A story of an external CEO in GE

This case study will not be yet another piece about the successful leadership style of Jack Welch. You will be able to understand more about what has happened in GE during the last few years and how specific leadership decisions impacted the GE’s reality.


GE was founded by Thomas Edison in the 19th century. The company was entirely based on innovation whereby they produced and sold bulbs, dynamos, electric motors, etc.. Over the years, they expanded into a diverse array of business areas: energy, aviation, finance, healthcare, industrial, NBC Universal, plastics, oil and gas.

Under Jack Welch’s leadership, GE grew from a market capitalisation of USD 14 billion in 1981 to USD 410 billion in 2000. GE’s operations corresponded with ~1.25% of the 2000 US GDP. Once we truly comprehend the magnitude of GE from this perspective, we can confirm that the operations of GE were massive. It was a giant! It was the biggest global company that time.

The corporation’s stock suffered two major hits, firstly in 2000 during the dotcom crash and then 8 years later in 2008 by the global economic crisis. Since 2008, GE’s market value has experienced a downtrend and in December 2018, it reached the lowest valuation of USD 60.92 billion. GE completely missed Dow Jones’ strong recovery and bull market following the financial crisis. Whilst GE has itself been in a bear market, the DIJA index has climbed over 200%. After the company’s century long tenure, in June 2018 GE was removed from Dow Jones Industrial Average Index, which tracks the performance of the 30 largest public companies in the US.


In the entire history of GE, the company has had 11 CEOs (excluding the current, H. Lawrence Culp Jr.), for which the average tenure in the position is 12 years. Until H Laurence Culp Jr.’s appointment in 2018, a new CEO was always selected internally. GE used to have innovative and effective talent programs; top notch CEOs were put on long term developmental plans for years before their final promotion. For a long period of time, they were changing jobs, levels, divisions, functions to ensure that after many years they are ready and appropriately equipped to manage the corporate giant. If they had best talent, excellent development programs and unlimited money, why did GE’s talent strategy to promote CEOs internally fail?


There is no single reason why GE collapsed in a ‘house of cards’ like fashion. There are many external and internal circumstances, decisions and factors adding to a challenging situation for the corporation.


For decades, the continuous growth of GE was driven by acquisitions. Over time however, the corporation became too complex to manage, due to the lack of a clear cut focus and over 300,000 employees around the world. In many companies there are lots of activities and processes design to keep business simple thereby allowing for it to compete with many start-ups and drive innovation. This was definitely not a priority for GE.

Market changes

The leadership overslept, missed or ignored changes happening within capital markets. During the last few decades, business and consumer behaviour moved from industrial to digital. 

Expansion financed by debt

When GE’s financial situation was good, leadership had used debt to further fuel the company’s growth. GE’s top credit rating secured debts with low interest. In the 21st century when GE’s overall financial situation was worsening, it negatively impacted their credit rating whereby it was no longer possible to get cheap credit. Additionally, interest rates on existing debts increased as well. Resulting in GE’s total industrial debt ascending to levels of USD 54.4 billion as of mid 2019.

Short-term focus decisions

Some short term business decisions negatively impacted GE’s long term business results. Retrospectively, there are two key decisions of this kind: 1) Entering financial services via ‘GE Capital’ and 2) GE stock buybacks on the NYSE. In the long term, and especially after 2008, ‘GE Capital’ undermined overall GE results. In the case of stock buybacks, interventions on NYSE were supposed to positively impact the stock’s price. However, following the decrease of GE’s share price, it was equivalent to throwing cash out of the window.


Retrospectively, we observe that the GE talent machine made a few mistakes. A crucial mistake was the necessity of the CEO to be sourced internally. There was a belief that only internal talent understands GE and is able to manage such a giant. Following this ‘11th commandment’ until 2018, GE had only appointed internal candidates for the CEO position.

Jack Welch was a leadership guru, a business wizard. As we mentioned earlier, during his leadership GE grew from USD 14 billion in 1981 to USD 410 billion. You may wonder, “What’s wrong with that?. This is exactly what is expected from a senior commercial leader!“. However, we still see that there are some lessons to be learned from his time as CEO. Welch managed GE as a financial company with too much focus on shareholder value. All focus was directed at the top and bottom line. As such, the organisation and people were stretched too much. 

Jeffrey R. Immelt did not have a fair chance to be successful in the role. In 2001, GE was a corporation on steroids, reaching its extremes. Additionally, there were many external challenges such as the stock market crashes in 2000 and 2008, alongside the digital revolution impacting our lives and specifically our consumption behaviour.

In 2017, John L. Flannery was appointed as CEO. He spent 30 years in GE and he knew the company inside out. As all other leaders before him, he was selected in line with the GE talent standards. In 2018, Flannery’s contract was terminated.


In 2018 H. Lawrence Culp Jr was announced as the CEO. The Board of Directors developed a recovery plan based on external leadership. Firstly, he focused on business simplification. GE reduced their stake in the oilfields service business by USD 2.7 billion. GE’s Biopharma and rail transport businesses are currently on the market; sales of those businesses should generate about USD 38 billion cash. GE’s dividend was cut twice. The company’s employee pension plan currently carries a deficit of USD 21 billion. The pension plan is no longer guaranteed for employees and was recently frozen for 20’000 GE FTEs. Furthermore, GE closed their final salary pension scheme for new joinees in 2012 and is planning to implement some changes for 100,000 pension scheme members. Once all of these pension changes are finalised, it will help reducing pension deficit by 5-8 bln USD. It is clear that there are two key focus areas for H. Lawrence Culp Jr: streamlining GE’s operations and paying off GE’s debts as soon as possible. It looks like the recovery plan has started to work. GE stock increased to USD 11.28 per share; up from around USD 9.04 per share at the beginning of Culp Jr’s tenure as CEO. 

The CEO is a key person in any company. The right person with a vision as well as a  complex understanding of business operations, external world with consumers expectations, competition activities and changes happening every day is priceless. Companies in the 21st century deal with the same resources, products, services and markets. A key differentiator will be talent. The war for an exceptional CEO will continue to rage on, stronger than ever. It does not matter if this person is internal or external, what matters is what added value the new CEO brings to the organisation.


Add yours

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

Blog at WordPress.com.

Up ↑

%d bloggers like this: