GE & Harvard On How To Pick Your Next Managing Partner

We know from life in general that people excel differently depending on the circumstances.  Some are natural schmoozers, some highly analytic, some of us lone wolves and some of us can't work without a crowd.   Does the ghastly cliche "finders, minders, and grinders" come to mind?

Here's your next challenge:  Put this truism about human nature to selection of your next managing partner. 

Can't be done, you expostulate?!   It's all politics, all the time; or it's seniority, or it's those intangible factors that can't be adequately summarized in generalizations?  Then consider this:  GE, in combination with Harvard Business School (neither organization intellectually challenged when it comes to organizational dynamics) studied the resumes of GE managers to categorize them into the following categories:

• cost cutters
• growers, or
• cycle managers.

For example?  At GE, the appliance and lighting businesses, in mature industries with union work forces predominant, called for the cost-cutter mentality.  On the other hand, aircraft engines, power systems, and transportation systems were and are cyclical, requiring careful stewardship of capital.  Finally, GE Capital, plastics, medical systems, and NBC were growth areas.

Now the acid test:  Using twenty GE managers who were hired away into different companies, they compared the executives' profile they had on h and to S&P industry reports categorizing the new company they were hired into.  Nine of the 20 were deemed a match, the other eleven a mismatch. 

Ready for the bottom line?

• Among the "matches," the average annualized "abnormal" (different than trend) returns were +14.1%
• And among the "mismatches," the same figure was -39.8%.

Thanks; glad I got your attention.

Case studies follow:

• Paolo Fresco, who at GE had spearheaded growth into Europe, became chairman of Fiat in 1998, a firm not, to put it mildly, cost-competitive.  Pursuing investments in web presence and acquisitions aimed at diversification, he helped push the firm into an extended liquidity crisis which he proposed to solve by:  Divesting the automotive business!  Resigned in 2003.
• John Trani, leader of GE Plastics long growth trajectory, left in 1997 for Stanley Works, the tool and hardware manufacturer with flat sales and cost control the order of the day.  Three years later his abnormal annual return was -10%.
• Carlos Ghosn, not a GE alum but included because of his extraordinary visibility, earned the moniker "le cost killer" for his role in the Renault turnaround, having already instilled similar discipline at Michelin, is now a legendary success at integrating Nissan.
• Lastly, Steve Bennet, EVP of GE Capital, was hired as CEO of Intuit in 2000 to drive growth by energizing and focusing the decentralized, consensus-driven Intuit culture; over his first five years, he delivered average annual revenue increases of 17% and annual income increases of 24%.

If you like those numbers, why not pick your next managing partner based on what your firm needs based on where it is in its growth trajectory and among its competitive set?  Who among your senior leadership—and don't tell me there's one and only one obvious choice (unless you've already gone through the above exercise)—has the skills best matched to your firm's needs for the next five to ten years? 

Not all skills are a match.