Hit The Road, Jack

Dec. 21, 2004
Executive legends must move on to give successors a chance to make their marks.

Management legend John F. Welch Jr., chairman and CEO of General Electric Co. for nearly 20 years, didn't actually receive that blunt memo. Nor would he likely have taken its advice. However, by hanging onto the chairman and CEO's job at GE until the end of this year, 13 months after designating Jeffrey R. Immelt as his successor, Welch could uncharacteristically be making a major management mistake. And so, too, could other executives at manufacturing firms in the U.S. and around the world. "When you announce a new CEO, he should . . . be allowed to take over right away," stresses Peter Lorange, president of the International Institute for Management Development (IMD), Lausanne, Switzerland. "I don't like this kind of dragged-out thing with a person in waiting and the old guy holding onto the reins." To validate his or her leadership, to sustain focus and avoid confusion about who's really in charge, it's vital that any new CEO, whether following a legend or not, quickly take command, set the business agenda, and establish a distinctive identity, emphasize Lorange and several other management experts. Jrgen Centerman, the new president and CEO of Zurich-based ABB Group, seems to have done just that. Only 10 days after succeeding Gran Lindahl this past Jan. 1, he restructured the US$24.7 billion equipment and services company and expanded its managing board. To be fair, GE's Welch insists he's not "the old fool who can't leave his seat, who loves the job so much he can't go home." He's staying on as chairman and CEO until yearend, eight months beyond his previously scheduled April retirement, because, Welch contends, to leave while GE's merger with Honeywell International Inc. is pending and a management succession is under way would be "nuts." Emphasizes Welch: "That, and only that, is why I'm staying until the end of [the] year rather than April." But despite the possibility of his being chief executive for 20 years and his polite talk about "learning from Jack" during this year, the fact is that the 45-year-old Immelt won't have a lot of time in which to make his mark at GE, a $130 billion global manufacturing and financial-services conglomerate that makes home appliances, light bulbs, jet engines, medical scanners, locomotives, and electricity-generating turbines. Impatient investors and securities analysts, for example, are likely to give Immelt, once he becomes CEO, only a year, maybe two, in which to deliver the kind of record-level revenues, earnings, and margins that have marked most of Welch's nearly two decades as GE's chief executive. Failure to post similarly remarkable results could quickly cost Immelt his job, just as perceived under performance last year cost Michael Hawley, Durk Jager, and Jill Barad their CEO jobs at, respectively, Gillette Co., Procter & Gamble Co., and Mattel Inc. Immelt "needs a bit of economic luck in the short term," quips Tudor Rickards, a professor at the UK's Manchester Business School. In the current competitive climate even former P&G CEO John Pepper, whom "everybody loved," would be unable to live up to his own legend, "which is probably why he opted not to come back when they tossed Durk out," conjectures a Pepper admirer. "Every CEO that I am working with right now is under pressure to grow," states John D. Andrica, a vice president of A.T. Kearney Inc. and managing director of its Cleveland office. "It's just really tough." The big leadership challenge for Immelt, now GE's president and chairman-elect, is to establish his own identity, Andrica believes. Otherwise, he asks rhetorically, "How you start building your team around you, to follow your ideas or your vision? How do you know that people are not just going along . . . in anticipation of your not succeeding?" If Immelt starts off trying to be another Jack Welch, "he'll fail," Andrica emphasizes. "He needs to be whoever he is." To differentiate himself from Welch, Immelt might take a cue from Lindahl, who succeeded European management legend Percy Barnevik as CEO of ABB on Jan. 1, 1997. Asked how he was going to fill Barnevik's shoes, a confident Lindahl replied, "We wear different sizes." But there's the larger question of whether GE can succeed without Welch, because for nearly two decades GE has been identified with him, suggests Paul T. Van Katwyk, manager of succession management services and a senior consultant at Personnel Decisions International (PDI), Minneapolis. To show that GE can exist and prosper without Welch is a "difficult challenge" facing Immelt, says Van Katwyk. Immelt not alone Although he's getting the most