Jeff Immelt, CEO, and GE present a fascinating study on the influence of the CEO vis-à-vis the influence of the environmental context in which they operate, and the pervasive influence of a global corporation’s core competency on strategy.
Immelt followed Jack Welch as CEO of GE. Welch was a celebrated CEO who presided over two decades of growth, creating US$350B in shareholder value (compound annual growth rate of 23% per annum[1]). Asked a few years ago how tough was it to follow Welch, Immelt's advice was ‘plan your career so that your predecessor is a failure’.
But what has been the record of Immelt since becoming CEO? The figure below shows the total return since he started has been roughly zero.
Source: BloombergView
But this does him a disservice. Let’s break down the performance into its two distinct periods.
About 4 days after he took the reins, two planes flew into the World Trade Centre. That took its toll on the market overall, although GE was impacted more heavily than the average. But over the period from about 2003-2007 shareholder value was recovering at about 19% per annum and had just snuck ahead of the starting point. And then along came the GFC! Again, GE was heavily impacted, with its finance arm in serious trouble. But since then shareholder value has again been recovering, growing at about 35% per annum to be back to ground zero.
I suggest a few observations. Firstly, pick your timing! GE was heavily impacted by the two big market events of the last decade. No amount of CEO ‘magic dust’ will offset these ‘black swan’ events. Secondly, however, while CEO’s matter, it also speaks to the resilience of the culture of a massive organisation like GE. GE was an incredibly successful business over a long period of time. It has long had the reputation as the place where other major US corporations look for possible CEO’s. Having built such deep bench strength over a long period of time GE had effectively built its own ‘automatic stabilisers’. There was such deep leadership capability it would be very difficult for any new CEO – especially one who had been developed internally – to drive the bus off the cliff.
And finally, to Immelt’s legacy. He appears to be returning GE to its roots as a major industrial engineering company, rather than a financial engineering company, refocusing its financing to lending to its customers to buy its high tech industrial equipment. Immelt’s strategy is to invest the company’s management and financial resources in “our leading high tech industrial businesses”. It has been an extraordinary journey, but no-one can doubt that this is the return of the business to its deep, core capabilities.
[1] As an aside, Australia’s Brian McNamee was arguably Australia’s most successful CEO in terms of value creation, delivering 25.2% CAGR over 10 years 2001-2011
