How a top GE exec engineered himself out of a job

August 3, 2012, 1:03 PM UTC

John Krenicki

FORTUNE — When GE announced on July 20 that it was reorganizing its energy business, analysts weren’t particularly surprised. “Seemingly without fail, GE reshuffles its segment mix every 18 months or so,” Citigroup analysts wrote in a note to clients. “It is like clockwork.”

What threw industry watchers was the announcement that John Krenicki, 50, vice chairman and CEO of GE Energy, would depart the company. “The more curious element is that Krenicki will be leaving the firm, as opposed to moving around internally given his role in reshaping energy over the past several years,” wrote Daniel Holland in a Morningstar note. Barclays added in its report that, “The exit of a key leader near a cycle upturn will likely be questioned by many.”

Krenicki was one of the top five executives in the company, well-liked and respected within GE. The company declined to make Krenicki available, but as Fortune noted in its profile of the energy CEO last year, Krenicki’s business was driving GE’s refocus on its industrial roots. With energy a nearly $50 billion business for GE, Krenicki had set of a goal of hitting the $100 billion mark in a decade. (See John Krenicki powers up GE)

It was in part that ambition that led to the break up of Krenicki’s business into three units (power and water, oil and gas, and energy management), and his planned departure at the end of the year. In Fortune’s December profile, we wrote that GE had recently spent $11 billion on acquisitions in the energy business, including all of the $8 billion it gained selling part of its stake in NBCUniversal to Comcast (CMCSA). “With all the acquisitions, our energy business had become very big and complex,” said GE CEO Jeff Immelt on last week’s earnings call, adding that Krenicki’s business had reached a scale where it had turned into a company within a company.

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A source close to the decision said Krenicki presented the plan to Immelt after the two discussed the challenges that came with the energy operation’s size. Krenicki was offered other positions in the company but declined.

“Normally we get conspiracy theory calls when something like this happens,” says Barclays analyst Scott Davis. “This is one where literally every single story we’ve heard is very consistent: that he engineered himself out of the job.”

The three divisions will report directly to Immelt. Analysts say investors have cause for concern when GE combines divisions, not when it breaks units up to give them more visibility.

The strategy is consistent with what Krenicki told Fortune last year. He wanted his people to operate with a small business mindset, encourage fast decision making, and leave behind the trappings of a big company–all of which become increasingly harder the bigger the business.

Davis noted that Krenicki and John Rice, President and CEO of GE Global Growth and Operations, were viewed as immediate successors to Immelt if anything were to happen to him. Krenicki’s departure may signal that Immelt, who is more than a decade in as CEO, is deeply entrenched. “This is a clear changing of the guard in terms of who’s going to run the business units going forward at GE,” says Mark Livingston, partner at executive search firm Heidrick & Struggles. “It clearly opens the succession planning discussion.”

When asked last year if he desired the top spot, Krenicki told Fortune, “The answer to that question is I want Jeff [Immelt] to be successful at that job.”

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Immelt’s predecessor Jack Welch had a twenty-year tenure, leaving at his mandatory retirement age of 65. If Immelt, who is 56, stays for the same duration, Krenicki would be 59 by the time his boss retires. Krenicki would likely have aged out of the running at that point, as six years at the helm of a nearly $150 billion company doesn’t allow for much of a runway. It may have become increasingly clear that Immelt has no plans to go anywhere anytime soon, making it plain that Krenicki’s chances at the top job were slim.

Former GE executives have historically been in high demand and have gone on to run other Fortune 500 companies. Granted, it would be difficult for Krenicki to find an enterprise as big as the one he was running at GE. His energy unit’s revenue would have ranked in the 50s of the Fortune 500 if it were a standalone company.

Krenicki will have to wait for the end of his three-year non-compete, which will pay him a “monthly retirement allowance of approximately $89,000 until he reaches age 60,” according a recently filed 8-K. In January he’ll become a senior operating partner at private equity firm Clayton, Dubilier & Rice, where he’ll be in the company of Paul Pressler, former CEO of the Gap, A.G. Lafley, former CEO of Procter & Gamble, and Edward Liddy, one-time CEO of Allstate and interim CEO of AIG.

CD&R also has GE ties, with former GE CEO Jack Welch serving as senior advisor. William Conaty, who headed up human resources for GE and spent four decades with the company, is also an advisor to the firm.