GE Always Promoted From Within. Now It’s Hiring From the Outside

Jul 30, 2021 | Bloomberg

CEO Larry Culp, the first outsider to run the 129-year-old company, has pursued external hires for key leadership positions.

General Electric Co. for decades was known as much for producing elite managers as it was for the lightbulbs, power equipment, and home appliances that wore its logo over the years. When leaders departed—often for the top job at other large companies—GE could tap its deep bench of executives honed at its famed management training institute, which former Chief Executive Officer Jack Welch once called the “greatest people factory in the world.”

The company’s jargon-filled training program, taught at its Crotonville, N.Y., campus on the Hudson River, was even parodied in the NBC sitcom 30 Rock by Tina Fey and Alec Baldwin, back when GE controlled the network. For generations of recruiters, experienced GE leaders were some of the most sought-after executives anywhere, with alums going on to helm a who’s who of American businesses including 3M, Boeing, Honeywell International, and Home Depot.

But that “Made at GE” management ethos has started to shift. Almost three years into his push to revive the iconic manufacturer, CEO Larry Culp has turned to external hires for some of the most critical leadership roles. They include the first finance chief from outside GE since at least 1979, as well as the first imported bosses of its jet-engine and health-care divisions in more than three decades. Culp’s own role, in fact, breaks the mold. Pushing GE to instill the so-called lean-production principles pioneered by Toyota Motor Corp. that he embraced as CEO at Danaher Corp., he’s the first outsider to run the company in its 129-year history. “To drive the kind of cultural change that’s required by lean manufacturing, it does oftentimes require a change in blood,” says Melius Research analyst Scott Davis.

Of GE’s roughly 20 top executives, 15 are new to their roles since Culp was named chief executive in 2018. At least five of those, including one who’ll start in January, were external hires. The high-level appointees—especially those from outside—reflect how Culp is going about not only fixing GE’s operations and finances but also overhauling its culture.

“This is part of the new lease on life he’s trying to instill in the organization,” says William Blair analyst Nick Heymann. “Larry is trying to help everybody understand: This is a new company, not a new ‘version’ of GE.”

CEOs with a turnaround mandate often bring in new people, so an influx of fresh talent is in part to be expected. And for its part, GE acknowledges that the external hires, along with the internal management shifts, are part of its push to change its centralized and hierarchical culture. “Our goal is to have exceptional leadership talent with deep operational focus and industry expertise in our most critical roles,” Kevin Cox, GE’s chief human resources officer, said in an email. “We achieve this by developing talent within the company and attracting external leaders, as we believe both are important to driving GE’s cultural transformation.” Cox himself was one of Culp’s earliest external hires, joining GE in 2019 after 14 years as the top HR executive at American Express Co.

GE has spent much of the past 20 years lurching from one crisis to another, shedding assets and employees as it shrank to its industrial core. Worth more than a half-trillion dollars in its heyday, the company has a stock market value of about $115 billion today. Its global head count was 174,000 at the end of 2020, down from more than 300,000 at its peak.

Jeffrey Immelt’s appointment to succeed Welch in 2001 triggered an exodus of top leaders who’d also been vying for the CEO job, culling several highly regarded industry experts from GE’s ranks. A similar outflow followed Immelt’s succession by John Flannery in 2017. Other executives who’d come up through the ranks became prime candidates to be plucked by competitors as veterans soured on the company’s fading fortunes.

Jeanne Branthover, a managing partner at executive search firm DHR International Inc., who’s worked with GE since the Welch era, says it still has plenty of internal talent, though it’s no longer the font of CEO candidates it once was. “Executive recruiters as a whole, we’re not looking at GE as the place to recruit like we used to,” she says. But that could change. “There’s no doubt in my mind that GE is going to come back with great internal people because they’re making a real effort to change with the top people they’re putting in.”

GE, which halted in-person programs at Crotonville during the pandemic, says it still puts a big emphasis on leadership development. Even before the virus, though, more of that training has started happening on job sites and factory floors to be closer to where GE’s actual work is done, a tenet of Culp’s lean-manufacturing philosophy.

“There’s a lot that we’re doing internally to make sure that we are developing the talent that GE needs going forward,” Culp says.

He has also retained several veterans as he’s reshuffled his team. Former GE Power Portfolio CEO Russell Stokes, for example, last year was named chief executive of GE Aviation Services, where he oversees the company’s critical jet-engine service operations that generate much of the division’s profit. And its incoming health-care CEO, while an external hire, cut his teeth at GE in the 1990s, signaling the exodus of recent years may be reversing course.

With the core team now assembled, GE can begin planning for who will succeed Culp once his chief executive contract expires in 2024. “In terms of succession, I’ve made it a habit ever since I’ve been a CEO to make sure the board is having that conversation, even if they think I might serve indefinitely,” Culp says.

A refilled talent bench gives GE options for when that day comes, says William Blair’s Heymann. “He’s trying to make sure that after he’s left that there’s no chance for the ghosts of the past to reemerge.”

BOTTOM LINE - GE, once lauded for its storied management training programs, has scouted outside for several big hires as CEO Culp looks for fresh blood.

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