GE and the art of leadership
In early 2009, it had no name. What’s today known as the Great Recession was simply the financial calamity of a lifetime, a hurricane of uncertain destructive impact. Investment bank Lehman Brothers collapsed in September 2008. The United States Government injected hundreds of billions of dollars to prevent a financial system meltdown. Housing prices plunged across the nation, drowning overextended creditors and their American dream. In boardrooms across the country, senior executives surveyed the damage, stumped by the same simple question: “What just happened?”
Among those wanting answers was Jeffrey Immelt, the chief executive of General Electric Company, one of the world’s greatest and most enduring corporations. For more than 130 years, GE had built a reputation for leadership excellence. Yet something had gone very wrong. Its senior executives not only failed to insulate the company from the financial meltdown, they actively pushed it into increasingly risky territory. Once renowned for actually making stuff—from household appliances to light bulbs—GE had morphed into a financial-services behemoth.
When the Great Recession hit, the company’s GE Capital was one of the world’s largest non-bank lenders, with a portfolio ranging from commercial real estate to private-label credit cards for retailers such as Ikea and Walmart. As the unit’s losses mounted, GE struggled. In April 2008, it committed the cardinal Wall Street sin of missing its earnings forecast—by $700 million. In September that year, it needed to shore up its balance sheet and Warren Buffett’s Berkshire Hathaway chipped in $3 billion. In February 2009, GE cut its dividend for the first time in 71 years. And a month later, the company’s share price bottomed at $US6.66, having lost 84 percent of its value in just 17 months. A reputation for exemplary, visionary leadership was on the brink and, with the dust of early 2009 clearing, Immelt wanted to know why.
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About 50 kilometres north of Manhattan lies Westchester County, an enclave of affluence that ranks among the wealthiest areas of the United States. It was here that GE in 1956 decided to establish the Crotonville Learning Center, the world’s first corporate institute devoted to leadership, organizational development, innovation and change. Universally known as just “Crotonville”—although it was formally renamed the John F. Welch Leadership Development Center in 2001 as a tribute to GE’s iconic former chief executive—the facility acquired an almost mythical reputation both inside and outside the company over the course of half a century. Its alumni included not just Immelt and Welch, but NBC Universal chairman Bob Wright, Boeing chairman James McNerney and a host of executives who excelled at GE or were eagerly courted by other companies. To be invited to learn at GE Crotonville’s sprawling, 53-acre campus was the management equivalent of beatification.
Yet cracks began to appear in GE’s leadership armor even before the financial meltdown. The emergence of nimble competitors such as Google was accompanied by mutterings about whether Crotonville remained the gold standard by which leadership development should be judged. “To have a monolithic view of leadership sets you up for a lot of problems,” Laszlo Bock, Google’s vice-president for people operations, told Bloomberg Businessweek last year. Bock, a former vice-president for human resources at GE Capital Solutions, declined to comment for this article. He reportedly said Google eschewed a “big, corporate, top-down, university model of training” because it was “too static.” To a generation of professionals flourishing in the dot-com era, Crotonville may as well have been located a little to the east in Wilton, the bucolic Connecticut town that inspired novelist Ira Levin’s The Stepford Wives. GE’s approach, critics charged, churned out robotic, carbon-copy leaders with little ability to adapt and thrive in more modern, less bureaucratic environments. Stepford leaders.
It was against this backdrop that Immelt in early 2009 sought an audience with an eclectic group of six external thought leaders: two professors, a publisher, a millennial, an historian, and a futurist. The topic of discussion was leadership, plain and simple. “We just said, ‘What is your view of leadership?” GE’s chief learning officer and vice-president of executive development, Susan Peters, told AFR BOSS. “What are those attributes of leadership that stand the test of time, and what should leadership be in today’s environment?”
Immelt’s roundtable discussion marked the start of an 18-month journey to overhaul GE’s leadership development and executive training programs. The process was led by Peters, who joined GE in 1979 and worked around the world for the company before becoming the vice president of executive development in 2001 and taking control of all leadership training in 2007. She described the leadership review as initially “a lot of reflection and wallowing and thinking”. It’s also arguably the corporate equivalent of Roger Federer deciding, after a couple of unexpected defeats, to retool the game that has won him more Grand Slam singles titles than any man in history. “It’s courageous,” said Stewart Friedman, the founding director of the Wharton School’s Leadership Program and former director of Ford Motor Company’s Leadership Development Center. “The really interesting part of what GE is doing is saying, ‘Here’s who we want to be, and it’s different than who we were’. To be able to say that as a person, let alone as a highly complex organization, is kind of inspiring.”
