(Bloomberg) -- About 15 years after General Electric Co. held a high-profile bake-off to determine the successor to then-Chief Executive Officer Jack Welch, speculation has begun over who could be next in line for the top post.
Possible candidates to succeed CEO Jeffrey Immelt come from across GE and include Steve Bolze, head of the power and water unit; Lorenzo Simonelli, the oil and gas CEO; and Vice Chairman John Rice, analysts said in interviews. Shannon O'Callaghan of UBS AG and William Blair & Co.'s Nicholas Heymann were among analysts who discussed potential successors.
A Barclays Plc note on Monday sparked the latest round of speculation and suggested Chief Financial Officer Jeff Bornstein was a front-runner. How GE proceeds depends largely on when the 59-year-old Immelt opts to exit, especially if the next CEO intends to match Welch's two-decade tenure. A sudden vacancy now may favor a seasoned executive such as Rice, 58, while Simonelli, 41, may be better situated if Immelt departs in a few years.
"They clearly have deep bench strength, much deeper than most corporations," said Gail Meneley, a principal at Chicago-based consultant Shields Meneley Partners, whose clients include McDonald's Corp. and Johnson & Johnson. "They will of course place heavy weight on the opinion of the CEO who has been in the seat and knows what it takes."
Industrial Focus
Immelt, CEO and chairman of the 305,000-employee industrial giant since 2001, is reshaping GE around its industrial divisions as he looks to boost margins and energize a languishing stock. Since he took over for Welch four days before the 9/11 terror attacks, the shares have fallen 35 percent while the Standard & Poor's 500 Industrials index has almost doubled. The 2008-09 financial crisis slammed the GE Capital unit, imperiling the Fairfield, Connecticut-based parent company.
Welch started formal succession-planning discussions more than seven years before he stepped down, according to a 2001 Fortune article. In a June 1994 board meeting, Welch brought a handwritten list of 24 candidates separated into three categories: "obvious field," "contenders" and "broader consensus field." The three executives who made it to the final round -- Immelt, Robert Nardelli and James McNerney -- all started in the third category.
In subsequent years, Welch arranged social events for directors to get to know the executives, while not publicly revealing the challengers until after the selection was made. Promotion decisions were made to give the leading candidates broader experience. Immelt was rumored to be a favorite a year before he was announced as the winner.
Retirement Plans?
After more than a decade as CEO, Immelt could step down in the next year, Barclays's Scott Davis said Monday in a note. "Most investors are ready for a change at the top now," Davis said.
Seth Martin, a GE spokesman, declined to comment about the Barclays report, and Immelt hasn't said when he plans to retire. In an October interview, he said, "There will be a natural time to think about a transition, but for right now you're stuck with me."
The timing and field of potential successors could be dictated in part by whether Immelt is successful in his effort to focus GE around high-margin industrial units.
"It very much depends on the success of the current plan," said UBS's O'Callaghan. "If it fails, who knows what's going to happen?"
While GE has a history of grooming candidates internally, a sharp slump in the business could force it to look outside, said Peter Sorrentino, a portfolio manager for Cincinnati-based Huntington Asset Advisors Inc., which owns GE shares.
'Same Kool-Aid'
"I don't know that it's a GE insider because this team has been together long enough and are sort of drinking the same Kool-Aid," Sorrentino said. "If you don't change the scenery you're going to get the same thing."
Immelt had some early missteps, including overpaying for U.K.-based biotechnology company Amersham Plc in a $10.3 billion deal in 2004, said Jack De Gan, chief investment officer of Harbor Advisory Corp. The CEO has earned back some investor goodwill with more recent moves, including the effort to shrink the volatile finance arm, said De Gan, whose Portsmouth, New Hampshire-based firm owns about 100,000 GE shares among its $130 million in assets.
"The market over the last year or so is starting to come to believe that the transformation of GE's portfolio and the rapid decline in the financial business is going to do the trick," De Gan said. "Late '16, early '17 is a time when the market should really be appreciating the work he's done."
To contact the reporters on this story: Richard Clough in New York at rclough9@bloomberg.net; Thomas Black in Dallas at tblack@bloomberg.net
To contact the editors responsible for this story: Edward Dufner at edufner@bloomberg.net Larry Reibstein
