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Q&A: A Talk with Jeff Immelt

After winning the highest-prized succession race in corporate history, filling Jack Welch's seat as CEO and chairman of General Electric Co., Jeffrey R. Immelt now finds himself charged with delivering double-digit growth amid war and a nasty downturn. BusinessWeek Editor-in-Chief Stephen B. Shepard spoke with Immelt on Jan. 15 as part of the magazine's Captains of Industry series at Manhattan's 92nd Street Y. Here are excerpts from their conversation:

Q: It's fascinating to me that your father worked 38 years for GE and then you ended up running the joint. When you told your father, what did he say?

A: It was the first call I made and one of those moments I'll always remember. He said how proud he was. He said congratulations. And he said, "Now you can do something about the pension."

Q:What would have happened if you hadn't gotten the job?

A: In about September of 2000, Jack told all three of us that if we didn't get the job, he wanted us to leave. I knew I could find a job somewhere. Probably, at the end of the day, I would have gone to 3M, where Jim McNerney ended up. The three of us got embroiled in something that was cast as the race of the century. But we've remained good friends because we respect one another.

Q:I'm told you work seven days a week and sleep five hours a night.

A: I think about the company all the time, and I don't need much sleep.

Q:It's also true that you read a book a week?

A: Just about. Yeah.

Q:What kind do you read?

A: I do a lot of biographies, a fair amount of history, and some novels. I don't read many business books. I just read the [Edmund Morris] book on Theodore Roosevelt.

Q:You and George Bush.

A: I wasn't eating pretzels at the time, though, so it's a little safer.

Q:What CEOs in America do you admire or respect?

A: I've had a long-term relationship with Steve Ballmer [at Microsoft Corp.]. I think [Vivendi Universal's] Jean-Marie Messier is building a heck of a company in that business. Rick Wagoner is doing a good job at GM. There's [Sun Microsystems Inc.'s] Scott McNealy, who is on our board. I've always admired Scott's sense of humor, his vision, his ability to stick with a vision. Globally, I have a lot of respect for John Browne at BP and for [Nobuyuki] Idei-san at Sony.

Q:What do you want to accomplish in your first few years?

A: I want to take the power of digitization and, like we've done with Six Sigma, transform the way the company is run. About 40% of the company is now administration, finance, and backroom functions. Over the next three years, I want to shrink that by 75%. On top of that, the most important thing is to grow. We're a $130 billion growth business because we don't run it as a $130 billion blob. We run it as a $10 billion medical business, a $1 billion ultrasound business. We know how to get double-digit growth in this environment.

Q:How did September 11 make things more difficult for the company and for you personally?

A: Let's categorize September 11 as an amazing tragedy, just an unbelievable, unspeakable tragedy. It had an impact on the airline industry and the tourism industry and the insurance industry. But this economy was in recession on Sept. 10. This economy started getting worse in August of 2000. It was accelerating in terms of getting in a recessionary mode. And September 11 just made it tougher.

I look at this environment as a tremendous chance to play offense at GE. The strength of GE is our diversity. So while 30% of our company gets hit in an economy like this, 70% is still flourishing. We'll generate $17 billion in cash in 2001, so we'll have lots of capability to do acquisitions. You know, I hate where my stock price is today, but I love where everybody else's is. So it's a great time to do acquisitions and play offense.

We're looking at this time as the definitive time for GE. Quite honestly, it was tougher to run the company in 1999. We were growing. The markets were great; the equity markets were great. But everybody hated a 120-year-old company. You know, anything that wasn't new was terrible. Now we look sexy again.

Q:Do you object when people use the word conglomerate to describe GE?

A: Hate it. I went to business school learning how companies like GE couldn't exist. We run a multibusiness company with common cultures, with common managementwhere the whole is always greater than the sum of its parts. Culture counts.

Q:Is there any company anywhere in the world that is remotely close to the way you do it?

A: My assumption is yes. I view Siemens as a very strong competitor, from Germany. I think Dennis Kozlowski at Tyco is attempting to do the same thing. So we never take for granted that we've got the only model that works and that there aren't people out there trying to compete with us. I just think that we've got a company that can run in this way.

Q:GE Capital accounts for 40% to 45% of your earnings. Do you think that's too high?

A: My preference would be to keep it in that range. But I hedge that it's an exceptionally good time to be acquiring financial assets today. If we have the opportunity to make GE Capital bigger in the short term, we'll probably take that opportunity.

Q:What about the lower-margin businesses, like lighting and appliances? What happens to them?

A: If we were building a portfolio today, we wouldn't start with lighting and appliances, that is for sure. We're limited by the growth, and we're limited by the positions they have in terms of being able to globalize and things like that. Neither business is on fire. We're No. 1 in both. They both return their cost in capital. They're good for the brand.

And the way that we use a business like appliances is, it's a great place to train people. It's a great way for managers to go there and learn what a recession is like. Because those businesses are in recession almost all the time. Even the good years are tough. So you learn unbelievable management skills at businesses like that.

