Leadership Succession Critical to Sustainability

COLUMN SUSTAINABILITYCOLUMN IN ISLAMIC FINANCE

Leadership succession critical to sustainability

By Kurt Lieberman, CEO of Magni Global board reached mutual agreement for him McNerny was hired by Boeing as CEO Asset Management. He can be contacted at to resign at the beginning of 2007. that same year. For the next 10 years he [email protected]. ran the company. Later in 2007, Nardelli was recruited by Last month, I discussed how Jack Welch Cerberus Capital Management to run In 2015, he retired with an internal and General Electric (GE) exemplifi ed Chrysler, which it had just purchased. candidate, Dennis Mullenburg, the era of shareholder value, while his Soon after that, the global fi nancial crisis succeeding him. During McNerny’s successor Jeff rey Immelt is considered started. Chrysler fi led for bankruptcy on tenure, the company achieved record to have been unsuccessful in his role as the 30th April 2009. profi ts, though it was during the longest CEO. Perhaps Welch chose the wrong aviation boom in history. There was person. His other alternatives included During 2010, Nardelli became the head signifi cant discontent among workers, two of the best and most high-potential of Freedom Group, a gun manufacturer. especially union workers. executives inside a company with a Within 18 months, Nardelli stepped reputation for developing great leaders. down as CEO.

What can we learn from the post-GE Alternative 2: James McNerny As those experiences of the two who lost the James NcNerny has a blue-chip pedigree: succession race? If one of them had degrees from both Yale and Harvard, in Islamic tremendous success, then the wrong brand management experience at person probably was chosen. However, Procter & Gamble and consulting ϔinance already if neither were successful, then experience at McKinsey & perhaps the shareholder value Co. During 19 years at know, the era of model is not sustainable. GE, he rose through shareholder value the ranks of the Alternative 1: company. is not Robert Nardelli Robert Nardelli had Soon after losing sustainable the nickname ‘Litt le the succession Jack’ while at GE. race, 3M hired Soon after Immelt’s him as CEO. selection, Nardelli left His four-year Lessons learned to become Home stint was more Immelt, Nardelli, and McNerny rose Depot’s new CEO, successful than through the GE management program. despite having no Nardelli’s time All three learned the GE playbook. In retail experience. at Home Depot. one way or another, all three used the playbook throughout their careers. He att empted a The board dramatic overhaul hired him to All three made signifi cant changes and of the company reinvigorate delivered near-term profi ts. None of using methods from growth in the the three achieved the primary change GE. Relentless cost- company. required by the companies they led. The cutt ing replaced the companies were in a similar or worse entrepreneurial culture situation by the end of their respective of innovation. He made signifi cant tenures as CEO. changes and was While sales and popular with the Of the three, McNerny appears to have profi ts rose, turnover workforce. Like done the best job. At 3M, he delivered of experienced store Nardelli, he too profi ts and was popular, though growth staff increased, and the applied the GE was not reinvigorated. At Boeing, he quality of customer playbook. While delivered profi ts and was unpopular, service deteriorated, thus earnings improved, though he did not fi x the deteriorating enabling Home Depot’s capital spending governance and did not demonstrate the primary competitor to dropped 65% and ability to move the company in a bett er increase its market share. the research and direction. development budget Applying the shareholder dropped 25%. Growth Even if Welch had chosen McNerny, GE model to Home Depot provided was not reinvigorated. likely would not have continued its a tactical boost in fi nancial In 2005, George Buckley success. As those in Islamic fi nance performance, but it was not assumed the role of CEO at already know, the era of shareholder sustainable. Nardelli and the 3M. value is not sustainable.