Media Release

 
March 18, 2009
 
Study explores why General Electric's talent output gives it a competitive edge

Executive turnover is key to its success

LONDON, ON, March 18, 2009 - While senior management attrition is typically thought to be bad for business, in the case of General Electric (GE), losing top talent to competitors is part of a winning strategy, a new study shows.

In fact, for GE, which has earned a reputation as a CEO talent-generating machine, turnover of managers merely allows other great leaders to move up the corporate ladder, providing it with continuous top talent and a competitive advantage.

Entitled "The GE Paradox: Competitive Advantage through Fungible Non-firm Specific Investment", the study will be published in an upcoming edition of Journal of Management. It is authored by Derek Lehmberg, Ph.D candidate, Glenn Rowe, Associate Professor, and Rod White, Associate Dean of Faculty Development and Research, Richard Ivey School of Business, and John R. Phillips, Assistant Professor, Odette School of Business, University of Windsor.

The study compared the return to shareholders for companies with GE-trained CEOs to those with CEOs from the general talent pool within one day of the appointment of a new CEO. It reviewed a 25-year period from 1977 to 2002.

Results show that firms led by GE-groomed CEOs outperform firms led by CEOs from the general talent pool as stock prices increase when firms appoint GE-trained executives while stock prices for the other firms did not increase.

GE develops more talent than it needs or uses and even helps its employees leave the company for positions with other firms. So the study further addressed how GE can benefit from training executives when many leave for other firms - "the GE Paradox" - and found GE's system gives it a steady stream of talent where each new manager may be a source of temporary competitive advantage. Since the outgoing managers add value to other firms, GE earns a reputation as a top breeding ground for CEOs and is able to attract the best people to move into manager roles.

"Maintaining a flow of managers both up and out of the firm helps GE's talent development process to operate effectively," said Rowe, the Paul MacPherson Chair in Strategic Leadership at Ivey Business School. "When a top manager leaves GE to take a position at another firm, GE loses that talent, but its leadership development system benefits from the upward momentum internally and the reputation GE gains externally."

The research also confirms the "GE Effect" - that ex-GE managers make superior CEOs - and that GE is an outlier in executive talent development because of its distinct system.

"It has been argued that executives at GE have been shaped by a system that is better than any other outside of the military and that GE is unparalleled in its ability to identify and develop leadership talent," said Rowe. "The fact that stock price increases have persisted throughout the period of our study for companies that appoint GE-trained CEOs suggests that GE's reputation for producing top-notch talent is not just hype in the business press, but well-deserved."

For more information, please contact Glenn Rowe at 519-661-3299 or growe@ivey.uwo.ca;or Rod White at 519-661-3252 or rewhite@ivey.uwo.ca.
 

About the Richard Ivey School of Business, The University of Western Ontario
The Richard Ivey School of Business at The University of Western Ontario (www.ivey.ca) offers undergraduate (HBA) and graduate degree programs (MBA, Executive MBA and PhD) in addition to non-degree Executive Development programs. Ivey has campuses in London (Ontario), Toronto, and Hong Kong. Ivey recently redesigned its curriculum to focus on Cross-Enterprise Leadership - a holistic issues-based approach to management education that meets the demands of today's complex global business world.

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For more information, please contact:
Dawn Milne, Communications Specialist, Richard Ivey School of Business, 519-850-2536, dmilne@ivey.ca