GE: Dressed for Succession

Gary Wendt’s resignation as head of GE Capital points up perhaps the most important thing about GE’s success over the years: its careful management of succession. In 12 years at GE Capital, Wendt transformed that division from a small credit arm with assets of $24 billion into what effectively was one of the world’s largest banks, embracing 29 different businesses and controlling $300 billion in assets. Wendt’s aggressive investing style and managerial style allowed the division to account for 40 percent of GE’s overall profits, and provided the kind of internal diversification that almost no large company has anymore. And yet his departure provoked no crisis among GE investors or within the company.

That’s because GE has created a corporate culture where the company really is larger than the individual. That may seem like an odd thing to say when GE’s public image is so connected to that of its CEO, Jack Welch, who’s often heralded as the man who saved the corporation. But while Welch did transform GE in the 1980s, cutting jobs while dramatically improving productivity, he did so not to “save” the corporation but rather in anticipation of a newly competitive business world. When Welch took over GE, the company was in fine shape. His predecessor had actually just been named CEO of the Year in a Gallup Poll (who knew they took Gallup polls about topics like that), and had spent seven years planning for his own succession.

More than that, as James Collins and Jerry Porras point out in their book Built to Last, essentially every GE CEO has been successful. GE’s return on equity under Welch has been stellar, but by the company’s historical standards not outrageous. The company’s emphasis on ensuring that top managers are developed in-house and groomed for the top–often through a fiercely competitive process–has ensured that no one sits in the CEO’s chair who’s suddenly going to announce that GE is going into the movie business.

In this context, the clearest signal Wendt’s departure sends is that Wendt himself was not a candidate for the CEO’s job, which is unsurprising when you consider that he’s already 56 and that he and Welch are not the best of friends. And while it may seem strange for a company to have one of its best performers step down while he’s still doing great work, GE’s entire history encourages it to make decisions early rather than later. Welch wants no chaos when he retires two years from now, no conflicts over succession. He’s installing a younger team of executives at the very top, one of whom should be the next CEO. It’s an unusual, and unusually successful, way of doing business in these days when more and more corporations look outside for saviors.