At the inaugural session of the Wharton Economic Summit 2013, GE CEO Jeff Immelt sat down with Wharton’s Michael Useem, director of the Center for Leadership and Change Management, to discuss everything from leadership to risk management to U.S. energy policy.

Over the course of the conversation, Immelt reflected on the challenges and rewards of running a global business that operates in 160 countries and the ways in which his company can develop its competitive advantage over the next decade. He also spoke about GE’s investment in building leadership, global risk management and the toughest decision of his career. In addition, Immelt discussed U.S. public policy, focusing on improving health care, energy and education in America.

An edited transcript of the conversation appears below.


Michael Useem: The world is rather uncertain at the moment. Christine Lagarde at the IMF is forecasting about a 3.5% world growth rate: China’s GDP will be 7% to 8%; India may be 5%; Brazil may be a bit below India. On the optimistic side, we might see 2% GDP growth in the U.S. Having said that, when you look at your company over the next five years, what are you doing to stay competitive in such a complex and mixed-growth world?

Jeff Immelt: It’s important to run our companies with an eye on economics. We watch what happens in China because China is important and it pulls along the other emerging markets and growth markets around the world. We’ve kept this in mind and planned our businesses to operate in these different fast-growth and slow-growth markets.

A company our size thinks about global business in three ways. Number one: We’re an approximately $110 billion infrastructure company. We are the world’s biggest infrastructure company. We bet on infrastructure. There will be $60 trillion spent over the next 10 to 20 years in this area. It is a growth industry. We want to lead here. So we are following this big secular theme. We also have $400 billion in assets in financial services.

Number two: We have transformed the company to invest more in organic growth. We’ve gone from 2% of our revenue invested in R&D to 6% of our revenue invested in R&D. We went from being a company that could develop one commercial jet engine every decade to one that can develop a commercial jet engine every year. We now launch more products every year. Furthermore, we used to have one main strategy, but now we’re in 160 countries and we run 160 different country strategies. We will sell more heavy-duty gas turbines in Algeria in the next three years than we will in the United States. So the second thing you have to do is you’ve got to open up the growth pipeline and you’ve got to play with more options in more places.

Thirdly I’d say we always want to lead in the important productivity-driving industries of every era. I think the important productivity driver of this era is shale gas. We have a big role to play in a big energy transformation. This involves advanced manufacturing; we have built a massive, awesome competency in advanced manufacturing.

One final thing: We have a ton of cash. In case things get really nasty fast, we learned that the only buffer is a boatload of cash. So I’d say those are the four main things we keep in mind when we think about running this global business.

Useem: You’re ready for a rainy day. Now let’s discuss your competitors. In a sense you compete against almost everybody: Siemens, ABB, banks, Toshiba, etc. You’ve been around since 1892 and through all that, your company has managed to sustainits competitive advantages. But looking ahead at the next five to 10 years, what are the one or two elements that will define how you’re going to sustain your competitive advantage?

Immelt: I’m not going to list this as one of my main elements that will sustain our competitive advantage in the future, but I want to point out that you always want to have great people and a great culture. But let’s just put that to the side for now.

I think nothing replaces really strong technical excellence. We do stuff that other people can’t do. If you go see one of our jet engines, you will be in awe of its majesty. Anyone could sell these because the product speaks for itself. The ability to drive sustained technical systems excellence is very important.

We also play as a strong competitor in 160 countries around the world. We play as a great American company in every corner of the world. We can win contracts and business in Angola, China, Europe, etc., versus other companies. Having a big footprint and demonstrating technical excellence are both critical elements. If you can sustain these kinds of advantages over the next five years, you’re going to grow. So the foundation is having great people, but I’m hot for those two things.

Useem: A book from 15 years ago that was written about the company had the following title, The Leadership Engine. I think everybody in this room knows a lot about Crotonville, which is well-known as being GE’s leadership training ground, and I’m sure they know about its historic significant in the growth of the company. Are you still a leadership engine?

Immelt: We still invest a billion dollars a year in training and education. We still invest to develop great people and help them learn. But I’m extremely paranoid about it. I think leadership has a very short shelf life, and so every few years, we look outside the company to see what others are doing: What’s Google doing? What’s the U.S. Military Academy doing? What are they teaching at the Communist Party School in Beijing? What is McKinsey teaching its people? I’m paranoid about keeping up-to-date with attracting and retaining great leaders from Bangalore to Boston and everywhere around the world.

