Hot Seat

What I Learned Leading a Great American Company

Jeff Immelt, Amy Wallace

• Publisher: Avid Reader Press / Simon & Schuster
• Year: 2021
• ISBN:
  9781508278290
• Topic: Business
• Subtopic: Leadership
• Index: Business

A fascinating and candid memoir about successful leadership from the former CEO of General Electric, named one of the "World's Best CEOs" three times by Barron's, and the hard-won lessons he learned from his experience leading GE immediately after 9/11, through the devastating 2008–09 financial crisis, and into an increasingly globalized world. In September 2001, Jeff Immelt replaced the most famous CEO in history, Jack Welch, at the helm of General Electric. Less than a week into his tenure, the 9/11 terrorist attacks shook the nation, and the company, to its core. GE was connected to nearly every part of the tragedy—GE-financed planes powered by GE-manufactured engines had just destroyed real estate that was insured by GE-issued policies. Facing an unprecedented situation, Immelt knew his response would set the tone for businesses everywhere that looked to GE—one of America's biggest and most-heralded corporations—for direction. No pressure.Over the next sixteen years, Immelt would lead GE through many more dire moments, from the 2008–09 Global Financial Crisis to the 2011 meltdown of Fukushima's nuclear reactors, which were designed by GE. But Immelt's biggest challenge was inherited: Welch had handed over a company that had great people, but was short on innovation. Immelt set out to change GE's focus by making it more global, more rooted in technology, and more diverse. But the stock market rarely rewarded his efforts, and GE struggled.In Hot Seat, Immelt offers a rigorous and raw interrogation of himself and his tenure, detailing for the first time his proudest moments and his biggest mistakes. The most crucial component of leadership, he writes, is the willingness to make decisions. But knowing what to do is a thousand times easier than knowing when to do it. Perseverance, combined with clear communication, can ensure progress, if not perfection, he says. That won't protect any CEO from second-guessing, but Immelt explains how he's pushed through even the most withering criticism: by staying focused on his team and the goals they tried to achieve. As the business world continues to be rocked by stunning economic upheaval, Hot Seat "takes you into the office, head, and heart of the man who became CEO of GE on the eve of 9/11, and then led the iconic behemoth for sixteen fascinating, and often turbulent, years. A handbook on leadership—and life" (Stanley A. McChrystal, General, US Army [Retired], CEO and Founder, McChrystal Group).

CHAPTER 1 Leaders Show Up

In the summer of 2001, just weeks before I stepped into the CEO’s job at GE, I went on a golf trip with some of my college buddies. I’m not a great golfer, but my friends had invited me to the Skokie Country Club outside of Chicago, and I was looking forward to a little R & R. Ducking into the locker room to change my shoes, I encountered a club member who introduced himself and asked what I did. “I work for GE,” I said, omitting my new job title on purpose.

The man didn’t skip a beat. “Ah, GE! Jack Welch!” he replied. “I feel sorry for the poor son of a bitch who’s taking his place.” I don’t remember how I played that day, but I do recall that my friends and I laughed for four hours about that guy. Everybody seemed to know I was taking over for the most famous CEO in history.

Every CEO’s relationship with his or her predecessor is complicated. It’s a little like my relationship with my late mother-in-law: we both loved my wife, but in different ways. Jack and I both loved GE, but not in the same way. We were of different generations; when I’d first come to GE and for years after, he was my hero. I loved having him as my boss. I paid attention to how easily he could talk to anyone—foremen on the factory floor, customers, other CEOs. He was accessible and informal, and that was seductive. Everyone at GE felt they worked for Jack, and they knew what to expect from him. I marveled at his ability to connect.

Jack could be bombastic—he upped the theater quotient in many meetings—but people enjoyed his directness. Meanwhile, metrics mattered. Yes, we sometimes got buried in them. But mostly they kept us accountable. Jack knew how to set priorities and stick to them. That, I wanted to emulate.

But there were other Welchisms I didn’t plan to copy. Over the years Jack had collected a group of idol worshippers and sycophants around and outside the company who fostered an unrealistic view of GE and of Jack himself. They loved to tell Jack Welch stories, reliving the past over and over. Jack’s 1980s mantra “Only be in businesses in which you rank number one or number two” was fine in principle, but it had become outdated. GE needed to grow, and to do that, we had to enter businesses in which we were behind. I tried to be respectful of what had come before but not kneel to it. And I had little tolerance for those who objected to change by saying, “But this isn’t the way we used to do it.”

Jack had announced I would be his successor just after Thanksgiving 2000. Over the next ten months, as CEO-in-waiting, I spent a lot of time with him. He and I attended a business dinner in London, for instance, just a few months before he stepped down. At one point during the meal, Sir George Simpson, a legendary British executive known for turning around struggling companies, leaned across the table and teased, “Jack, how do you do it? How do you get a 50 PE with that bag of shit you’ve got?”

