Neff: Absolutely. Since boards have assumed greater control over companies, they’re less tolerant of CEOs who aren’t performing. Also, I think the job is a lot tougher. You just don’t see many Jack Welches around who are in the job for 20 years. I think there’s a real burnout factor there as well.
I suppose there’s a third factor. At least in the U.S. during the boom years, there was enormous wealth created, and a lot of M&A activity. People made a lot more money and at an earlier age decided to hang it up.
Roman: I totally agree with what Tom says. But I’m curious. Jack Welch deliberately picked Jeff Immelt to succeed him as CEO because, among other reasons, he wanted somebody who would be in the job for 20 years. What’s your bet on that?
Neff: I think that’s about the only company that’s looking 20 years out, and that’s probably because of Jack and the success of his reign there.
Neff: Not according to your statistics. It looks like the second half of the reign is not nearly as good as the first half. Maybe that’s a good reason for turnover; people get stale.
Pasternack: When things are going well, complacency, or a comfort level, builds after a while. In a more predictable world, that’s not a problem. It’s actually very good. In a world where things are shifting so quickly, stability — having a CEO for 10 or 15 years — is more problematic. There are Jack Welch and Larry Bossidy, who have been really good at keeping a company innovating and changing. But it’s hard to sustain in a rapidly changing competitive environment.
Pineau-Valencienne: The situation has changed just in the past two or three years. We are in a world that is much more unpredictable than it used to be, and you need other characteristics for CEOs than in years before. The CEO has to work on many alternatives at once, because the business is here and there and everywhere. He must make the right assumptions and right analyses, and then get confidence in the choices he makes, and he has to do it very, very quickly.
Individual or Team
Khurana: I’m worried about a conceptual error that a lot of people make, which is overestimation of the CEO’s role in firm performance. When things go poorly, turning over the individual does not necessarily solve the problems of the company. GE has 300,000 people in it, and for a century has produced a string of good CEOs. To simply attribute the activities of 300,000 people in a complex set of businesses and a complex set of environments to a single individual is just not empirically justified. In psychology, they refer to a “fundamental attribution error.” I think that’s very dangerous. Companies fall into that trap when they attempt to solve their problems by getting rid of the CEO without ever actually addressing the underlying factors that are really driving their problems.
Pasternack: I would agree that the CEO has been glorified beyond any realistic measures. But I would make the case that the CEO and the leadership team of the organization create the tone and set the strategy, develop the people, and build the alignment that’s critical in achieving success.
When I got out of college as an engineer many years ago, I had offers from GE and Westinghouse, among other companies. I went to GE. Today, Westinghouse is gone, and GE is still around. Now, that’s not because of Jack Welch alone; it is because of an environment of leadership and accountability that he nurtured in the company. He pushed it much harder and more consistently than I think anybody else would have pushed inside GE. I’m not sure someone else could have taken those 300,000 people and moved them from what it was in the mid-’70s to what GE became in the late ’90s.