Former GE executives successful as CEOs elsewhere

Welch U. grads are hot

Dec 3, 2001 @ 12:01 am

By Dale Buss

Here's one retirement hobby that Jack Welch should consider now that he has left the helm of General Electric Co.: Run a mutual fund populated by the stocks of companies that are now led by his management proteges from GE.

At least 16 former Welch underlings now head publicly held U.S. companies, including behemoths such as 3M, Home Depot and Conseco, and 11 of those proteges have been named CEOs since last year. The unprecedented diaspora of management talent from just one company throughout the top ranks of American business is perhaps the most fitting tribute to Mr. Welch as he departs GE, because developing bench strength was an obsession throughout his two-decade leadership of the company.

As CEOs at their new companies, those men - including Robert Nardelli of Home Depot, Lawrence Johnston of Albertson's Inc. and James McNerney of 3M - generally have brought their dog-eared GE playbooks with them.

the program

The playbook mandates taking decisive actions, slashing costs dispassionately, streamlining operations, bolstering product development efforts, imposing financial discipline, developing leadership and instituting some form of continuous process improvement such as Six Sigma training.

Of course, some matches between former top GE executives and new companies have been disastrous: Bruce Albertson walked out last year as head of Iomega Corp. after less than two years on the job.

And the jury is still out on others, including Gary Wendt, the former head of GE Capital who took the reins at Conseco Inc. last year and seems at this point to be losing the battle to stanch the insurer's bleeding.

But analysts and others familiar with them insist that if these carefully groomed Welch disciples can't do the job at a given company, practically nobody can.

"They're exceptional executives in that they have the ability to go into any company and the common sense to see what is the culture of the company that they're now managing, and to apply the things that they've learned over the years from GE in a way that complements it," says Dick Stonesifer, who retired as CEO of GE's major-appliances business five years ago after mentoring many of those alumni.

"There are fundamentals of leadership that apply to any business, and all of these guys are smart enough to recognize what those things are and to be able to apply them at their new company."

Tom Tiller, president of Polaris Industries Inc., says that "what makes GE special at the end of the day are people, and processes and businesses."

Mr. Tiller, then president of GE's silicones business, left in 1998 to become president and chief operating officer of the $1.6 billion Medina, Minn., maker of snowmobiles and other recreational equipment. He ascended to CEO the next year.

"All of GE's businesses are run with a very rigorous process for strategic planning, budgeting, developing people and products and markets - and that is translatable in any business. Certainly that's the way we run our business here," Mr. Tiller says.

new culture

By borrowing from his GE training, Mr. Tiller has cleaned house, tilted the compensation structure more toward performance and tried to instill more raw ambition throughout the ranks. About half of Polaris' top 150 executives have been placed in their current positions since his arrival.

The results so far for Mr. Tiller have been, well, GE-like: 14 quarters in a row of higher earnings and revenues, and a 44% return on equity, with essentially no debt. "He's brought a sense of sustainable and consistent growth to the company," says Stephen Jacobs, an analyst for U.S. Bancorp Piper Jaffray Inc. in Minneapolis. "At GE, he saw how the Street values consistent growth."

Other former GE executives are making equally big marks in their new CEO jobs.

Among them is Robert Nardelli of Home Depot Inc. in Atlanta. Having lost the race to succeed Mr. Welch to Jeffrey Immelt late last year, Mr. Nardelli went to Home Depot, where co-founders Bernard Marcus and Arthur Blank were looking for someone to steer the company from its explosive-growth arc onto a reliable path to the future.

The former head of GE's power systems business has complied by overhauling all of Home Depot's basic systems, slashing plans for new stores, flattening management, centralizing purchasing and focusing on important details.

Yet he has "honored rather than violated what was special and unique about the culture there," and he has even learned to do the famed Home Depot cheer, notes Allan Cohen, management professor at Babson College and a former consultant at GE.

Another alumnus is Lawrence Johnston, who heads Albertson's Inc. in Fort Worth, Texas. GE's former appliance head has closed 165 of 2,500 stores, cut headquarters payroll nearly 20% and energized sales for the nation's largest operator in the low-margin supermarket business since taking the helm last year.

Now, same-store sales growth is approaching 2% for Albertson's, versus less than 1% for major rivals Safeway and Kroger.

Yet another GE alumnus is James McNerney, the top executive at 3M. The other loser in the horse race with Mr. Immelt, he quickly moved on to the St. Paul, Minn., mining and manufacturing firm and in April announced the layoffs of 5,000 people, or about 7% of its work force.

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