I laughed, but I was shocked to hear Simpson joke about something that no one within GE would have ever dared say. A company’s PE, or price-to-earnings ratio, reflects how much confidence the market has in the company’s future growth. The more investors are willing to pay per share relative to the company’s current earnings, the higher that company’s perceived potential. In 2001, if you’d divided the price of GE stock by its earnings per share (EPS), you would, indeed, have gotten a ratio of fifty. But that obscured the fact that several of GE’s businesses were pretty average; the luster of GE inflated their value. In Jack’s twenty years at GE’s helm, the company’s value had risen a staggering 4,000 percent. But Jack led GE during a time of consistent economic expansion, and that streak was about to end.

GE was founded by one of the greatest inventors the world has ever seen, Thomas Edison, and for most of the twentieth century, even until 1986, GE had more patents than any other corporation. But the company had deemphasized technology, and GE was not even in the top-twenty ranking of companies holding patents. Instead of innovation, Jack had been focused more on management techniques such as Six Sigma that were used to eliminate mistakes.

Six Sigma is a data-driven methodology invented by a Motorola engineer named Bill Smith in 1980. It trains managers to be experts (called Black Belts) in improving business processes to reduce product defects. Given that GE made machines that could not fail (aircraft engines and MRI scanners, for instance), it’s easy to understand why in 1995, Jack made Six Sigma’s five systems (Define, Measure, Analyze, Improve, and Control) central to his business strategy. Six Sigma helped to reinforce a culture of efficiency, but it wouldn’t help us grow.

Other than Six Sigma, Jack’s primary focus was financial services, which gave GE most of its profit growth. By the time he stepped down, among GE top officers there were five times more finance leaders than engineers. I feared that during times of slowing growth, relying on money lending over innovation would be a recipe for failure.

THREADING THE NEEDLE

My first Monday as CEO was September 10, 2001, and that meant introducing myself, via simulcast, to GE’s three hundred thousand employees. I’d spent months getting ready for this moment, weighing how much to say and how to say it. When you replace somebody famous, especially somebody you respect and admire, you have to thread a very particular kind of needle. My plan was to express optimism and pride in our company, while also signaling coming change.

I knew that GE’s people wanted to follow their leader. If a new leader was merely critical and denounced his or her predecessor’s legacy, a couple of things would happen. First, a culture of blame would infect people at all levels of the company. Second, accountability would evaporate. Those associated with the predecessor’s “mistakes” would come to work feeling unmotivated. GE’s people wanted to be led forward with confidence, not to look backward in shame.

I was proud of GE’s preeminence in aircraft engines, gas turbines, railroad locomotives, and medical imaging equipment. Nonetheless, as I walked onstage at the John F. Welch Leadership Development Center (a place GE people call Crotonville), I was worried about what I saw as looming headwinds.

I knew that our biggest industrial business—GE Power—was in the midst of a bubble. In a normal year, we shipped twenty to thirty gas turbines in the United States. But this was the era of deregulation and blackouts in California. From 1999 to 2002, we would ship a thousand heavy-duty turbines domestically, pulling forward a huge amount of demand. There was about to be a major lull in that market that would last an entire generation.

I also had concerns about how we ran our insurance business and about our pension earnings. Because the stock market had been so strong in the late 1990s, the investment returns from our pension plan far exceeded the amount we needed to fund it. That excess accounted for 10 percent of our earnings per share, but I worried that wasn’t going to last.

Crotonville is GE’s corporate university—some within the company simply call it GE’s soul. The campus is located on a tree-filled fifty-nine acres up the Hudson River, an hour north of New York City, in Ossining, NY. It is a place I visited many times over my nineteen years as a manager in GE’s Plastics, Appliances, and Healthcare businesses. Now, as I entered the sunken auditorium, a place known as “the Pit,” I settled into a director’s chair next to the event’s moderator, CNBC anchor Sue Herera, who introduced me as GE’s new CEO.

It was humbling to look out into the faces of the hundreds of GE employees who filled the room and to know that hundreds of thousands more around the world were watching. I could see some of them, too, displayed on huge TV monitors. The folks from Power Systems, based in Atlanta, Georgia, waved hello, as did members of the Plastics team in Bergen op Zoom, the Netherlands. The GE Capital group piped in from Stamford, Connecticut; the Aircraft Engines team from Cincinnati, Ohio; and the Medical Systems people from outside of Milwaukee, Wisconsin. Associates in Scotland and Wales, as well as other teams around the United States, were also watching.