Q:Let's talk about globalization, one of your big initiatives. I'm going to name countries, and I want you to tell me what you think the opportunities are. Let's start with Japan.

A: Very bleak. Most of the global companies are moving manufacturing facilities outside of Japan. My fear is that it's in a permanent state of sideways movement. You'd almost rather see an impetus of a sharp decline that would drive structural change. Unfortunately, what we have is constant zero. I think it's demoralizing to the people in Japan.


A: China is going to be the second-biggest economy in the world. The political leadership of the country really does understand the people. I'm not here to make a political statement. None of us agrees with everything they do, but I think there's an inextricable movement to the future. There's just no stopping that country.


A: India is a great place. They graduate 30,000 electrical engineers every year. From the standpoint of human capital and from the standpoint of education and smart people, they are fabulous. The infrastructure of India keeps it from being a great global market. The power still goes out when you're shaving every morning at 6. But it has probably got the best intellectual depth in the world.


A: I really do believe that the European Union and European unity is going to change the way Europe does business. Having one currency, having one market is going to be a good deal. Our margin rates are half what they are in the U.S., so there are great opportunities to improve.

Beyond that, I hate the way the Honeywell acquisition ended in Europe. And I hate the way it cast our company. So Europe is very big on my agenda list. We got painted with a brush that was unfair: of being too big, of not being focused on customers in the marketplace. I'm really dedicated to proving that wrong. We're going to be a great European country--I mean company.

Q:So you do have some politician in you. Latin America?

A: NAFTA really did work from both a Mexican and U.S. standpoint. But south America is very tough. It's never been a place where GE invested a lot because of currency instability and a lack of transparency. Unfortunately, Argentina only serves to reinforce that.

Q:Let's turn to Enron. It's a mess. What are the lessons of this?

A: Either people in leadership misled folks, or there's something wrong with the system, and the system has to be changed. That's what we're going to learn over the next few months.

Two years ago, every business leader on earth got the benefit of the doubt. Because of the recession, because of Enron, that trust has evaporated. So it's incumbent on me not just to describe my company. I now tell people, look, I review every business in GE six times a year. I have 500 internal auditors; we do thousands of audits every year. We all have one currency at GE--that's GE stock. We're totally aligned with shareholders. I don't want my company to be painted with that brush.

Q:But you worry a little bit that there might be a backlash?

A: The backlash is beginning. When the seventh-largest company in the world goes bankrupt in six months, something happened. Something happened that's wrong, and that's bad. But one of the things that I'm going to stand up for each and every day is the integrity of the company I work for.

Q:When do you think the recession will end, or when will we have a turnaround?

A: The two factors I watch, Steve, are what's happening with the consumer and when will technology reinvestment occur. There is massive excess capacity in technology today. And I think when you add all those things up, we're doing all our business planning assuming that 2002 stays as tough as it is right now. A zero-growth economy. If we get a second-half rebound, all the better. By 2003, we see the economy getting better.

Q:Just about two years ago, Jack Welch was here on this stage. We asked him why there were so few women in the top management ranks at GE. And his answer was, "Shame on us." What is it about GE that there aren't more women in the top ranks, and are you going to do anything about it?

A: You know, Steve, if you look at the last 12 months, 50% of our appointees of the top 500 people are women and African Americans. So we're moving the needle very quickly. About 20% of the leadership today is diverse. We've got a great pipeline of women in place to be able to fill those jobs. I think it's a leadership prerogative, and it's a leadership objective, to be a more diverse company.

I've told people that one of the things that I'm going to be accountable to the organization in is the percentage of women and African Americans that are in the top 175 in the company and the top 500 in the company. Again, it all has to do with remaining a modern company. And 21st century companies are going to have more diversity throughout their leadership.

Q:So there was nothing about the company's culture that made it more difficult for women?

A: This is a performance culture. And I just refuse to believe that there's something about the culture that makes it unattractive for anybody to work. It's a meritocracy. People like meritocracy. I think they like being treated fairly. And they like knowing that they get ahead based on the merits of their ideas. I don't think that's sex-based.

Q:What keeps you up at night?

A: It's always an integrity issue of some kind. With 300,000 people, you always worry that somebody doesn't get it. We can survive bad markets. What you can't live through is anybody who takes from the company or does something wrong in the community.

Q:At a recent BusinessWeek event, Jack Welch said that Walter Hewlett's opposition to the Compaq/Hewlett-Packard merger was "a sin." What are your thoughts on Walter's standoff with the Hewlett-Packard board?

A: I am firmly on [HP CEO Carleton S. Fiorina's] side with respect to her right to do it, the process she used to do it, and the fact that a board can't work that way. There's a time and a place for a board to make a decision and to make its feelings known. To break ranks and to come out and question publicly is wrong.

Q:Do you send handwritten memos to your top staff, similar to Jack's memos to you?

A: No, my handwriting is terrible. Jack had the luxury of not only running the company but he had the best penmanship. I send e-mails.

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