We invest in people. We demand performance. We teach them what’s required. We try to stay at the cutting edge, and we move people through experiences where they can learn and improve. In the end, our success is proven based on where these people go.

Useem: Let’s talk about your own leadership. You’re the ninth chief executive at the company since it was founded in 1892. We can do the math. You’ve had people who’ve spent a good bit of time with the company. You joined as chief executive just a couple days before 9/11. Looking back over that last decade, plus now, thinking about the decisions you’ve made, the actions you’ve taken, pick out one that gives you the greatest pride.

Immelt: What I would say is, I’m proudest today. I think the company is in a great position for the next decade. American businesses have, to a certain extent, had a great run, but the last decade was very different from the previous 20 years. And so every company, I think, has had to readjust to a world where the U.S. is growing slowly, where the markets are extremely volatile, and where the incremental buyer is China. You’ve got a regulatory structure today in the U.S., and globally that’s significantly different than the ones that existed a decade or more ago. What I’m proudest of is that we’ve got a focused portfolio. We’re a high tech company and we’re a global leader. You can’t inherit these things, you have to build them. When I look at the next five or 10 years, I feel great about the way the company is positioned, and it’s different than it was 10 years ago.

If I took just one thing to focus on in terms of being proud, it would probably be the global footprint. We’ve gone from a company a decade ago that was 70% inside the United States to a company today that’s 65% outside the United States. Sometimes when I read the newspaper and I watch TV, people seem to think that this was part of a devious plot by American companies to move around the world. But really, I wish all our customers were in Chicago. It’s easier. People pay on time. Everybody speaks English.

We were in the middle of this big power bubble in 1999 to 2000. We sold 279 gas turbines in the United States in the year 2000. This year we’ll sell three. But our market share is identical. So does anybody in this room think it’s easier to sell in Algeria than it is in Illinois? That’s the transformation. You’ve got to move leaders. You’ve got to hire from the outside. You’ve got to get factories in place. You’ve got to drive this whole different product line. I think that if you look over the last decade, not just at GE but at other large companies, the biggest secular change in the last decade is this opening up of the global market. Companies need to be confident competitors in every corner of the world. That’s what we are at GE.

Useem: Let me stay on that theme: When a country such as Algeria may buy a large number of reactors one year and very few the next year, this is where you have to think about risk and its management. Tell us how you think about risk. Then just to add one more element, what’s your dialogue like these days about risk management with your board of directors?

Immelt: That’s a great question. That’s one of the seminal questions that every company or every business leader has to answer. In the world today, it’s all about risk/reward. Nothing is risk-free.

Let’s look at Nigeria: It’s number six in the world in oil, number seven in gas. They have natural resources and the ability to have a ton of money. But they also have a 40-gigawatt electricity deficit. We sell things that make electricity. This is a market for us. So you’ve got money and a massive need for electricity, but everything in between is a mess in terms of governance structures, etc. But this is a ‘good’ risk for us. In this instance, you can go to your board and discuss capping your investment at around $200 million, or something like that. But if we get things right and the deals work, we’ll make $10 billion. You sit with your board and you discuss the risks and you’re very transparent about how much risk you’re willing to take on, but you also know all about the upside. This is a risk you’d want to take.

On the other hand, let’s look at India. India wants to rebuild its nuclear power structure. If you do everything right in India with a nuclear reactor, you earn $50 million. But if you do one thing wrong, you lose your company. No thanks. That is not an order I want to take.

It’s all about risk/reward. It’s all about transparency. I think boards are really about leadership, strategy and risk, and how you manage risk. I’m a 31-year GE guy and I’ve seen this company go through different times. Since I’ve been CEO of GE, I’ve seen 9/11, I’ve seen hurricane Katrina, the global financial crisis and Fukushima. We also watched Macondo from the sidelines, but weren’t necessarily a player in that disaster. So I’ve seen five disasters; I’ve been a participant in four. These have made us much better managers.

