Another Step Taken Toward Welch's Successor at GE

The company's long-time chairman and chief executive stated that he'll retire after the firm's April 2001 shareholders meeting, another tiny move in the process of naming his replacement.
Author:
Publish date:

Most companies try to keep the word "shake-up" out of the papers. But few do more to manage the succession process than

General Electric

(GE) - Get Report

, which dropped a few more hints Tuesday about the impending retirement of

John F. Welch

as chairman and chief executive.

On the cable television program "CNBC Business Center" Monday night, Welch said he will retire after the April 2001 annual shareholders' meeting, his 20th anniversary as GE's top executive. As the wire services furiously filed reports Tuesday morning about his departure, the company reeled back, pointing out that everyone already knew he would step down in 2001.

It was just one more tiny step in Welch's effort to choose a successor and break the news without breaking the stock. But the flurry of coverage provides a window into the giant company's precise management of the succession process.

"This is the pistol sound that starts the whole succession race," said William Fialla, an analyst for

Edward Jones

, which has not done underwriting for GE. "He's orchestrating this down to a science. This is all part of a master plan."

What is at stake is clear: Wall Street is watching the process as carefully as GE is massaging it.

Even on such little news, "I do worry a little bit," said Russell Leavitt, an analyst for

Banc of America Securities

, who rates the stock a buy. Welch "has big shoes," he said. "In some ways, this is kind of a reality check."

In 20 years at the GE helm, Welch has guided the company to the heights of corporate dominance. GE, which is based in Fairfield, Conn., is now the nation's largest industrial corporation. Its market value is $436 billion, second only to that of

Microsoft's

(MSFT) - Get Report

, at $483 billion. GE's reach extends to jet engines, hospital equipment, the finance company

GE Capital

and the

NBC

television network.

And the transformation has not been lost on corporate culture. Welch has created an organization many want to lead and few want to leave, said Nicholas Heymann, who worked at GE 20 years ago before eventually becoming an analyst for

Prudential Securities

. He rates the stock a buy.

"It was one of those places where if you came to work and you had your clothes on and you weren't drunk, you had a job," Heymann said. Now "this is Microsoft East."

But Welch's legacy turns on whether the standards are upheld by his successor, he added.

"This guy has nothing if this thing drives into a mountain," Heymann said. "His legacy is to have created more shareholder value than any other human on the planet and made it sustainable."

Welch has clearly set up a horserace, analysts say, aligning his chosen jockeys at the tops of GE's most critical and visible divisions. The short list includes Jeffrey R. Immelt, president and chief executive of

GE Medical Systems

; Robert L. Nardelli, who holds the same title at

GE Power Systems

; and W. James McNerney, president and chief executive of

GE Aircraft Engines

.

"Immelt may end up being the guy to beat," Fialla said. "He's the right age running the right business."

For all his subtlety, Welch telegraphed one message to his possible successors on the

CNBC

program last night. Asked whether the chosen successor already knows the decision, Welch said: "Well, if he does, he's the only one in the company that knows," according to a transcript of the show.

On the program, shown on a cable channel GE owns, Welch was then asked how the process was going. He said it was going well, adding, "I'll be retiring after the annual meeting in April of 2001. And we'll have a team in place sometime late next year to -- to take care of this whole thing."

Although Welch did not say specifically when he will retire, wire services Tuesday morning began reporting that the company said he will retire in April 2001. A spokesman for the company confirmed what Welch said on the program, and said the context would seem to indicate that the retirement will take place in April.

But the spokesman played down the news.

"They've been looking for the successor for four years now," said Jay Pomeroy, spokesman for the GE. "You're 65 for a whole year. Gee, what a big surprise he's not retiring on his birthday."

Managing publicity about the succession process could have its own rewards. GE's stock had fallen 6 1/8 on Monday. But by Tuesday afternoon, the company's shares were up 3 1/2, or 3%, to 132 7/8.

The company closed down 15/16 to 128 7/16.