Professor Culp’s Master Class

Prof. Kevin Sharer

Larry Culp is an HBS grad (MBA ’90), enormously successful former CEO of Danaher, subject of several HBS cases, HBS Senior Lecturer, and my good friend. As you may know, since October 2018 he has been on leave from the faculty for services to GE as Chairman and CEO. A bit of full disclosure. I am a proud and grateful GE alum from the Welch era and so benefit from some perspective. I also might not be totally objective, but given my history and relationships, I think I can be a truth teller.

GE’s story is well known, widely told and analyzed, and almost Shakespearean in its tragic arc. The short form is this: GE was seen 20 years ago as a candidate for the best company of all time and leadership model for the business world, then suffered a long slide through 9/11 and the 2008 financial crisis and bets gone wrong to become a company with a weak balance sheet, humiliating loss of market cap, and a power division that is profoundly broken after an ill-advised merger and turbine market collapse. It is hard to overstate the magnitude of the fall from grace or the number and magnitude of the problems Larry inherited when he became CEO.

That this situation is rich in learning possibilities for the world of business is the understatement of the century. Where to start? The seeds of trouble left by the tenure of his predecessor who had the job for 16 years? The failure of succession? Poor management? Bets gone wrong? Failed board oversight?

Let’s leave those retrospective analyses to others, and instead concentrate on Larry’s moves in his first six months in the job. They are a master class in leadership and management. Ken Chenault, the storied 16-year Amex CEO, told students in Dean Nohria’s course “The Life and Role of the CEO” this January that the role of the CEO is to be a role model, define reality, and give hope. Larry’s first six months as CEO meet every one of those three imperatives and more. Let’s dig deeper.

Larry started from a position of strength personally. He had been lead director for six months, so he was well aware of the challenges, culture, and personnel. He had heard from his fellow directors, analysts, and investors. He knew the lay of the land. He also had been a longtime CEO of a smaller but similar multi-business manufacturing company with businesses across the industrial landscape. He was no rookie. So let’s examine his moves as role model, definer of reality, and creator of hope. What he did contains lessons for all leaders and not just CEOs. You can and should put these lessons to work in your first job.

He spent the early months visiting, asking, listening, and learning. He focused on power and the balance sheet, which were the places that had to be fixed for GE to have a future. His demeanor was calm but relentless. His questions were basic but insightful. He treated staff with respect and civility, but his standards were very high and clear. He did not rush, but he was quick and decisive when it was time to make a decision. He gave executives a chance to explain and perform, but he did not hesitate to make changes and bring in both former executives with expertise and proven outsiders. There was important action but no particular drama. He did what he said he would do and told the world to measure us by what we do and not what we say. He consistently was positive and upbeat about the future but always absolutely realistic about the challenges and imperatives of the present. He has been the classic role-model leader. This is no small accomplishment and too rare in today’s world of business and public life.

His leadership behavior, fact finding process, and focus on the problems’ essence also allowed him to define reality to all stakeholders. GE is complex in virtually every dimension, and its financial reporting has been called arcane and worse. Larry simplified complexity and was right. He then communicated in multiple and clear ways. His chairman’s letter in the 2018 annual report is superb in its clarity, specificity of action, and description of the financials. It stands in stark contrast to the letters of Welch’s successor for 16 years. I encourage you to Google and read the letter. It will be 15 minutes well spent.

Larry also reinforces these messages in his comments to staff, meetings with investors, and public comments. Finally, his actions reinforced that the priorities he called out are his priorities—no one can be confused. Reality is that GE has two strong businesses in aviation and healthcare, tremendous technical capability, a worldwide web of relationships and installed base, and a dedicated and capable workforce. Reality also is that the power division is broken and the balance sheet fragile. Larry’s last comment in his letter was credited to a power system executive who said the first thing we need to do is call things by their proper name—define reality.

Perhaps the biggest and most important challenge in this sea of troubles and recent history of failure and disappointment is to bring hope. This is the supreme leadership test. It is easier to diagnose and criticize than to fix and renew. Larry is doing this by defining reality in such a way that solutions are apparent and possible. Weak balance sheet? Sell assets and conserve cash to reduce debt. Power systems is broken? Cut costs to match revenue. Bring in new leadership. Restructure service contracts. Separate the good businesses from the bad to bring focus. Reduce overhead and empower front line leaders. Be decisive. Take decisive moves to raise cash. Set specific time frames for specific actions, and in so doing, do not overpromise. Refer to the greatness of the company in the past, the skill and dedication of the employee base, and its collection of overwhelming positive current resources, and paint a credible picture of return to health and prominence. This combination of embracing reality, defining the way forward, tangible action, and optimism of tone and language at its best is inspiring. Our Professor Culp is what good looks like as a leader and CEO.

Professor Kevin W. Sharer joined the HBS Strategy unit in the fall of 2012. Before HBS, he was CEO of Amgen for 12 years and, before that, Amgen’s president for eight. He has served on the boards of directors of Chevron and Northrop Grumman and is currently on the board of Allied Minds. For a decade he was chairman of the board of the Los Angeles County Museum of Natural History. Professor Sharer is a Naval Academy graduate and has master’s degrees in aeronautical engineering and business.