We basically went through a couple of decades without a lot of what I would call ‘tail risk’. But now that we’ve experienced these ‘tail risks,’ I think one of the reasons why American business is doing relatively well today on a competitive stage, even while the U.S. economy isn’t that good, is because we’ve all seen tail risk up close. You’re never the same after you’ve been through it. So I think you’ve got a different class of business leader now who has really seen that. We live in a risky world, and I think leaders are now better at balancing these risk/reward equations.

Useem: Just to build on that point, John Chambers at Cisco has been there for a long time; he’s still there now, as you know. He said that one of the best things that happened to him, in retrospect, was going through the Internet bubble collapse that really devastated Cisco. He says everything he does today has been improved by this.

Immelt: John’s kind of right. I don’t look back on the financial crisis with great fondness. I wouldn’t want to do it again. But I think good people take events like that and decide to improve. That’s what John is saying.

Useem: Let me ask about decision-making. Earlier today you said that when you come to the office, your day is just one darned decision after another. Looking back at your 10 years of decisions, what’s the biggest, toughest one you faced?

Immelt: Oh, cutting GE’s dividend, by far. That was in March 2009. We hadn’t cut the dividend since the 1930s. I said I wouldn’t do it. But we just didn’t know at that moment in time how long the crisis was going to last. In many ways the financial crisis is still going on. There’s still ripple effects going on, and just deciding what actions to take back then was excruciating. We were trying to build a fortress with the attacks still coming. So little was known. We decided to mitigate risk with that dividend cut. But I said I wouldn’t do it and I did it. I hated myself for it. I just can’t tell you how awful it was. I could never describe it to you in terms of what it meant, how bad it was, how even today I wake up in the morning wanting to make up for it, wanting to do better for our investors.

If you do these jobs long enough, you’re going to have one day when everybody in the world hates you. But if you can answer the call that day, you’ve earned the right to lead. If you crawl under your desk, your people are going to throw you out. Those were hard times. Those were hard calls. That was the one decision that I still think about today.

Useem: You’ve got to stay in the game.

Immelt: And our dividend is going to keep going up, guys. I’ve got to tell you.

Useem: You joined the company in 1982. Looking back at your time at GE, who would you single out as your most important mentor?

Immelt: The former CEO Jack Welch is obvious. But I’ll leave that to the side because he was a great CEO, and I think in many ways a really great CEO touches everybody in the company. But I started my career by selling plastic in Detroit and my first boss was a sales manager, a guy named Pat Bayes and he was awesome. He really taught me how to see the company through the eyes of the marketplace and through customers. He taught me to have a healthy skepticism of headquarters, which I still have today. I think there’s value in the CEO having a healthy skepticism of what corporate people do. He taught me in a constructive way how to be agnostic about corporates and see the company through the eyes of the customer. I still carry that with me to this day.

Later in my career, I was very fond of one of the GE vice chairmen, John Opie. I thought he was a great leader. He was a long-term GE guy. John was an incredibly detailed, disciplined guy. He would open up the analytics points of view to gain leadership insight that an HR person or a finance person wouldn’t normally come up with. Opie was great at having these operational insights that don’t get taught in business school. Those two men were very influential. John’s still alive. Pat’s dead. I still talk to John today.

Useem: Let’s discuss a personal issue, then we’ll turn to public policy. When you began at GE you had a few people working for you, but today you have about 300,000 people working for you. How has your own thinking about leadership changed in light of what you’ve been through?

Immelt: If you want to manage a company as big as GE, you’ve got to know the top 200 to 300 people really well. The only way I can run GE well is if I handpick the top couple of hundred people. They have to be a manifestation of the company, its values and my values. You need to have this unique ownership of the senior leadership of the company. I think we have that at GE.

The second thing, quite honestly I learned it from Jack and I thought he was marvelous at it and I try to emulate him, is just this ever presence of a CEO. If you work at GE, you can intersect with me almost any day because of e-mail, because of web chats, because I spend a lot of time on the road, and when I go on the road I’ll do three to five employee meetings in a day. This notion of leadership access and informality is something that I learned from Jack. Ultimately, to run a big company you’ve got to have rigor in selecting great people and you have to have this sense of informality.

I would say I am less of a believer in general management today than I was in the past. I don’t think anything today is general. In other words, there are principles of leadership that never go away — integrity, performance, teaching people. But the competition is so much tougher today, and so I really believe in leadership with specialism in certain domains. In a company like GE, you have to build careers that are both broad and deep. But our careers today are deep first and broad second. The company I joined 30 years ago was broad first, deep second. The company today is deep first, broad second. I think that’s a secular shift.

