Who Will Step Into Jack Welch's Shoes?

GE is grooming and testing a stable of would-be CEOs

In his 17 years as Chairman and CEO of General Electric Co., John F. Welch has been revered for his management style and his vision for the company. Can he win the same plaudits for the way he handles the choice of his own successor?

Welch's choice--if he has one--remains a closely guarded secret. But with the Dec. 8 resignation of financial services chieftain Gary C. Wendt, Welch has tipped his hand--a little. Although Wendt wasn't a likely successor, Welch used his departure to rejigger some top jobs and put a handful of fortysomething execs in position to ascend to the top. "What I'm basically doing is getting the people in place who will ideally provide General Electric with the next decade of stability," says the 63-year-old executive.

STELLAR. Wendt, 56, is being replaced as CEO of General Electric Capital Services by one of Welch's most trusted allies, former Chief Financial Officer Dennis D. Dammerman, 53, who is also being named a GE vice-chairman. In the shuffle, Denis J. Nayden, 44, president and chief operating officer at GE Capital Corp., was named CEO of that unit. Keith S. Sherin, 40, formerly head of finance at GE Medical Systems, was given the nod to replace Dammerman as senior vice-president for finance and the new CFO.

Although Wendt was asked to resign, according to the company, his performance for 12 years as head of GE Capital was nothing less than spectacular. Financial services grew to contribute $4 billion in net income to GE's bottom line, up from only $300 million in 1986. Still, Wendt has a reputation as an abrasive taskmaster, whose relationship with Welch has been strained in recent years.

Naming Dammerman, a man Welch calls one of his most trusted aides, to oversee GE Capital settles any concern over who will head GE's key financial-services business. "You don't want anyone worrying about the leadership of your largest and most important business when the chairman's office is going through a transition," says Nicholas P. Heymann, an analyst at Prudential Securities Inc. "With Dennis there, we won't worry about it at all."

The guessing game about Welch's successor began three years ago, when the CEO announced he would retire at the end of 2000. He put in place a five-year plan to groom and test would-be heirs. Welch's challenge: to avoid political infighting for his job and to minimize early departures by those who figured they wouldn't reach the top.

GOLDEN HANDCUFFS. Welch and his directors have been quietly testing a dozen or so CEO aspirants, rotating them through assignments and giving them frequent exposure to board members and Wall Street analysts. The stars have been awarded sizable restricted stock and option packages to keep them at GE. Says one executive recruiter: "Jack has done a fabulous job of making it easy for them to stay. It costs a fortune to buy many of these people out of GE."

The board's five-person management development and compensation committee, chaired by Silas S. Cathcart, has been meeting with the heads of GE's 11 businesses. "In the last two years," says Welch, "they have been going out on their own--meeting with our teams on their own turf alone. They spend a day and have dinner with all the key leadership. We're getting as many unfettered inputs as you can."

Welch says he has purposely stayed away from these sessions to give directors a chance to see and assess the company's top talent away from his influence. The committee then writes up its impressions of the leadership teams and forwards the assessments to both Welch and his senior vice-president for human resources, William J. Conaty. "We are all in a very collegial process," says Welch. "It's not an awkward event. It's not like: `We're coming out to look at you to see if you can be CEO.' They visit every business and every leader. It's an assessment of the whole company and the entire leadership team."

Welch remains tight-lipped about any of the candidates, but analysts, headhunters, and former GE execs are now betting on the men--no women are in the group--who run GE's key operating units. They include Jeffrey R. Immelt, 42, medical systems; David L. Calhoun, 41, lighting; David M. Cote, 46, appliances; and W. James McNerney Jr., 49, who heads the aircraft engine business. McNerney could take himself out of the running if he accepts the top job at Electronic Data Systems, where he is said to be a top candidate. McNerney could not be reached for comment.

TOWARD ASIA. Whoever fills Welch's shoes will be taking on one of the most complex and diverse corporate entities in the world at a time of rising challenge. The company will still be in the midst of a transformation from a manufacturer into a global services company that is focused on capitalizing on expansion opportunities in Asia. The region is fast becoming as critical to GE's growth plans as Europe has been in the past decade.

Welch won't fully show his cards until early 2000, when he may name a pair of vice-chairmen to join him and Dammerman in the corporate executive office. "It would be rough for Jack to go right up to the end and leave a successor with a whole bunch of frustrated potential CEOs," says Dayton Ogden, president of SpencerStuart Worldwide.

But Welch has quietly let a few candidates know that they are not in the running. Most recently, another search consultant noted that one potential contender, whom he declined to identify, called to say he would now be interested in CEO jobs elsewhere.

Welch has every intention of creating a flawless handoff with the least disruption possible. "I want to make this thing seamless," says Welch. "I may not get it done right, but I'm going to try like hell." That should work.