Noted for his adept handling of one of the most important CEO succession challenges of the century, and for many other feats, General Electric's Bill Conaty is the 2004 HR Executive of the Year.
After retiring as chairman and CEO of General Electric, Jack Welch was speaking to several thousand business leaders during a conference. How many of you, he posed to them, believe your companies value your HR leaders as much as your CFO?
"I literally got no more than 50 hands," Welch recalls. "Imagine having in baseball the scorekeeper being more important than the director of player personnel on a team. It's crazy, and yet that's the way it is."
But not at Fairfield, Conn.-based GE, where Red Sox fan and HR leader Bill Conaty is highly valued for his insight and input. Thriving in the company's fast-paced, demanding environment, Conaty, considered a giant in the field of human resources, has been intimately involved in the corporation's highly visible CEO succession plan and widely heralded corporate-governance initiatives.
In the transition after the Jack Welch-era, when GE could have followed the path of other companies in similar situations where the loss of a respected leader was followed by an exodus of insiders, Conaty has successfully kept the corporation's stable of leadership riches intact.
And while dealing with the demands of globalization, health-care increases, union unrest and two major acquisitions and a divestiture, he has continued GE's tradition of superbly managing careers, building exceptional HR leaders and leading a companywide effort to drive a diverse talent pool.
In his off hours, when not spending time in his vacation home in New Hampshire with his family, Conaty contributes to strategic human resource leadership in general as chairman of both the HR Policy Association in Washington and the National Academy of Human Resources in Santa Fe, N.M.
For those and other reasons, the soft-spoken and tough-minded Conaty, GE's senior vice president of corporate human resources, was chosen as the 2004 Human Resource Executive of the Year.
"This year, he just stood out head and shoulders [above the rest of the nominees]," says Fred Foulkes, director of the Human Resource Policy Institute of Boston University School of Management, who served as one of the judges for the contest. "No one else had a chance this year -- and the other people were very, very strong."
"Every generation seems to have its leaders," Foulkes says. "He and Randy MacDonald [senior vice president of HR] at IBM are probably the two top people in the field these days."
Meet the New Boss
While the CEO succession search itself took years, the transition from Welch to Jeffrey Immelt in late 2001 has been "incredibly easy," says Conaty, who took over as top human resource leader of the $134 billion, 310,000-employee corporation in 1993.
The men have styles "180 degrees apart," he says, but each man values GE's people, prizes leadership development, and is more than willing to examine and decide to discard programs that don't work -- even their own ideas.
"Change is the name of the game," Conaty says, adding that the tension between accommodating the needs of the business and the needs of the employees -- all within the realm of the demanding world in general -- can overwhelm some HR leaders. Not him, he says. The challenges just pump him up.
Conaty has worked with GE for his entire career, after graduating from Bryant College with a bachelor's degree in business administration -- with a tour of military duty thrown in after a three-year GE management program.
Through the years, he has worked in human resource roles in GE's Transportation Division and Aerospace Human Resources Operation, and was plant manager of GE's Diesel Engine Plant before moving to GE Aircraft Engines, where he was HR vice president prior to assuming the corporation's top HR spot.
One of his first tasks at the HR helm was the search for a new CEO. "When I took this job, Jack [Welch] said to me, 'The most important thing you and I will do in the years I have got left is choose my successor,' " Conaty says.
The process was a textbook example of success, says Marc Chini, vice president of HR for GE Transportation. Conaty and Welch constantly reviewed candidates over a series of years, placed contenders in different assignments, compared year-over-year data and analyzed how candidates "managed their way through different business situations. ... It wasn't a hit-or-miss proposition," he says.
As the process glided toward its top-secret culmination, Conaty and Welch decided to name replacements for the top contenders -- Immelt (then CEO of GE Medical Systems), James McNerney (then CEO of GE Aircraft Engines, now CEO of 3M) and Robert Nardelli (then CEO of GE Power Systems, now CEO of Home Depot) -- because they decided it was extremely unlikely the unannointed would remain at GE.
By having the contenders train their own successors, the transitions throughout the organization were smooth, Chini says. "It was over well in advance of Jack leaving," he says. "We didn't have to manage multiple transitions."
In Conaty's opinion, any of the three contenders would have been excellent.
"We had a stable of riches here with great players," he says. "In the end, it came down to looking at Jeff as somebody we just thought probably had the greatest potential over the period of time he had left in his career."
That stable of riches is the norm for GE, consistently regarded as one of the world's most-admired companies, and noted for having, as Business Week has said, "the most talent-rich management bench in the world."
Credit Conaty for that, says long-time friend and former colleague Dennis M. Donovan, who left GE to become executive vice president of human resources for Home Depot in April 2001, and was this magazine's 2003 HR Executive of the Year.
