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 / Summer 2003 / Issue 31(originally published by Booz & Company)


The Leadership Challenge 2003

Neff: I don’t know of any other person who could have done with GE what he did. Look at the change in market cap from the time he took over until he left. In my estimation, that is primarily because of him — and, of course, the team that he developed, which was unique. I mean, how many companies have their pick of one, let alone more than one, to be the next CEO of the company? I think the person at the top is accountable.

Khurana:  I agree that it is much more complex. I’m glad that you came to it that way. It’s a complex set of teams, it’s a complex set of strategies. I would look at Jack Welch as the outcome of a system that produces really good executive managers and leaders.

In fact, if we look at it that way, we can actually think about the things that GE does very well: promote from within, invest very heavily in their people, spend years — rather than days and weeks — on succession processes. Those things are actionable by other companies. Whereas the best hope for companies that fixate on Jack Welch is that someday they will find another child coming from western Massachusetts who overcame a stutter at 8 years old — and somehow that can be the explanation for why this individual does so well.

Pasternack:  But someone other than Welch could have screwed this up badly. In a lot of companies, the good system goes awry. It takes a special brand of leader or leaders in an organization to continually evolve their company and not become complacent.

Khurana:  But at the same time, I think the lessons for companies should be, “Well, how do we create those systems internally?” rather than, “How do we find somebody from GE to come in?”

Reality Check

S+B: Can’t somebody come in and re-create systems relatively rapidly and create positive change? Isn’t this what Carlos Ghosn has done at Nissan?

Khurana:  I’m not saying that CEOs don’t ever matter. They matter only under certain kinds of conditions that are very rarely taken into account when board members get in the process of firing a CEO and then searching for an outsider. “What are the strategic problems that we’re facing? Where is it that we’re trying to go to?” Boards very rarely go through that kind of process. Because of the pressure from analysts, the pressure from investors, they look for a high-profile individual who will temporarily restore some confidence. They often end up being a temporary Band-Aid, rather than fixing the fundamental issues.

Pineau-Valencienne:  CEOs are condemned for making the wrong acquisitions or increasing debt. But the board approved the strategy, approved the terms of acquisition, and approved the financing!

Roman: I was on one of those boards where the company made acquisitions, they didn’t turn out well, and we fired the CEO. And I was one of the people in the boardroom who said, “Wait a minute, fellas. We approved the strategy, we approved the acquisition. What was the fault of the board?” My assessment is we made these acquisitions without fully understanding the markets we went into. We didn’t understand there was a new distribution system.

Harvard Business School Assistant Professor Rakesh Khurana
S+B: The question of board engagement is at the heart of the current governance crisis in the U.S. Are they getting more involved?

Neff:  They’re certainly more involved, whether they want to be or not. A lot of it is process, but there’s clearly more time put in by directors now than before. Yet for a board that meets six times a year for a couple of hours, how much can you expect a director to know about what’s going on in a company? They have a limited amount of time — that’s why I have the view that at least half of the board ought to be those who have had CEO-level experience, because they’re more instinctive, they’ve been there before, they know a bit more than others about what to look for.

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