I started my remarks with some personal history. My older brother and I were raised in Cincinnati by my father, Joe, and my mother, Donna, a third-grade teacher. Both my parents grew up during the Depression, and I never forgot how lucky my father felt to have a job as a middle manager at GE’s Aircraft Engines division. For many of those years, he went to work in GE Aviation Building 800, a World War II–era structure that was built underground to protect it from enemy artillery. (He might as well have been a coal miner, he often joked, for all the sunshine he saw.) Every day, he took his lunch—two boiled eggs—and ate it in the break room.

I remembered many Saturdays sitting next to him on the front seat of the family Buick, which he would park just outside the gates of our municipal airfield, Lunken Airport. Built in 1930, the airport is a beaut, with an art deco terminal. The Beatles landed there during their first US tour in 1964. But for my dad and me, Lunken was all about aircraft. Peering together through the chain-link fence, we’d watch planes land as he narrated the action: “That’s a 707—the same plane the president of the United States has,” he’d say. Or: “That’s a 727. It’s got three engines, but they aren’t ours—they’re Pratt & Whitney.” (Pratt & Whitney was GE Aviation’s big rival in those days.) I also remembered that whenever my dad had a great boss, he was motivated, and when he had a lousy boss, he was neither challenged nor happy. The worst kind of boss, he always used to say, was one who criticized all day long but never offered solutions.

I wanted to be a great boss. So I told my colleagues that I believed the CEO should be the most competitive person at the company—to establish, from the top, the will to win. As I’d risen at GE, I’d often wondered why it had become a company that didn’t respect engineers. We had adapted a “fast-follower” strategy—we left innovation to other companies, and then we hurried to catch up—so we had let our research center erode. We had refused to do any tech acquisitions for fear that they would dilute our quarterly earnings, lowering the stock price. Now I told GE’s people that I wanted technology to be our core competitive advantage. I wanted GE, once again, to be a place where innovation could thrive.

After my remarks, I fielded questions from employees around the world for about half an hour. Then I jumped in the car and headed to GE’s then headquarters in Fairfield, Connecticut. Stepping into what had been Jack’s third-floor office there, I experienced a sort of déjà vu. I’d been in the windowed room so many times over the years to meet with Jack. Now the massive oak desk was mine to scribble on and the sweeping views were mine to survey. The place was beautiful, but I didn’t plan to spend much time there. I did my best work out of the office.

STOKING GE’S GROWTH ENGINE

For the remainder of that first Monday as CEO, the phone wouldn’t stop ringing. One key call was from Denis Nayden, the head of GE Capital. Nayden was intense. He’d spent his whole career at GE, starting in air-rail financing after graduating from the University of Connecticut. At GE Capital, Nayden had come up under CEO Gary Wendt and developed a reputation as Wendt’s pit bull, before succeeding him in 1998. “Gary’s more strategic,” Nayden explained to one interviewer. “I’m good at execution.” Now Nayden had something he wanted to execute on: he told me he’d reached a final agreement with Xerox to buy its credit company.

GE had created GE Capital to provide in-house financing for some of GE’s most expensive products, such as railroad locomotives and airplane engines. But in the years before I took over, GE Capital had grown into a humongous enterprise that provided credit services to every industry imaginable, from automotive to consumer electronics, flooring, healthcare, home furnishings, insurance, jewelry, landscaping and irrigation, mobile homes, outdoor power equipment, pool and spa, power sports, recreational vehicles, sewing, sporting goods, travel, vacuum, and water treatment. If you had a credit card from Walmart or the Home Depot or Lowe’s or even Harrods, it was really from GE Capital. We made car loans in Europe and invested in commercial real estate in Florida. We were the world’s biggest lessor, with hundreds of thousands of cars, trucks, railcars, airplanes, and satellites.

In 1980 GE Capital accounted for 20 percent of GE’s earnings; twenty years later, it contributed more than twice that. And for many years, it had a strong business model. We had low financing costs, supported by GE’s industrial cash. We were a very good, hands-on commercial lender, feeding off the weaknesses of banks. We’d help niche businesses with operations, floor plans—anything to give them an edge. For ten years running, GE Capital’s earnings grew about 20 percent a year. Best of all: because our financial arm was linked to our industrial businesses, its earnings were accorded the premium multiple of an industrial company, not the typical discount of a finance business. Had GE Capital been a stand-alone bank, its PE would have been 12 to 15. Under the umbrella of Big GE, which borrowed money inexpensively, GE Capital’s earnings were accorded a 30 or 40 PE. That translated into about $250 billion more value for our investors.

When I took over, however, GE Capital was seen as something of a mystery by analysts, by investors, and even by executives within the company. Jack Welch himself had long used a phrase that prescribed how we should assess GE Capital: “The Blob Theory.” That meant: don’t look at the elements that make up the Blob, just look at the results. It may sound crazy now, but that was how people in and outside the company valued GE Capital.