GE's leadership riches, Donovan says, are due to many things. Among them: the leadership-development programs at GE's 52-acre executive-training center in Ossining, N.Y., known as Crotonville; the way careers are managed and rewarded; and the organization's well-known "Session C" processes, which are ongoing reviews of top executives including critiques of HR strategy as it relates to major business initiatives and fulfillment of diversity needs and other issues.
Process aside, Conaty has an innate ability, say observers, to judge character and situations, to spot phonies and to relate to people, from janitors to board directors. And with all of those people, they say, he exhibits integrity and fairness, shares credit, accepts blame for failure and always stays in control. He respects the confidences of others and remains true to his own words.
Conaty also, says Donovan, has the ability "to make the tough calls . . . because it's not all warm and fuzzy."
"Bill has his finger on the pulse of, I would guess, the top 500 leaders at General Electric and . . . he kicks the tires every day with respect to great talent," Donovan says.
"He sees them up close and that may be one of the best evaluators of where they go in that corporation to ensure there is a continuous pipeline of talent running through General Electric."
The company notes that annual voluntary turnover among senior executives (about 600 executives) is only about 3 percent, despite the attractiveness of GE executives to other companies.
Candid and constant employee feedback is important at GE, says Conaty. So, too, is differentiation. The company's controversial "organization vitality" framework -- the top 20, vital 70 and bottom 10 percent of the workforce -- are "what our culture is all about," Conaty says. "We firmly believe in recognizing and rewarding our very best on one end of the spectrum, and on the other end, we believe in taking developmental actions on our least effective. ... We've got a company that is trying to grow revenue and earnings to be double digits every year, and it just doesn't happen from having a bunch of average people."
The success of the company's diversity initiatives, which are tied to its Session C process, have resulted this year in GE being honored by both Catalyst, a New York-based organization working to advance women in business, and the Executive Leadership Council, a Washington-based network of about 300 senior African-American corporate executives in Fortune 500 companies.
"Bill is, and has been for years, very, very supportive of diversity initiatives . . . even before I was in this particular job," says Deb Elam, GE's diversity leader for the past two years.
Conaty regularly attends large activities and dinners sponsored by GE's affinity groups: the GE Women's Network, the African-American Forum, the Asian-Pacific Forum and the Hispanic Network, among others, she says. That visible, subtle endorsement just doesn't happen at most other companies, Elam says.
Even more important, the company's talent-development processes require all managers at the executive level to slot at least one diverse candidate on their succession slates. Company leaders regularly review present and future gaps in leadership as they relate to diversity and business needs. Executives are reviewed on their diversity-promotion efforts and unsatisfactory performance affects their performance rating.
"GE is one of the anchors relative to diversity," says Carl Brooks, president of the Executive Leadership Council. "I don't know of any other corporation that has won the Catalyst award and the ELC award in the same year."
Do the Right Thing
In a company as big and diverse as GE, Immelt, who calls Conaty the "first friend," and Welch give kudos to Conaty for making sure they have (or had) the information necessary to lead. His open and candid relationships with the corporation's senior executives allow him to make sure important information gets passed along, without burning his colleagues.
Some HR leaders, Welch says, "kiss up and kick down." Conaty does the opposite, he says.
"Executives trust him to confide in him about their concerns about their boss or their careers," Welch says, "and the unions trust him. He's gotten a settlement in every single [union] negotiation. . . . He's not a guy who meets them every three years. He meets with them constantly."
In GE's national labor negotiations last year involving 25,000 workers in 14 different unions, Conaty -- who says GE benefits by having "exceptionally good, strong labor leaders" -- was able to negotiate a four-year deal, something few media observers predicted after a two-day off-cycle strike in January was held to protest anticipated health-insurance cost hikes. That was the first labor action against GE in more than 30 years.
"We faced reality," Conaty says of the negotiations that culminated in July. "We didn't get too greedy on the health-care cost-sharing, although everyone is paying more . . . ."
The cost hikes were skewed, he says, so workers who earn higher salaries pay more. At the same time, the company enhanced its pension program and offered an "equitable wage package" plus "as soft a landing as we can," including retraining, education and early-retirement programs, for workers hurt by possible restructuring.
"This is a tough time to be either a union leader or an HR leader in this kind of an [economic and political] environment because we all face these kinds of issues," he says.
One of the things Conaty does so well in union negotiations, says Donovan, is shift the discussion from a new business strategy to the effects on the workforce of such a strategy. "That allows the business to be competitive, to restructure as necessary to meet the competitive needs of the enterprise . . . ."
Conaty is "incredibly fair" in negotiations and with employees in general, says Chini. He always weighs the employee perspective on every issue, always has a "strong communication plan" so they understand the issues and always makes sure HR professionals in the company remember that HR is, after all, the "last stop for a lot of employees," says Chini.
"I have never hesitated in my career," he says, "doing the right thing for the employee and it's driven by people like Bill and for that matter, people like Jack and people like Jeff. . . . You never have to be fearful of doing the right thing."
