Inside Financial Services

Twenty Years? Why?

In being flexible about his CEO tenure, Jeff Immelt and G.E. are making the right decision

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Good for Jeff Immelt and the board of General Electric for re-thinking their notion that, barring unforeseen events, Immelt ought to serve as GE’s CEO for 20 years, just as Jack Welch did. The idea that longer-serving CEOs automatically create more value for shareholders has never made much sense to me. If anything, my bias is for more frequent turnover: new leadership often brings new ideas and a fresh perspective. I’m not sure what the optimal tenure is, but suspect that a change after ten or so years makes sense. Now that I think of it, the topic might be worthwhile area of study for some enterprising business school professor.What’s more, my bias toward shorter-serving CEOs is just that: a bias. Anyone who’s familiar with the job that, say, Bob Wilmers has done at M&T Bank Corp. or Don Foss has done at Credit Acceptance knows full well how profoundly valuable a great CEO can be to a company. Or look at what Dick Kovacevich achieved at Norwest-Wells Fargo over the course of his nearly 15-year run. And don’t forget Warren Buffett. But the idea that a CEO should be expected to serve for several decades is nuts. Economic environments can change a lot over that long a period, as can a company’s needs. People change, too. And in GE’s case in particular, there’s no shortage of plausible successors. (Now that I think of it, adopting a 20-year plan based on the supposedly glittering track record of Jack Welch may not, ahem, make as much sense as you think.) So,again good for Immelt and GE. They’re doing the right thing. Shareholders ought to be pleased.What do you think? Let me know!

8 Responses to “Twenty Years? Why?”

  1. John Tschohl

    GE stock under Immlet has done very poorly. The $1000 I invested in May 2003 is worth today about $1300. Maybe $1400. The $1000 in Amzon is worth over $10,000

    His company is NOT customer driven. Their Care Credit division avoids using humans. An example of a US firm that fell in love with avoiding talking to customers at all costs.

  2. Parker

    I ran a small community bank for 20 years and really think that I was starting to get stale and I did not have nearly as many moving parts as the CEO of GE. My thought is that after 10 years, a CEO should be able to demponstrate to his/her Board every year their worth. If they are a Warren Buffett type, they can stay as long as they wish. By far most cannot be effective for that long.

  3. Mike Allen

    Learned recently that some African nation bank executives are limited to the number of years they may serve to curb corruption – not sure that matters in the US, but curbing complacency and ensuring relevancy is always a good thing.

  4. anonymous

    was a strange story – why is immelt or anyone entitled to have the job for 20 years? for starters it sends a terrible signal to other execs in the company that the boss is going nowhere soon. there should be only one criteria for length of term – performance

  5. Mike Kubacki

    We agree, Tom. At Lakeland, we just implemented a CEO transition plan that retires me at age 63, and puts David Findlay in when he’s ready to lead, rather than waiting for me to get tired, which I definitely am not. The bank will be better off for it, as well as our shareholders.
    Mike

  6. Mike Kubacki

    We agree. We just passed the baton at Lakeland Financial, and are positioned to continue our shareholder performance.

  7. Charlie

    I agree, but a little more so. I’m in my early 70s and can see that I probably wouldn’t be as valuable as I was 10 years ago.
    I guess a 20 year plan should be based on the age of the CEO at year 1, though 20 years seems too long for me unless performance of the company is noticeable. But we only have to look at people like Buffett, Marty Whitman, or Molumphy of Franklin to see age matters little.
    Maybe length of term should just be based on a testosterone test?

    Thanks for your informative letters and the two banks you named as worthy of further research on my part.
    Charlie

  8. DAVID MCQUESTON

    I HAVE FOUND THAT CEO’S THRIVE NOT JUST BECAUSE OF THEIR SKILL BUT THE ENVIRONMENT THEY ARE IN. SOME ARTE GREAT AT TURNING AROUND TROUBLED COMPANIES BUT ONCE THAT IS ACCOMPLISHED THEY HAVE TROUBLE MANAGING GROWTH AND MOVING A COMPANY FORWARD.
    MANY STARTUPS DO VERY WELL WITH THEIR FOUNDER/CEO’S, BUT ONCE “PROFESSIONAL” MGT IS CALLED FOR THEY HAVE TROUBLE ADAPTING.

    FIND ONE THAT CAN PERFORM WELL IN ALL ENVIRONMENTS, KEEP HIM!!!!!!!!!!!!!

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