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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
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