Among Conaty's accomplishments are GE's executive-compensation program and corporate-governance standards, which have won the company high praise from the media, HR experts and advocates of stricter standards.
Under Conaty's leadership, GE set specific goals on the amount of GE stock each senior officer must hold (six times base salary for the CEO, five times base for vice chairmen and four times base for senior officers such as Conaty).
It also removed stock options and restricted stock from Immelt's compensation, using instead performance-share units that vest in five years and are tied to internal and external financial metrics -- if GE's total shareholder return meets or exceeds that of the S&P 500 and if the corporation's average annual operating cash-flow growth over the vesting period exceeds 10 percent.
Stock options, though less attractive because of the relatively flat market, remain a valued part of GE's compensation, Conaty says, but top executives cannot exercise options or receive premiums until one year from the vesting date.
"We have tried to be leading-edge when it comes to governance and transparency," Conaty says.
That includes early adoption of Sarbanes-Oxley requirements, independence of 11 of GE's 17 board directors, meetings of nonemployee directors without management at least three times a year and visits by each GE director to two GE businesses a year without corporate management.
A Leading Role
Conaty is "one of the most highly respected HR people in the country by his peers," says Jeff McGuiness, president of the HR Policy Association, a nonprofit organization of more than 200 senior HR leaders that has taken a leading HR role since Conaty was selected chairman.
Even as he pushed to change the group's name itself, from the outdated Labor Policy Association, Conaty changed its agenda from focusing on compliance issues to proactively dealing with "issues that are of most direct concern to chief human resource officers," McGuiness says. As such, the organization has become more involved in congressional lobbying and stakes out positions on various legislative issues under discussion.
In addition, in an extremely ambitious effort, the organization has undertaken a health-care initiative striving to deal with the problem of uninsured working Americans. The three-prong effort, involving a coalition of Fortune 500 companies, involves the creation of an affordable solution; the benchmarking of regional hospital and physician care and claims data (for which GE's corporate health-care staff is helping define strategy); and a spotlight on the manufacture and cost of prescription drugs, including the impact of pharmacy-benefit managers' pricing.
As chairman of the prestigious National Academy of Human Resources, Conaty helped launch the Chief HR Officers Academy. The academy is a venue for new senior HR executives from global companies to meet with top CEOs who can fill them in on what CEOs are looking for in their HR leaders.
For Welch and Immelt, no other HR executive could do better than Conaty.
"I don't think there's another human resource leader in the world as good as he is," says Welch. "He has an incredible touch with every level in the organization, from the factory floor to the people who report to the CEO.
"He's trusted by everybody -- and he deserves it because he's earned it."
Says Immelt: "I just think he's what the great HR leaders are supposed to be about -- attracting and retaining, partnering and keeping the world's best people. He's the best I've ever seen.
"From the day I got this job, Bill's never once looked backwards. . . . He, as much as anybody I ever worked with, was totally able to make me feel from the very first day that he was there as a full partner.
"He's one of these guys that is 1,000 times smarter than he thinks he is or than he lets on. Unbelievable intuition. A special, special, special man."
As corporate, economic and political demands change, so, too, does Conaty's role. When the organization adopted the Six Sigma program, Conaty made sure thousands were trained, and that competency was evaluated, measured and rewarded. Six Sigma was tied into the HR review process and became a requirement for promotion.
As globalization took center stage, Conaty emphasized the importance of it by restructuring HR to create a global training program and including employees from global enterprises on his own HR staff.
In the past year, Conaty has had to integrate the two largest deals in GE's history: the $10 billion acquisition of Amersham, a British biomedical company, and the $14 billion purchase of Vivendi Universal Entertainment, which includes NBC, Universal Pictures and many other recognized entertainment brands.
Conaty worked with the businesses to formulate organizational structure, determine key leaders, create competitive executive compensation and benefits packages and ensure a smooth integration. At the same time, he worked on the divestiture of GE's insurance business, with the public offering of a new company, Gemworth Financial.
"I consider my real core competency and my value to the organization as being a human resource leader, but without having the business grounding, I don't think I would be an effective HR partner," Conaty says.
Being effective also means not locking yourself away in the C suite, he says, recalling an experience while house-hunting in Fairfield after being named to the top HR job.
When he came to corporate headquarters, he had always previously worked in factory environments, he says, and when house-hunting, kept asking the real estate agent, 'How far are we from the plant?' She kept asking, 'What plant?' until she realized he was talking about the corporate headquarters.
"So I told Jack that and he said, 'Never lose that thought.' His point being, 'Don't ever get yourself so caught up in this corporate aura that you don't remember where the factories are. Where the real work is being done. Where the revenue is. Where the income is coming from.'
"It's the way I do this job. I am way the hell more comfortable dealing with our business leaders who are out there slugging it out every day than I am sitting around in corporate meetings."