The leadership lesson in Jack Welch’s failed succession plan

General Electric will soon become three distinct, publicly traded companies. Gone is the 129-year-old conglomerate, here to stay are GE’s offspring: an aviation, health care, and power company.

How did GE go from “Most Admired Company” and “Most Respected Company in the World” in the 1990s to nearly missing payroll as costs skyrocketed, stock prices plummeted and the SEC came knocking?

The GE that Jack built

Jack Welch took over GE in 1981. By GE’s annual meeting in 1999, the company had exceeded $100 billion in annual revenue, operating margins of 16.7%, and earnings per share of 14%. Each of these were significant records for the mature company.

Welch’s leadership style was strong, bold and competitive. He pushed the company to become more lean and agile, laying off over 100,000 employees within his first seven years of management. He launched an initiative to improve, sell or close every business within the conglomerate. That led to the sell-off of over 200 businesses, freeing over $11 billion in capital.

Internally, Welch expected nothing but exceptional performance and leadership from his top 3,000 executives and the managers beneath them. He wanted only those leaders who espoused his GE values and consistently met performance metrics to remain with the company. All others would be removed and replaced. To achieve this vision, Welch launched a 360-degree review process in which every employee’s manager, peers and subordinates could grade them on several metrics, including team spirit, collaboration, focus, vision, and adaptability. Those who performed well but created workplace tension were removed from their roles, regardless of their work performance.

Welch also launched a series of intensive management training programs to develop leaders within the company. Crontonville, GE’s management training facility in New York, became one of the most instrumental tools in GE history. There, thousands of GE employees and customers were trained to be the GE leaders of tomorrow. To this day, former employees who received GE’s Crontonville training have gone on to hold top executive roles at 3M, Boeing, Honeywell and Home Depot. Regardless of GE’s performance, no one doubts the quality of its management and leadership development.

The changing of the guards

When Welch retired in 2001, Jeffrey Immelt was promoted from CEO of GE’s medical systems division to CEO of the entire GE conglomerate. After decades of grooming several internal leaders for the coveted lead CEO position, that final decision triggered a mass exodus of bitter executive talent. Welch had created a horse race for the position, telling each of the potential candidates that the race for the title was on. He pitted executive against executive, which backfired when the final choice was made.

Instability following a long-tenure CEO replacement is normal among companies of this size with several highly talented executive leaders. But that shakeup, and the resulting exodus of several tenured leaders, derailed GE for years to come. At his retirement, Welch stated that GE’s success would be determined by how his successor grows the company over the next 20 years. Unfortunately, the revenue loss and stock plummet following Immelt’s appointment was historic.

Welch’s choice of Immelt as his successor is widely regarded as his worst mistake as a leader. Though Welch and the succession board spent over six years debating the choice, GE collapsed almost instantly once he took over. In 2017, Immelt stepped down from his CEO position. Following the announcement, GE stocks posted their strongest growth in months.

The new face of GE is looking externally

Larry Culp is the latest CEO of the mega-conglomerate. And, like Welch, he is on a mission to replace many of the leaders and executives within the company to usher in a new season of growth and recovery. With the best talent at GE poached by other companies in recent years, Culp is the first CEO to hire external talent to the top leadership roles, including at least five of GE’s 20 top executives. Culp says GE will continue working to develop internal talent for future hiring needs. But at this point, the company has to find outside talent and slowly rebuild their old strength.

The leadership lesson in GE’s rise and fall

While Jack Welch will always be regarded as one of the greatest CEOs of all time, his example shows that one key decision can collapse even the biggest of companies. No matter how long a CEO takes to plan their succession, the future of the company is always unpredictable. Retaining key talent is critical for a company to survive succession, especially if the new CEO stumbles.

Perhaps the biggest takeaway from the Jack Welch succession story is to never pit your key executives against one another in a succession horse race. While one leader may come out on top, the fallout between executives and damage to company culture may be irreparable. 

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