Even good ideas can be taken to bad extremes. Our investments in insurance, particularly, were indicators of how far we’d gotten off track. In the late nineties, GE Capital had loaded up on primary-care insurance, reinsurance (property and casualty) assets, and long-term care insurance. Insurance had become our largest business within GE Capital. It seemed to me that we had overpaid for acquisitions, leveraged them too aggressively, and sold investments to make our quarterly earnings. And due to the long-tail nature of the assets, a complete exit would be impossible.

And yet… especially after you added in real estate loans and credit card debt, business was booming at GE Capital, which generated nearly 50 percent of GE’s earnings in 2001. Nayden’s phone call about Xerox at the end of my first Monday as CEO only confirmed that he wanted to drive that number higher.

I left the office and boarded a GE jet bound for Seattle, where I was due to speak at an aeronautical conference the next day. Upon arrival, I checked into a hotel and fell into bed exhausted but pleased that Day One had gone well. I was asleep before midnight.

WAKING TO A NIGHTMARE

Tuesday morning, September 11, I awakened just after 5 a.m. so I could hit the gym before paying a visit to one of GE’s best customers, Boeing. When I turned on the TV above my stair-climber machine, however, every channel was broadcasting images of a fire burning on the 110-story north tower of the World Trade Center. The first reports I heard speculated that a small private aircraft had mistakenly veered off course. But as I kept stepping—right, left, right, left—a second plane hit the south tower, and this one was anything but small. Thanks in part to my dad’s tutelage at Lunken Airport, I knew how to recognize a Boeing 767. Something was horribly wrong.

I left the gym and hurried to my room. I knew my wife, Andy, and my fourteen-year-old daughter, Sarah, were in New Canaan, Connecticut, where we’d just moved from Milwaukee. Assured my family was safe, I flipped on the TV and made my first call, to GE’s chief financial officer, Keith Sherin. He was watching the news, too, and at first we didn’t say much as the unfathomable images sunk in. Would anyone above the damaged floors escape, Sherin and I wondered, and if so, how? Meanwhile, both of us knew that GE held all the reinsurance on 7 World Trade Center, a forty-one-story building right next to the twin towers. We had insured the insurance company that held that policy.

At 6:59 a.m. Seattle time, the south tower collapsed. I couldn’t believe what I was seeing. Twenty-nine minutes later, the north tower fell, and 7 World Trade Center would soon crumble as well, leveled by the incredible force with which the twin towers had crashed down. Soot and an eerie white ash engulfed all of Lower Manhattan.

I called Andy Lack, the number-two executive at NBC, which GE owned. Because his boss, Bob Wright, was traveling, I designated Lack to be our point person in New York City. He was getting feedback from the news division that the two planes that had hit the twin towers, along with another that struck the Pentagon and a fourth that had crashed in a field in Pennsylvania, were coordinated hijackings—acts of terrorism. This was gut-wrenching for the nation. It also had immediate implications for GE’s Aviation division. For the first time ever, a plane had been used as a weapon, and we owned twelve hundred of them. The jet engine business was core to GE’s future.

As our newscasters began to report estimates of the number of lives lost, I tracked down Wright, the CEO of NBC, in Los Angeles. Together we decided that the network would broadcast ad-free until further notice. It could cost millions of dollars, but it was an easy call. Nearly three thousand people were dead, more than six thousand were injured, and our country was on the brink of war. It just didn’t feel right to have advertisements punctuating what at this point was near-constant coverage of the attacks.

We’d soon learn that GE was connected to nearly every part of the tragedy. Planes powered by GE engines had just destroyed real estate that was insured by GE-held policies. The TV network I was watching—NBC—was owned by GE. Two GE employees—an NBC technician who worked at the top of one of the twin towers and a woman from our Aviation division who was on one of the downed flights—had lost their lives.

The towers fell on a Tuesday. On Wednesday, Andy Lack and I got the idea that GE should donate $10 million to the families of the firefighters and other first responders. I had Mayor Rudy Giuliani’s cell phone number, so I dialed. I thought I’d get his assistant, but Giuliani answered on the second ring. I told him our idea and that we wanted to do it quietly. Giuliani wasn’t having it. “Bullshit, Jeff!” he said. “I’m going to use your donation to shame other companies into giving!” In an hour or two, he had created a fund and announced our gift. He would use GE’s seed money to raise hundreds of millions of dollars.

While that felt good, it didn’t erase the terror I was feeling. By the end of my first week as CEO, GE’s shares had dropped 20 percent, decreasing the company’s market capitalization by $80 billion.

Sometime during this period I called up G. G. Michelson, the pioneering R. H. Macy executive who was then on GE’s board of directors, for a reality check. Michelson was a rock. She’d broken through many a glass ceiling, attending Columbia L...