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The decline of the baronial CEO

Jeff Immelt
Brian Snyder | Reuters
Jeff Immelt

FAIRFIELD, Conn. — They bestrode the business world, or at least the suburban corporate campus, like a colossus.

Sitting behind burnished wooden desks, in glass-walled corner offices like the one Jeffrey R. Immelt occupied at General Electric's former headquarters here, a select group of American chief executives were once more akin to statesmen than businessmen.

G.E. moved out of this sprawling Skidmore, Owings & Merrill-designed emblem of 1970s corporate modernism in favor of smaller, humbler digs in downtown Boston last year. And last week, Mr. Immelt unexpectedly announced plans to retire after 16 years in the top job, amid a sagging stock price and pressure from activist investors.

General Electric is just the latest storied name in corporate America to show its leader the door. Ford's chief executive, Mark Fields, had been in the job for less than three years when he was fired in late May. Two weeks earlier, Mario Longhi of U.S. Steel abruptly stepped down.

With these departures, the American era of the baronial chief executive, sitting atop an industrial dominion with all the attendant privileges, is drawing to a close.

It is one consequence of a transformed economic landscape in which many of the mega-corporations that defined 20th-century commercial life are confronting a host of new business and technological challenges. These changes — in corporate leadership, on boards and across Wall Street — are recasting the very idea of industry in America.

"The C.E.O. with a big office, a tenure of 10 or 20 years, in a suit and tie, is becoming a thing of the past," said Vijay Govindarajan, who served as G.E.'s chief innovation consultant in 2008 and 2009 and now teaches at Dartmouth's Tuck School of Business.

Mr. Immelt's exit from G.E. is particularly telling, given the company's reputation as a training ground for the future chief executives of other companies. He tried to change G.E., yet couldn't react quickly enough to the forces affecting companies like his.

These include the rising power of activist investors, who buy up stakes in companies and then demand changes. Activists are now hunting much bigger game, demanding double-digit annual earnings growth in a stagnant economy. Or else.

It is a reality only too familiar to John Mackey, the co-founder and chief executive of Whole Foods Market. On Friday, after pressure from activists — a group he had referred to in an interview days before as "greedy bastards" — Whole Foods was acquired by Amazon for $13.4 billion.

That deal also shows how the digital age has upended the competitive landscape, pitting companies in vastly different industries against one another.

"Who ever thought Ford would be competing with Google?" said Michael Useem, a professor of management at the Wharton School of the University of Pennsylvania who has studied corporate leadership for decades. "But they are, and Mark Fields wasn't moving fast enough."

Boards, too, have changed, evolving from country-club-like collections of the same familiar faces into a much more diverse and demanding constituency.

To be sure, the money is better than ever. And pockets of unbridled ambition and occasional excess remain, especially in Silicon Valley, where Apple's new $5 billion spaceshiplike headquarters opened in April.

Apple's new campus

But for most of the Fortune 500, the unquestioned power and perks, the imperviousness to criticism from the likes of shareholders, and the outsize public profile that once automatically came with the corner office have gone the way of the typewriter and the Dictaphone.

"These people were bigger than life, and I saw it up close," said Kevin Sharer, a former chief executive of Amgen who worked as a top aide to Mr. Immelt's legendary predecessor at G.E., Jack Welch. "They were a combination of chief executive, statesman and rock star. They were unassailable."

A Naval Academy graduate, then an officer, before joining G.E. in 1984, Mr. Sharer said the only place that evoked a feeling of power comparable to the long hallways and corner offices of Fairfield in its prime was aboard the fast attack nuclear submarines where he once served as chief engineer.

"We had the confidence, the swagger, and we felt like we had unlimited industrial potential," he said. "Could we buy RCA or NBC? Of course we could. I'm not complaining, but this is absolutely not the case today."

That confidence extended well beyond the boardroom or the executive suite, providing a high profile not only in local communities, but in national affairs as well. Immediately after President Trump declared that the United States was pulling out of the Paris accord on global warming this month, Mr. Immelt offered a blunt dissent on Twitter.

"Disappointed with today's decision on the Paris Agreement," he wrote. "Climate change is real. Industry must now lead and not depend on government."

As Amgen's chief executive in the spring of 2009, Mr. Sharer visited the White House repeatedly to meet with Obama administration officials as they designed what would become the Affordable Care Act. He also played a key role in getting fellow pharmaceutical industry chiefs to support the legislation.

Now retired and teaching at Harvard Business School, Mr. Sharer said he would never do that today, as wading into bitterly partisan public debates offers little upside for corporate leaders, and risks damage to their company's reputation.

As a result, while companies in many ways have more economic and political power than ever, "chief executives now shy away from weighing in on the policy level or broader societal issues," Mr. Sharer said. "They're more focused on running their companies."

There are exceptions. Besides Mr. Immelt's outspokenness on the climate issue, last year Kenneth C. Frazier of Merck called out "bad actors" in the pharmaceutical industry for exorbitant price increases. Timothy D. Cook of Apple challenged Mr. Trump's proposed immigration restrictions in January.

