It was big news when one of the world’s largest companies, General Electric, said it planned to acquire another big firm, Honeywell, for the sizeable sum of $45 billion. It was, after all, the largest-ever industrial transaction. But when GE made that announcement two weeks ago, people seemed less intrigued by the purchase than by Jack Welch’s decision to postpone his retirement as GE chairman and CEO. Welch said he made the decision to stay at the helm of GE through the end of 2001, eight months later than planned, because he did not want to dump on his successor’s lap the huge task of overseeing the Honeywell deal. Welch adamantly denied that he was hanging on to the job he has held for nearly 20 years because he could not bear to leave the company that has been transformed to reflect his managerial genius. Should observers – Wall Street, Welch’s as-yet-unnamed successor, and GE managers and employees – take the plainspoken CEO at his word? Or is there more to Welch’s motive than meets the eye? Wharton faculty members say Welch would be a bit disingenuous if he tried to convince anyone that it will be easy for him to bid goodbye to GE. But they believe that Welch made the right decision in announcing he would stick around a while longer. Far from undermining confidence in his successor, who has yet to be named, Welch’s continued presence will benefit the new CEO, they say. “Assuming the acquisition was the right move for GE, it would have been surprising had Welch stepped down as planned with this kind of enormous integration agenda staring him in the face,” says management professor
“Not only is this not a slap in the face to Jack Welch’s successor,” Useem adds, “his successor is going to inherit a bigger job and one where the hard part of bringing this new firm into GE has been at least 50% achieved before he actually take the reins.”
Robert E. Mittelstaedt Jr., vice dean and director of Wharton executive education, says the Honeywell acquisition is of great importance to GE’s future and having Welch at the helm can only be positive.
“There are a lot of questions about the conditions under which the Federal Trade Commission and the Justice Department will approve the merger,” Mittelstaedt says. “That means GE needs good leadership through an important political process.”
In addition, Mittelstaedt notes, “it is going to be extraordinarily difficult to integrate those two companies, especially given that the integration of the previous merger of Honeywell and Allied Signal has not been completed. GE is not a company that has historically done mergers on this scale.”
Monica McGrath, director of leadership development at Wharton, describes Welch as “a leader who makes very strategic decisions, so I wasn’t surprised he decided to do this. I imagine he got a lot of information from Wall Street telling him that’s what he needed to do” to calm investors’ nerves and keep the price of GE stock from dropping sharply.
Welch made it plain that he does not want to hang around GE longer than necessary. But it still will be difficult for him to walk away, says Nancy Rothbard, assistant professor of management and an organizational psychologist.
“I think he believes it when he says he doesn’t want to hang on,” she says. “But there’s a subtle psychology that comes into play when your identity is strongly tied up in your role with a company.”
Rothbard adds that it would be unusual if Welch did not, to some degree, have difficulty in letting go and finding a new role. This is not uncommon among people who have held leadership positions for a long time and exerted great influence on organizations.
McGrath agrees. “I think it will be hard for Jack Welch to leave, period; not because he has an ego attachment to the job but because he’s so passionate about what he has done there. People like Jack Welch, John Chambers at Cisco Systems and Jeff Bezos at Amazon.com don’t see themselves as just CEOs, but as shapers of their organizations.”
To be sure, Welch is taking on risk in acquiring Honeywell. But it is unlikely that his legacy as a CEO’s CEO will be tarnished unless the deal goes seriously awry.
“Large-scale acquisitions do always put the acquirer at some risk in the mind of the stock market,” says Useem. “That’s why, after a merger has been announced, the stock price of the acquiring company typically goes down. Wall Street knows it’s hard to make money short- and long-term with any acquisition, but especially one of this size.”
On the other hand, Useem adds, “we know hundreds of mergers and acquisitions that have been executed successfully, and since Jack Welch is the manager of the century, the smart money would be that he’s going to pull this off, too.”
Useem says Welch did the right thing in announcing a firm retirement date, rather than deciding to stay on indefinitely, until he felt Honeywell was fully integrated into GE.
“For his wife, his successor and GE shareholders around the world, he had to make it clear he wasn’t going to stay indefinitely,” Useem says. “This only reaffirms that it is a hard-headed, non-self-serving, exit strategy.”
Says Mittelstaedt: “Some people may say Welch can’t quit. But on the other hand, you could say what a terrific sacrifice Welch is making for shareholders by staying on and trying to make sure this transition goes smoothly.”