The objective may be inspiring, but the process has been sheer hard work. In the US summer of 2009, GE decided that participants in its most senior Crotonville program, the Executive Development Course, would take responsibility for investigating leadership worldwide. These executives—GE’s top three dozen or so globally—fanned out, spending time with almost 100 entities around the world ranging from the United States Air Force Academy to the China Communist Party School to the National Basketball Association’s Boston Celtics. And, yes, GE executives even visited Google. “The real question to those entities was, ‘What’s your view of what leadership is in today’s environment, and how are you developing it?’” Peters said, adding the program continues today. “Then we spent all of 2010 really working with other people. We got real GE input. We leveraged a lot of academics at brand-name institutions—Harvard, Wharton, Columbia, Insead, MIT—to spend time with us and with GE leaders and with Jeff Immelt and we learned from them.”
The net result is an evolution of the company’s growth values: the five benchmarks by which it evaluates its 160,000 employees globally. Of the five, external focus—the ability to understand a role and expectations for success in a context beyond GE—has changed the most. “It’s very clear that those constituents, those stakeholders, are much more varied than they had perhaps been a decade ago,” Peters said. “If you roll back the tape back five or 10 years, many leaders—and I would say this is true in GE and elsewhere—would think of their stakeholder as the shareholder or customers. We are now trying to ensure that managers understand that it’s not only customers, but it’s government and regulators and NGOs and the community and employees … it’s so much more complicated. This whole idea of external focus is about context and how it helps you decide your decisions.”
Another value whose importance has increased is clear thinker, or what Peters describes as how an employee thinks through decisions and undertakes and accomplishes projects within the broader business context. “Are they decisive and know when to say yes or no to a project, the kiss or kill mentality?” she said. “Do they know how to lead and understand in ambiguous situations? That kind of adaptive thinking is even more required today than pre-crisis, for sure.”
GE’s other three growth values—expertise, inclusiveness, and imagination and courage—have also evolved, but more incrementally. That can be interpreted one of two ways: that the company was loath to undertake wholesale changes, lest it be seen as admitting to a systemic failure of leadership; or as affirmation that the underlying structure of GE’s talent development process remains world-beating and is merely evolving. Peters, obviously, subscribes to the latter. “The bottom line is that these five values have stood the test of time,” she said, adding all were subject to “updating or contemporarizing”. Friedman, who has worked with GE and dined with Immelt, agrees that the company’s key move is the “conscious and deliberate shift to focus on attributes that involve the world as we anticipate it, rather than the world that we’ve known”. “That’s my headline view of what they’ve done,” he said. Is that enough?
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Look at any US list of companies MBA students most want to work for, and you’ll see the usual top consulting firms and a cavalcade of familiar names: Google, Apple, Walt Disney, Nike. GE ranks 14th, but that’s actually something of a surprise: the company has for a long time bucked the MBA-hiring trend. “We are much more undergraduate focused and believe we can then train you,” Peters said. “Many of the programs we have are really designed to do that. Now, this doesn’t mean we never hire a graduate student. But it’s not our primary focus and, in fact, we believe you can learn a lot at GE. The whole idea of development really comes down to experience and education. We can provide both.”
Now look at another list: the best companies to work for in the US. The common thread between organizations that people love to work for can be quickly summarized: they are fun, flexible, perk-filled, and value employees personally as well as professionally. To risk a cliché, they strive for work-life balance. It’s here that Wharton’s Friedman wants a more explicit focus from GE. “I’d like to see more emphasis on sustainability from the perspective of the individual in the context of her or his whole life,” he said. “It actually doesn’t take all that much to look at the person from the perspective of their different life interests, not just work. And the magical result of doing so, when you say to a person, ‘What’s important to you outside of work and how can we enable that?’, is that you get so much in return in terms of energy and commitment and motivation and results. It’s paradoxical, but I’m increasingly confident but it’s what’s going to be a key differentiator in the labor market.”