Still, Mr. Immelt's exit leaves a void at the intersection of business and public policy, along with the retirement this year of Douglas R. Oberhelman, the Caterpillar chief who led both the Business Roundtable and the National Association of Manufacturers.

"If you start fooling around in Washington with the Business Roundtable or writing op-eds, activist investors will ask what you're doing," Mr. Useem said.

G.E.'s next chief executive, John Flannery, is highly regarded inside and outside the company, said Bill George, a professor at Harvard Business School who served as chief executive of Medtronic. Mr. George is much more optimistic than Mr. Sharer on whether chief executives will continue to speak out on broader issues, but he doesn't expect Mr. Flannery to emulate his predecessor's high profile.

"I don't see him stepping into that role," Mr. George said. "He's going to keep his head down and focus on the numbers."

The Fall of 'Carpet Land'

At Exxon Mobil, it's referred to as the God Pod. On the 11th floor of Procter & Gamble's headquarters in Cincinnati, there was Mahogany Row. And while the official name of the executive wing at G.E.'s Fairfield headquarters was E3, inside the company it was known as Carpet Land.

And no wonder. From the Persian rugs that lined the hallways to the plush wool floor covering in Mr. Immelt's office and private conference room, the carpets created the hushed atmosphere of a monastery or library.

"It was so quiet, you could feel the energy drain out of you," said Ann Klee, the G.E. executive who oversaw the move to Boston and the development of its new headquarters there.

What these executive aeries all shared was an Olympus-like sense of remoteness, authority and defined hierarchy.

At G.E., even in Carpet Land, office size grew in lock step with rank, and the biggest corner space was reserved for the chief executive. Not only did Mr. Immelt have his own bathroom, but his two administrative assistants had a private bathroom and a pantry.

The abundant perks — in G.E.'s case, two helicopter pads, a shoeshine station and an executive dining room linked to the kitchen below by dumbwaiters — fed the sense of exalted status. At the same time, faster economic growth and rising earnings camouflaged the cost of these indulgences.

With G.E.'s profits and shares soaring in the 1980s, Mr. Welch oversaw the construction of a private 28-room hotel known as the Guest House to serve visiting executives and others, with no expense spared on the parquet floors, wood-burning fireplaces and a Steinway piano, which was left behind when the company moved out.

"Nothing was off-the-shelf," said Bill O'Brien, a 19-year G.E. veteran who helped supervise the Fairfield facility. "With Jack Welch, everything was custom and the operation was five star, spot on."

Almost 16 years after Mr. Welch retired in 2001 and Mr. Immelt took over, G.E. shares have never regained their 2000 peak. So while Mr. Immelt successfully steered the company through a near-death experience during the 2008 financial crisis, refocused it on its industrial roots and shed its ancillary businesses, it became a natural target for activist investors.

One of those was Nelson Peltz, a onetime corporate raider who relied on Michael R. Milken's junk bonds for financing back when Mr. Welch was building his Guest House. Mr. Peltz has come a long way since then, having scored big wins forcing laggards like Heinz and Wendy's to improve their performance, and he acquired a $2 billion stake in G.E. in 2015.

By early this year, Mr. Peltz's Trian Fund was pressing G.E. for deeper cost cuts, and to link executive pay more closely to lower expenses and higher profits. In March, Bloomberg warned of "a do-or-die showdown" between Mr. Peltz and Mr. Immelt, while Fox Business reported that Mr. Immelt was in the "hot seat" and could be forced to retire ahead of schedule.

G.E.'s chief communications officer, Deirdre Latour, denied that activist pressure was a factor in Mr. Immelt's decision to retire. "Sixteen years is a long time," she said.

But at 61, Mr. Immelt is four years younger than Mr. Welch when he stepped down, and joins a long list of otherwise respected executives whose stately succession plans were seemingly interrupted by impatient investors.

"C.E.O. tenure is down from the 1970s, 1980s and early 1990s, and the G.E. situation is a reflection of that," said Jason D. Schloetzer, a professor at Georgetown University's McDonough School of Business. "Without this outside pressure, it's likely Jeff Immelt would have served out his term and retired at 64 or 65."

Now other chief executives are feeling the same pressure, including Mary T. Barra of General Motors. "She's being pulled in different directions," Mr. Schloetzer said, noting that G.M.'s shares have barely budged in the last two years, even as the broader stock market has soared.

If Ms. Barra can't turn things around in 12 to 18 months, Mr. Schloetzer said, she could share a fate similar to that of Mr. Fields at Ford.

Indeed, Mr. Fields's defenestration was more shocking in many ways than Mr. Immelt's slow-motion fade, said Jeffrey Sonnenfeld of the Yale School of Management.

"He's the poster child for what's happened to the C.E.O. job," Mr. Sonnenfeld said. "Until last month, people thought dynastic family capital like the Ford family was the solution to rampant short-termism. I'm sorry Ford forgot that recipe."

'Now the C.E.O. Has a Boss'

How did activist investors acquire such outsize power over publicly traded companies?

