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A Board’s Greatest Mistake
Jack Welch led General Electric through its glory days. The large conglomerate grew bigger and broader through acquisitions, as well as the expansion of GE Capital, which put it on par with the biggest banks in the U.S. prior to the 2007-08 financial crisis.
But he made a big mistake. Welch didn’t select the right successor, as he told William D. Cohan for the book, “Power Failure: The Rise and Fall of an American Icon.” (I’d quote Welch, but he used colorful language that I can’t repeat here.)
To be fair, his successor, Jeff Immelt, was dealt a rough hand. He took the reins days before the terrorist attacks on Sept. 11, 2001, impacting the company’s aviation unit. The passage of the Sarbanes–Oxley Act in 2002 drastically changed financial reporting at public companies, which meant Immelt couldn’t manage earnings as Welch had. And its growing dependence on GE Capital for revenue meant the company had a ticking time bomb on its hands that went off in 2008.
But Immelt made his own errors. The company’s performance — and its stock price — declined under his 16 years at GE’s helm. At the board’s behest, he resigned in 2017. Today, Welch’s GE is nothing more than a memory.
What’s the biggest mistake that can occur in the succession planning process? It’s when the board fully delegates the task to the CEO, said Scott Petty, managing partner in the financial services practice at the executive search and leadership advisory firm Chartwell Partners. He spoke at Bank Director’s Bank Board Training Forum in Nashville earlier this week.
That’s exactly what GE did. And that folly could easily occur on a smaller scale at any community bank.
In his book, Cohan takes a dim view of the board’s role in GE’s decline. In addition to relinquishing succession planning to Welch, Cohan writes that directors failed to push back on management as the company went off the rails. “[T]he failure of the GE board to rein in Jeff’s behavior and to question Jeff’s judgment more deeply … stand[s] as one of the greatest corporate governance abdications in American history.”
Former executives agree.
“The GE board let Jack make all the decisions and he generally made the right ones,” Dave Calhoun, a former GE executive who is now CEO of Boeing, told Cohan. “It let Jeff make all the decisions, too, and he generally made all the wrong ones.”
• Emily McCormick, vice president of editorial & research for Bank Director
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