AFTER THE SARASOTA debacle, Jeff Immelt realized that he had lost the confidence of investors, especially Trian. Without that, even the eternal optimist saw little chance that he could stick around to lead a turnaround at GE. He wasn’t going to get to the promised land.
For many investors, GE had lost its mojo long before. Its lackluster performance, fuzzy financials, and unknown risk just didn’t fit with a lot of investment portfolios. Investors had owned GE for everything it wasn’t delivering now—because they thought it was dependable and churned out quality products and quality people.
But after the crisis and Immelt’s endless deal-making, a substantial number of investors weren’t willing to take a chance anymore. They would, and had, put their money somewhere else. And they certainly weren’t going to get back into GE with the same people running it.
Immelt found that concept hard to understand. His vision, his plan, his pivot—they were still what GE needed, he believed. In the eyes of many, the company really wouldn’t change until he was gone from the helm. After the meltdown at EPG, he was finally realizing that it was time for that change, but he wanted to do it without being pushed.
The contest to replace Jack Welch had been a nightmare, and Immelt didn’t want to replicate that long, drawn-out public battle. He was open about his desire for a less public contest, and determined to be true to his word.
The plan so far had worked. The board had long been watching the final candidates closely, visiting with them, having them present to the board, and making sure they were in visible, consequential roles in the company. But even the candidates weren’t sure that they were on the short list.
One problem avoided with a total secrecy approach was the aftermath of the announcement. Although top people and others kept out of the loop were likely to leave, the company didn’t publicize the short list of candidates out of fear that it would be obvious that the succession process was coming to an end. Under Welch, the final candidates had become known to the public largely because he appointed their successors to work alongside them as chief operating officers.
Years earlier, GE’s board had quietly set a target of late 2017 for a new CEO to take over, and it had identified four GE men as possible successors: Jeff Bornstein, Steve Bolze, John Flannery, and Lorenzo Simonelli, the lower-profile boss of the oil and gas business.
The candidates got a wake-up call when the Wall Street Journal reported in February 2017 that the four were leading the race.
A few months later, just prior to Immelt’s disastrous performance in Sarasota, the board called the candidates to New York to audition. In a hotel in downtown Manhattan, the candidates made proposals on where they would take GE if they had the top job.
The organizers chose the location because they thought it was a site where no one would notice the GE directors. That strategy reflected the sense of self-importance that the company brought to the process. In reality, however, few people anywhere in the world would ever have recognized any GE board member other than Immelt.
By that time, the secret race had already been won. While the candidates were allowed to audition, Flannery was the unofficial heir apparent.
Much to his surprise and disappointment, Bolze had been ruled out long before, and he was expected to leave the company. His team, which had stretched so far in hopes of riding his coattails, wouldn’t get the chance. Not only was his unit the increasingly sclerotic heart of GE’s struggles, but Bolze, who had occasionally clashed with Immelt, was seen early in the process as a poor fit as CEO.
Simonelli, seen at forty-five as too young for the main job, was ticketed to run the public company that resulted from the merger of GE’s oil and gas unit and the oil-field service company Baker Hughes. He was about the same age as Immelt and Welch when they took the top job.
Because Bornstein hadn’t run a GE business unit before, Immelt and the board felt that, if he would agree to stay on, he would be better placed as a partner to a successful candidate. Once a Wall Street favorite, some large investors were frustrated that Bornstein came into the job promising big changes that never fully materialized.
The decision to accelerate the succession process by several months was Immelt’s decision. Since he had lost credibility and Trian was coming onto his board, he saw no reason to wait. The board agreed, especially knowing that Bornstein would serve as a partner as Flannery got his sea legs.
On a Friday in early June, the board gathered again to take a final vote. Secrecy remained paramount: the room had been swept for listening devices the day before, and security guards were stationed there through the night.
Instead of working in the GE office, a small staff gathered at the Boston apartment of human resources chief Susan Peters to write the press release and other materials for the announcements. Fearing that others in the office would see the commotion and make a guess about the news, the board was trying to avoid a leak to the media.
The vote was unanimous for Flannery, who got the call that afternoon. The announcement would come early the following Monday. The communications staff spent the rest of the weekend terrified that a call would come, especially from the Wall Street Journal’s Joann Lublin, whose connections to corporate boards were unmatched. She had deep roots from her nearly half a century at the paper. GE was so close to the finish line, and they feared Immelt’s wrath if the news got out.
The news came as a surprise to many who saw Flannery as suitable for the role but lacking thorough experience in operating companies or divisions. He was running the Healthcare division, and doing well, but speculation had usually drifted back to Bolze and Bornstein. Immelt supported the decision to promote Flannery.
Flannery’s experiences in those early days of being named CEO were similar to Immelt’s when he started—a whirlwind of plane flights, handshaking, media preparation, and conference calls. But the soft-spoken and analytical Flannery, more banker than salesman, was nothing like the affable Immelt; there was no trace in him of the swagger, booming presence, or charisma that characterized the outgoing CEO.
For Trian, Flannery was ideal, and a balm for their frustrations with Immelt. The new CEO had an investor’s mind-set, crunched numbers naturally, and was obsessed with the cash produced by GE businesses. And unlike Bornstein, who would stay on as CFO, Flannery had no history of tension with Trian.
Flannery was a product of GE Capital, but he loved the company in its entirety. GE had allowed him to thrive and to carve his own way. Now he was at the top. He had spent years imagining a more streamlined GE and was bewildered by its inability to meet cost-cutting targets. Now, in his own understated but uncompromising way, he could make that happen.
The GE board had a view similar to Trian’s and considered Flannery just what GE needed. They didn’t feel that Immelt’s time at the helm had been a disaster, but also increasingly felt the company needed a cold dose of candor and self-examination.
Flannery was well aware of Immelt’s flaws, and he wanted to change the GE culture to encourage debate and focus. He didn’t want to be an autocrat. Flannery had a lifer’s faith in the value that was locked up in GE’s vastest resource: thousands upon thousands of people. If he could tap them, the company would shine.
Some of Immelt’s signature endeavors and buzzwords evaporated when Flannery ascended. It was tempting to cast Flannery as the anti-Immelt, but he too was well steeped in the GE culture. He had come from Capital, whose workers had felt marked as misfits in the company since the financial crisis ten years earlier, despite operating what its employees felt was a world-class finance organization that had outmaneuvered Wall Street rivals for years. Flannery was also deeply instrumental in the Alstom deal, having argued that it would be a valuable asset, despite his attempts to distance himself from it when he became CEO. John Flannery was being charged with taking GE in a new direction, but he was also deeply rooted in where the company had been over the course of the Immelt years.
In his first words after the announcement of his ascension, Flannery made it clear that he planned a thorough review of the company—a typical move of any incoming CEO.
“I owe myself and the team and the company and you a couple of times around the track looking at the business in the coming weeks and months here,” he said.
“I firmly believe our best days are ahead of us.”