For starters, even as the activists' assets have grown, the number of public companies has shrunk drastically, said Matthew Slaughter, dean of Dartmouth's Tuck School. From 1997 to 2015, the number of companies listed on the New York Stock Exchange, the Nasdaq and the old American Stock Exchange dropped by half, falling to 3,766 from 7,507.

"With fewer public companies out there, any one of them is more likely to become a target of interest for one hedge fund or another," Mr. Slaughter said.

At the same time, activists are getting more, well, active. More than 300 American companies were targeted by these investors in 2015, up from just over 100 in 2010, according to Mr. Useem of Wharton. They're also becoming more successful at winning board seats, as fewer companies stagger their board elections over three-year cycles.

What's more, chief executives have less internal latitude. In 2001, more than half of new C.E.O.s also assumed the position of chairman when they took over. By 2016, only 10 percent occupied both roles, according to an analysis by Strategy&, the strategy and consulting arm of PwC.

"You don't have the C.E.O. running the board too," said Gary L. Neilson, a principal with Strategy&. "Now the C.E.O. has a boss."

Boards themselves have changed, Mr. Sonnenfeld added. A few decades ago, a Pittsburgh-based giant like U.S. Steel would draw board members from a local pool of business and community leaders.

"There was a downside in terms of cronyism, mutual back-scratching and a hesitance to criticize," he said. "The positive was that they were anchored in their communities and they invested in them. Now, for C.E.O.s, all the constituencies have changed."

So while boards are still willing to dole out huge golden parachutes to C.E.O.'s, even if they fail, they've become much more generous with money than they are with additional time.

The glaring exception to the trends outlined by Mr. Sonnenfeld is in the technology sector. But in many ways, these firms are the exception that proves the rule, because they play by different rules.

Google's Class B shares have 10 times the voting power of normal shares, enabling the founders, Larry Page and Sergey Brin, to retain control of the holding company Alphabet without owning a majority stake.

Facebook also has a multi-class stock structure that effectively guarantees that the founder Mark Zuckerberg will retain control even as he sells shares. And on this point, the company offers no apologies.

"This is not a traditional governance model, but Facebook was not built to be a traditional company," the company said last year. "The board believes that a founder-led approach has been and continues to be in the best interests of Facebook, its stockholders and the community."

The staggering profitability of the tech giants provides their leaders with more than a little of the swagger the industrial executives once possessed.

In 1990, the revenues of Detroit's Big Three automakers totaled $250 billion while they employed 1.2 million people, according to a study by the McKinsey Global Institute.

Silicon Valley's top three companies in 2014 had almost the same revenues before adjusting for inflation — $247 billion — but with 137,000 employees, they required a work force just one-tenth the size.

That kind of efficiency adds up to huge profits, soaring stock prices and few complaints from investors. Or as Brooks C. Holtom, a professor of management at Georgetown, put it, "If your stock is doing well, your job is safe."

The Shrinking Executive Suite

If the old quarters for G.E.'s top brass were akin to a pedestal, the new ones are more like a fishbowl. At G.E.'s interim headquarters in Boston, and in the permanent one set to open next year, the offices for top leaders have glass walls that enable them to see out and, in turn, let employees see in.

They are also much smaller. In Fairfield, a handful of senior G.E. leaders and their assistants occupied 44,000 square feet in the executive wing. Now the same group shares a total of just 7,800 square feet, less space than in the big mansions many C.E.O.s inhabit in places like Greenwich, Conn., or the Bay Area.

"It has a much more collaborative feel, and the glass replicates the transparency of working together," said Ms. Klee, the G.E. executive. "The Fairfield campus was beautiful, but it lacked the spark you feel here. It's a different time, and we like the power and energy and creativity that comes from mixing people together."

Perhaps, but like the fallen statue of Ozymandias in Shelley's poem, the old monuments to corporate power did possess a certain grandeur.

G.E.'s 66-acre Fairfield campus was purchased for $31.5 million last fall by Sacred Heart University, according to Michael J. Kinney, the school's senior vice president for finance and administration.

"There's not as big a need for corporate headquarters like this any more," said Mr. Kinney, who as a Kraft executive once worked in a similarly spectacular setting in the Taj Mahal-like General Foods building in Rye Brook, N.Y. "Those were the days."

Mr. Kinney has big plans to convert the old offices into classrooms, a business incubator space and a computer engineering center, among other things. Students will be trained in hospitality at the former Guest House.

As a result, the university has kept the campus in pristine condition since the last G.E. executives left. "The only things missing are the Persian rugs and the artwork," said Mr. O'Brien, who now serves as Sacred Heart's director of facilities.

"It's such a different vibe with the kids all here," said Mr. O'Brien, who added that he's still getting used to people strolling around the manicured grounds rather than quietly shuttling between hushed offices.

Walking around the pub in the Guest House Mr. Welch built, Mr. O'Brien confessed to a little nostalgia for G.E.'s glory days in Fairfield. "Can't you see just see Jack running the world from here in '87 or '88?"