For example, the guy who runs our aviation business is not only a good leader, but he also has a deep technical understanding about how to get another two points of fuel burn. You need people that are great in their specialist fields. That’s a big change that’s happened in my own thinking.

The other thing I’d like to say, given that I’m surrounded by teachers in this room: I think we don’t develop enough good systems thinkers. We tend to develop people who are very good at finance or very good at marketing or very good in specific industries. The real challenges now are going to be driven by systems thinking. For example, how do you put together technology, public policy and a bunch of other things to drive real change? This is teachable, but not very frequently taught.

Useem: You’ve got a demanding, big day job, and yet you have found time to serve on the U.S. President’s Council on Jobs and Competitiveness. Coming from business into public policy, what’s your guidance for business people who ought to be thinking about direct engagement with policy?

Immelt: I can’t say, “Stay away”? No, just kidding. I think I have a couple of points. Number one, business people fail when they don’t see context. Business people frequently want to go to Washington and just say, “Here’s what you should do.” That’s not helpful. That’s why people in Washington, maybe rightly, sometimes don’t like businesspeople. Instead, they should say, “Here’s what I would do if I were you.” It’s key to develop a better understanding of context. That’s important.

Secondly, a sense of timing is important. Business can be most useful in Washington not every day, but at certain points when change or advice is needed. I think there are just certain times when business maybe can be destructive instead of constructive. I think you need to have a sense of when coalitions are coming together.

Thirdly, there are areas where business can make a huge contribution but we aren’t playing a robust enough role. For example, health care. Ultimately if we’re going to bend the cost curve on health care, it is going to be a massive change. I actually think business has been a lousy consumer of health care for 30 or 40 years. We basically have done a terrible job of purchasing health care. So if business is in the game and government is in the game, I think you’ve got a chance of really driving change — and that’s an area that isn’t discussed much.

Ultimately, I’d say context and timing are important, and involvement in education, health care and a couple of other areas present real opportunities for businesses to do more in this public/private dialogue. Tax reform is obvious. Regulatory reform is obvious. Those things will either happen or won’t happen. But meaningful health care competitiveness would be a great initiative to work on.

Useem: I have a final closing and personal question for you. You were on Kilimanjaro a couple years ago with your mid-20s daughter. What did you learn from your time on Kilimanjaro at 19,000 feet?

Immelt: My daughter was graduating from college and I wanted to spend some quality time with her. I said to her, “When you graduate from college, I’ll do anything you want to do,” expecting, she’d want to go to Hawaii or something like that. Instead she said, “Let’s climb Kilimanjaro.” I kept waiting for this idea to dissipate, but she stuck to her guns. To set the scene for you, we’re a family that has never even gone camping. The closest I have come to nature had been a golf game. But four of us — myself, my daughter, her best friend and a GE security guy — all climbed the mountain. Of course, we took the fat cat special — we had 20 sherpas and stuff like that — but you still have to make it to 19,500 feet.

This was one of those instances where you had to give yourself enough time to really have the experience, reach the summit and come back down. It was awesome. It was such a great experience. One thing I learned technically is that coming down is harder than going up. The altitude didn’t bother me. I’m a guy who does roughly an hour on the treadmill every day. Getting to the summit wasn’t nearly as hard as I thought it was going to be. But then you start coming down and I must have fallen on my butt five times in the first 10 minutes. The guides have this expression in Swahili that’s “puli, puli,” which means, “slowly, slowly.”

Ultimately, you can take this lesson and see that if you want to change, if you want to drive stuff that’s meaningful in life, it takes persistence. I see all these books for new CEOs about what to do in the first 100 days on the job. It’s nonsense. As a CEO, you are running a marathon. Don’t let the organization backslide. Set new goals. Every day has to be better than the day before. This notion of “puli, puli” has to do with resilience, persistence, and sticking with your vision and your goals. That helps you when you’re at 17,000 feet on the way up and it helps you when you’re running a company. Essentially anything you want to do that is meaningful in life must be done over time. If you want to change big institutions, you’ve got to have incredible persistence and constancy of purpose. That’s what I learned.