GE Groomed Insiders For Years. An Outsider Is Finally Breaking It Apart.

For decades, General Electric was famous for growing its leaders from the inside. Its CEO successions became publicly watched horse races between leaders of the sprawling conglomerate’s divisions. Those who didn’t make the cut were snapped up to run major public companies. Its management practices and famed “Crotonville” campus were widely mimicked by other employers, spawning copycat training programs.

Even with new generations of leaders, the advice remained the same. As former CEO Jack Welch said to his successor, Jeff Immelt: “Blow it up.” 

And yet in the end, it was an outsider who finally made the decision to break up the languishing industrial giant. On Nov. 9, GE Chief Executive Larry Culp—the first external CEO to run the iconic company in its 129-year history—announced that over the next few years, he plans to cleave the company into three distinct publicly traded companies focused on aviation, healthcare and power.

Culp has said a separation wasn’t always the plan, with too much else to fix at the beleaguered behemoth when he started in 2018. “It was a challenging time,” Culp told Bloomberg. “Some people were suggesting we might not make payroll.”

Yet management experts say bringing in an outside CEO usually does lead to bigger strategic changes—even if it’s often hard to tease apart cause and effect.  

“Typically a company that’s in trouble will bring in an outsider,” says John Joseph, a professor of strategy at the University of California, Irvine’s business school. But he says it isn’t always clear whether it’s the circumstances of poor performance that prompt the board to bring in someone to make big overhauls, or “do outsiders have a predisposition to initiating more dramatic strategic change? It’s often hard to tell which way the causal arrow is going.” 

In GE’s case, it was likely a little of both. The maker of jet engines, healthcare devices and steam turbines was in big trouble when Culp came onboard in 2018. The company faced warnings about missed profit and cash-flow goals, a write-down as large as $23 billion for its power business and a probe by the SEC into its accounting practices. The board, turning to Culp, a recent addition to its ranks, likely knew it needed a changemaker. 

But Culp also had an acclaimed run at the helm of Danaher, where he was known for growing a conglomerate with a tight focus on operational efficiency. Soon after Culp’s departure as CEO, the company announced the spinoff of its manufacturing businesses that weren’t core to its remaining units, which now focuses largely on environmental and life sciences and medical devices.

Because he wasn’t a GE lifer, Culp was unattached to the company’s history and unencumbered by a career building its businesses, factors that could make it harder for some insiders to make the same strategic moves. 

Insiders, says Tim Quigley, who studies CEO succession at the University of Georgia’s business school, are often groomed by their predecessors, and “have had a hand in shaping and implementing that strategy. It’s their baby. It’s their thing.” Breakups also go against many executives’ instincts. “CEOs are not wired to want to control smaller things.”

That instinct may have been even stronger at a place like GE, which was long viewed as a temple of management training and an icon of American industry. “An insider is always going to have a tough go of [making big changes],” Quigley says. “But it’s even more of a challenge when you have this allure and iconic status [like GE].” 

Breaking up the 129-year-old conglomerate, of course, is hardly a new idea. “Everyone has been talking about breaking up GE for years,” says Peter Crist, an executive recruiter who has worked on searches that involved General Electric executives. “It was only natural that it was going to occur.”

Insiders have taken steps toward a breakup. Flannery acknowledged a separation as an option in early 2018, and that June, with GE shares in free fall, proposed selling its stake in oil and gas company Baker Hughes and spinning off its healthcare business (a move Culp temporarily ditched, selling only its biopharmaceutical business). Flannery was out of the job by October.  

For years before that—and particularly following the financial crisis, when GE Capital sank the company after the market for short-term loans froze up and the government stepped in with a rescue—Jeff Immelt had faced calls to split things up. “Unless there are synergies, you’ve really got to take a look at if there is a higher and better use of that capital,” one investor told me back in 2008. 

Immelt spent 16 years working to restructure the portfolio, making major acquisitions and selling off businesses such as appliances and plastics, but couldn’t manage to get the stock price up. Still, the month before GE announced Immelt would be stepping down, he appeared to suggest the biggest overhauls were over. “I view 2017 as the last big restructuring year in the company,” Immelt said in May 2017 at an industry conference. “So this noise is going to kind of come out of the system.”

Outside CEOs, of course, don’t act alone. They often bring on new directors. In GE’s case, six of the 11 members of GE’s board (including Culp) have joined since 2018, when it was dramatically remade, resetting a slate that was widely seen as too big and refreshing talent in a move that was long overdue. 

They also remake their teams, bringing on outside executives who themselves are unbridled by the past. At GE, Culp has recruited several key executives from the outside, including GE Aviation CEO John Slattery, CFO Carolina Dybeck Happe and head of human resources Kevin Cox as well as a new CEO to GE Healthcare from the outside who will start in early 2022. 

“You’re diluting the phenomena of being with one company and [worried] your colleagues don’t want the changes,” says Crist. “Outsiders coming in are indifferent to the baggage.”