans.
GE spokesman Gary Sheffer also declined to comment, except to say, “The GE Board routinely discusses succession planning, which is a key part of its responsibilities.”
The board’s shift in attitude about CEO tenure comes at a significant moment for GE as it begins early-stage planning for a successor to Mr. Immelt. Among the leading candidates are Lorenzo Simonelli, a youthful rising star who took over leadership of GE’s oil and gas unit last year; and Steve Bolze, leader of power and water, GE’s biggest unit, the people said.
Imagining a shorter term opens up the pool to include executives older than 50 who have more proven experience. That group could include Keith Sherin, the 55-year-old former finance chief who now leads GE Capital.
Vice Chairman John Rice, 57, is seen as the executive who would step in immediately should anything happen unexpectedly to Mr. Immelt.
Some at GE say the idea of a 20-year term has been overplayed by people outside the company and that there was never a set duration for Mr. Immelt, who succeeded Jack Welch, a 20-year CEO.
GE’s leaders haven’t always been expected to stay 20 years. Mr. Welch’s predecessor, Reginald Jones, served nine years as CEO and chairman, and before him Fred Borch ran the company for nine years. In an interview with the New York Times in 2007, Mr. Immelt stressed no one was guaranteed 20 years as GE’s chief.
“Given the nature of the job these days, to ask someone to do it for 20 years, I would say is a very long time,” one of the people familiar with the company said.
Mr. Immelt, a Dartmouth grad with a Harvard M.B.A., advanced to become GE’s chairman and CEO in 2001, and he hasn’t had an easy time at the top. Four days after he took charge, the Sept. 11 terrorist attacks wreaked havoc on the company’s aviation and reinsurance businesses. The financial crisis pushed the company to the brink, sending the stock below $7 a share, forcing a cut in the dividend and causing the loss of the company’s prized triple-A credit rating. Its finance arm has since come under a tighter regulatory regime.
Over Mr. Immelt’s tenure, the stock price has lagged behind the more than 65% gain for the S&P 500 index of the country’s biggest companies and, as of Monday’s close, was 37% below where it was when he took over. That is starting to turn around. Last year GE’s shares rose more than 30%. Mr. Immelt is in the process of shrinking GE’s finance operation—which is profitable, but unloved by investors—as well as slashing operating costs to improve industrial profit margins.
Mr. Immelt already has led his company longer than most S&P 500 CEOs. At more than 13 years, his tenure is nearly double the 7.2-year average for chiefs of companies in the stock index last year, according to an analysis by recruiting firm Spencer Stuart. There are 11 CEOs of S&P 500 companies—excluding founders—who have held office more than 15 years.
Other long-serving CEOs include John T. Chambers, 64, at Cisco Systems Inc., CEO since 1995, and Michael S. Jeffries, 69. who took command of Abercrombie & Fitch Co. in 1992. Honeywell Inc. CEO David Cote, 61, a former GE executive, has served nearly as long as Mr. Immelt.
Nearly all long-serving CEOs who aren’t founders of S&P 500 companies have outperformed the stock market for years, according to a 2010 analysis by Spencer Stuart of 28 such chiefs.
GE has long leaned toward long-serving CEOs. Five of the conglomerate’s past 11 chiefs have held the job longer than 13 years. The board now believes the company has outgrown those expectations.
“Everybody accepts the fact that this job is impossibly hard,” said one of the people familiar with the company’s thinking. “To maintain the energy that is required to these jobs that are so broad and deep, 20 years is a really long time.”
GE prides itself on cultivating a deep bench of executives who have been put through numerous tests across multiple businesses, from jet engines and gas turbines to medical imaging equipment and auditing jobs at its corporate headquarters in Fairfield, Conn.
The planning for Mr. Welch’s exit began with a list of 23 internal candidates seven years before he left. The board hopes to avoid a repetition of that competition, one of the people familiar with the company said.
The race to succeed Mr. Welch pitted Mr. Immelt against fellow executives Robert Nardelli and Jim McNerney and proved internally divisive. Messrs. Nardelli and McNerney each announced they were leaving to take CEO positions at other companies within 10 days of being informed by Mr. Welch, at the end of a Thanksgiving weekend, that neither would become chief at GE.
Among the current contenders, Mr. Simonelli, 40, joined GE in 1994 in its fast-tracked financial management program. He rose through the ranks of GE’s appliances division before leading GE’s transportation division, a post that has been the training ground for many of GE’s senior executives. Last year, he was promoted to lead the oil and gas business, based in London.
Mr. Bolze, 50, leads the company’s gas-turbine business. He is tasked with reducing the division’s overhead by 20% and taking 10% of the cost out of the company’s line of gas turbines. He joined GE in 1993 in the mergers-and-acquisitions department, moving through senior posts at GE Healthcare before leading power generation in 2005.
Mr. Sherin joined GE in 1981. He served as CFO for 15 years and has been a vice chairman since 2007. His experience has been largely relegated to finance departments across GE’s businesses. His new position running the company’s giant finance operation will test his ability to manage a business and lead an organization.
Other possibilities include some greener executives who have been put in new positions to show their mettle. These include Jeff Bornstein, who was made CFO last year and is leading the charge in cost-cutting; Lorraine Bolsinger, who took a new role as head of distributed power after six years leading a division of GE Aviation that supplies electrical power and avionics; and Chip Blankenship, who moved from GE Aviation to lead the company’s stagnant appliances and lighting division.
Through a spokesman, all the executives declined to comment