attention right now, GE's Immelt is by no means the only CEO facing succession challenges. For example, at Zurich-based ABB, Centerman is now in his third month as president and CEO, having succeeded the high-energy Lindahl on New Year's Day. In the U.S. Midwest, John Kahl, having succeeded his visionary father, Jack Kahl, has occupied the chief executive's chair for nearly three months at Manco Inc., the maker of the popular Duck Tape-brand duct tape. And David N. Farr, who succeeded the storied Charles F. Knight five months ago as CEO of Emerson Electric Co., has the daunting challenge of keeping alive the St. Louis-based manufacturer's 43-year string of consecutive annual earnings increases. What's more, several current manufacturing legends are likely to pass the reins in the next decade or so. Among them are Jacques Nasser, who's redefining the auto business at Ford Motor Co., and Harley-Davidson Inc.'s Jeffrey L. Bleustein, who has an American icon roaring down the highway. Jorma Ollila, who has been building the "mobile information society" from Finland at Nokia Corp., is a third possibility. What will the succession be like? Corning Inc. Chairman Roger Ackerman, who remade the company into a Wall Street advanced-technology favorite before relinquishing the CEO's office this past Jan. 1, thought about that question as he prepared to succeed a legendary line of Houghtons at Corning back in 1996. He was to be the first non-Houghton CEO in Corning, N.Y., "where the Houghton family was thought of as almost the parents of the town." Yet Ackerman claims that he didn't agonize over the job. "I just took the hand that was dealt me," he says. "I'd been working with [former CEO] Jamie [Houghton] for 20 years. [And] I was COO while he was CEO for five years," explains Ackerman. It was "a low-stress transition." Indeed, succeeding a management legend is no harder today than it was five or 10 years ago, claims IMD's Lorange. "There is a myth that it is difficult to succeed a successful person. On the contrary, it's much easier to build on success than to do anything else," he insists. For example, "the good news about Welch and GE and Barnevik [at ABB] is that they did a great job, and they left companies in great shape. So in that sense there is nothing better than to be given the chance to be CEO of a well-managed organization." Not all management experts agree, however. For example, in the U.S. and the UK, where there's a CEO "star culture," some incoming chief executives "get caught up in the idea that they couldn't possibly be as good as the person they are succeeding," observes John Roberts, a professor at the University of Cambridge's Judge Institute of Management Studies in England. As a result, the new CEOs are "quite" disabled, contends Roberts. Something similar seems to happen to other executives in the company as well, Roberts adds. The remaining executives feel weakened as they mourn the loss of the legendary CEO to whom they've been loyal, he contends. Good advice From academics and consultants who make it their business to give advice, there's no shortage of suggestions for successfully managing a "legendary" succession. For example, IMD's Lorange believes that GE's Immelt "needs to make sure he attracts, keeps, and develops the best entrepreneurial talents -- [that] he allows his people to do trial and errors, to express their own views." More generally, PDI's Van Katwyk urges any incoming chief executive to learn and understand what's made the company successful, to learn who the key people are and what they care about. He suggests initially implementing small changes that have high probabilities of success. This contrasts sharply with what insider Welch did at GE two decades ago when he succeeded management icon Reginald H. Jones. Welch eliminated so many people and businesses in his effort to make GE's revenues grow much faster than the U.S. gross national product that he quickly earned the hated (by him) nickname "Neutron Jack." However, Van Katwyk's best counsel may be his reminder that succeeding a legend is at least as much about people as process. Indeed, forgetting it is "a very human event" gets people "in the most trouble," he asserts. "You are dealing with egos, strong personalities, and power on both sides." Set clear expectations for both the outgoing and incoming CEOs, ensure there's lots of communication, and use an "executive coach," a person in whom the outgoing CEO can confide, Van Katwyk urges. "If Jack Welch does this successfully, I am predicting that he's going to get a lot of calls from other CEOs, saying, 'Hey, I'm about to go through this. Can you help me?'"

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