It’s on this dimension that GE has come under the greatest scrutiny. Is the company’s time-tested approach to developing leadership talent the right model in today’s business world? Do high-potential candidates want careers punctuated by development programs seen as rigid and top-down? Or, more importantly, does GE risk missing out on the best and brightest candidates because they fail to see an environment that relishes entrepreneurship, risk-taking and the kind of intangible personal rewards that can’t be measured by metrics? “They have challenges that they didn’t face 20 years ago, that’s for sure, in terms of competition for the best talent,” Friedman said. “It’s tough to compete with Facebook. But not everybody wants to work at Facebook.”
In terms of sheer numbers, Facebook and Google certainly aren’t GE. At last count, Facebook had about 1700 employees and Google 25,000. GE has 160,000, and spends about $US1 billion annually on training and development. More than 35,000 employees undertake formal leadership training annually, while another 10,000 per year do residence classes at Crotonville or facilities in Bangalore, Shanghai, Munich, and Rio de Janeiro. “We’re more contemporary than folks realize,” Peters said of GE’s critics, noting the company has introduced an “executive stamina” course for senior managers about “how to give themselves the gift of time”. New age indeed.
“We get some negatives that I personally think are often based on a lack of knowledge and of people not seeing what we’re doing, particularly lately,” she said. “In the last five-plus years we have re-looked at, re-evaluated, and updated a lot of what we do. These 21st century attributes are being embedded into all the leadership courses that we teach around the world.” And the suggestion that entrepreneurial candidates see GE as lumbering and bureaucratic rather than nimble and creative? “We’ve been around for 130 years,” Peters said. “It’s hard to envisage a company that’s survived, for all the things that the past 100-plus years have thrown at us, that isn’t entrepreneurial and hasn’t had incredible invention and reinvention, not only of product but of itself. That’s not to say everybody’s an entrepreneur—I don’t think any system, even those small entrepreneurial companies, has that. You need the other talent, and often these are not in the same person, of people who just get things done. I would argue that we have the best of all worlds. We’re a large-scale company that enables global, large-scale entrepreneurs to flourish.”
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Just three days into the new year, GE’s top 600 executives gathered at Crotonville for the company’s annual Global Leadership Meeting. At some point in the previous 12 months, Immelt has personally discussed each of these executives with Peters and GE’s senior vice president of human resources, John Lynch, as part of what’s known internally as the “Session C” process. In recent years, Immelt has even hosted 185 of them at his home in nearby New Canaan, Connecticut, where they dine one-on-one on a Friday night, stay nearby, then reconvene on Saturday to discuss “who they are, how they fit, how I see their strengths and weaknesses,” Immelt told Bloomberg Businessweek.
This year’s three-day Global Leadership Meeting was an occasion for more than swapping Immelt dinner tales: it was the first event where GE’s revamped definition of leadership was unveiled. Each of those 600 executives, Peters said, is charged with “owning the dialogue” as the development program is rolled out globally. “By the end of 2011, we’ll start measuring people on these new, more currently reflected growth values,” she said, adding: “We’re not done. This is a never-ending process. I think we’ve got a good thing here, but we’re not arrogant enough or naïve enough not to know that there’s lots of stuff we can learn and get from others, and we’re constantly looking for that.”
GE’s success or otherwise in adequately preparing a new generation of leaders may not be fully apparent for years. Immelt is entering his second decade at the helm, having succeeded Welch in 2001 after being picked from what Friedman called “the most powerful leadership cadre in the corporate world”. After all adjustments, GE’s share price today remains about 65 percent below its July 2000 record, although Immelt has steadily rebuilt the company’s reputation and value from the dark days of the Great Recession. GE’s share price now hovers around $US20, giving the company a market capitalization of more than $US200 billion: good enough to place GE among the dozen largest corporations on the planet.
While wishing GE had gone further, Friedman is unequivocal in his praise of the company’s decision to seek to revitalise its leadership approach. “For a company with such a long history and such an embedded sense of superiority in developing leadership talent to look at it afresh … is really quite courageous,” he said. “What they came up with makes a lot of sense. I disagree with some of the pieces of it, but I think as a move forward it’s once again in the vanguard of big companies.”
For her part, Peters has a long year ahead. She could, she said, spend three-quarters of her time explaining the GE approach to outsiders and skeptics, but “that’s not my core constituency”. “My constituency is inspiring, connecting and developing the GE leaders of today and tomorrow. That’s where I put 90 percent of my effort. If you really peel away the onion on what we do, where we do it, how we do it, how engaged our leaders are … I’d challenge you to find any institution in the world that does it better.”
She paused.
“But I’m obviously biased.”
Published by AFR BOSS, April 2011.