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Was GE CEO Jack Welch bad for business?  : NPR

Was GE CEO Jack Welch bad for business?  : NPR

Long before the reign of Elon Musk, Mark Zuckerberg and Jeff Bezos, there was Jack Welch.

Welch, who led the General Electric Company from 1981 to 2001, is often considered the first famous CEO, a businessman who wooed investors and mingled with celebrities.

“[Welch’s] the face was on the cover of the magazines all the time”, New York Times says correspondent David Gelles. “He emerged as a sort of imperial framework and helped define what I think is still with us today in the form of a certain CEO cult.”

In his book, The man who broke capitalismGelles argues that Welch’s ruthless cost-cutting and focus on quarterly profits ultimately hurt both GE and American capitalism.

“Neutron Jack”, as he became known, used to rank employees and automatically fire the bottom 10% every year; during Welch’s early years of leadership, he laid off more than 100,000 people in a series of mass layoffs and plant closings.

“Until now, people who had a job at a company like GE or IBM basically thought they had a job for life. But he explicitly said that notion was going to be a thing of the past under his leadership,” Gelles said. . said.

Many of the jobs cut by Welch were sent overseas: “We see the first big wave of labor, the American manufacturing workforce, going overseas, and so begins the real beginning of serious outsourcing which, of course, would decimate the U.S. manufacturing base,” Gelles said.

Welch made aggressive deals, including acquiring NBC in 1986, in an effort to expand GE’s influence. The moves initially supported the company’s stock price; in September 1993, GE became the most valuable company in the stock market.

But ultimately, Welch’s leadership didn’t lead to long-term benefits. In 2021, GE’s current chief executive announced that the company would split into three small, stand-alone businesses: one focused on jet engines, one on medical devices, and one on electrical equipment.

“It’s all that’s left of Jack Welch’s legacy,” says Gelles. “Far from being the most valuable company on Earth and a conglomerate that spanned the globe and all these different industries, GE is now going to be essentially sliced ​​into three separate pieces – and that’s the end of the story. .”

Interview Highlights

On GE’s role in the US economy before Welch took over

Digging into the history of GE, I found it difficult to overstate not only the impact GE still had in 1981 when Jack took over, but really its role in the history of American industry during the most of the century before that. It’s the company that brought us light bulbs, power stations, x-ray machines. It’s the company that introduced everyday products like the toaster oven. They were at the origin of the massive commercialization of radios and television sets, of dishwashers. The list has only grown longer. …

When you looked at their influence on industry and government beyond what we might find in our kitchens, they were no less influential there as well. It was GE that helped put men on the moon during the Apollo missions. You go back and look at these pictures and there are lines and lines of GE engineers working side by side with NASA engineers. And until today, the size of that company has become, at one point, I think, something close to 1% of US GDP. And there was a line, “As GE goes, so does the US economy.” …

Was GE CEO Jack Welch bad for business?  : NPR

David Gelles is correspondent for the climate office of The New York Times.

Simon & Schuster

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Simon & Schuster

Was GE CEO Jack Welch bad for business?  : NPR

David Gelles is correspondent for the climate office of The New York Times.

Simon & Schuster

Big corporations back then – and GE is a perfect example – were proud of the way they distributed their profits extravagantly among employees, their supply chains and even the government. It was a 1953 GE annual report that I quote in the book, where they brag about how much they pay in wages to their workers and how much they pay in taxes to the government. Needless to say, this is very different from how many businesses operate today.

On Welch’s past

He was impulsive, somewhat aggressive, restless, ambitious, impatient. He was raised primarily by his mother, who was a devout Catholic. One amazing anecdote I found is that she taught him to gamble at an early age, having him gamble his own money to learn, in a visceral sense, what it meant to win and lose. But he was also deeply involved in the faith. He was an altar boy.

There were mood swings from an early age. There’s an anecdote… where he talks about caddying at a local golf course. And the man he was accompanying asked him to fetch a bullet that had gone into the water. And instead, he throws the man’s golf clubs into the water and walks off the course. So you see mood swings. And it continues until his early days at GE, when, as a young associate, his first year at the company, he decides to quit because he learns that his colleagues got the same raise as him and that he thought he was doing better. . So he said he would leave the company, and it was only after his boss promised to give him an even bigger raise that he agreed to stay.

On Welch’s practice of ranking employees and firing the bottom 10%

He had a euphemistic name for this practice. He called it the “vitality curve”, but it was known internally and more widely to the public as stack ranking or even more sharply “rank and snap”. And the idea is this: managers, he said, had to classify their employees. 20% get an A grade, 70% get a B grade, and 10% get a C grade. And if you’re in that 10%, you’re no longer with the company.

He did this for 20 years at GE, which resulted in thousands and thousands of layoffs. And it became, because he was so influential, dogma in American business. When Steve Ballmer took over Microsoft, he set up the stack ranking and it caused a big stir in Microsoft’s ranks. And even more recently, Adam Neumann, the founder of WeWork, was using the stack ranking because WeWork was growing so rapidly, even though that company had billions and billions of dollars in funding, he saw the need to lay off 10% of its employees every day. year because Jack made it.

On Welch’s unflattering nickname “Neutron Jack”

He hated the name “Neutron Jack”, even though he could never get rid of it. Even when he died in 2020, President Trump tweeted at him. He said “There was no business leader like Neutron Jack”, so that label stuck with him for his entire life. What was so remarkable, however, was that despite the negative press he got in those early years, he was able to continue his work because GE’s board, and eventually Wall Street, and eventually the rest of corporate America saw that what he was doing was working, for better or worse, in the short term. These strategies that he employed were indeed bringing him short-term profits. Suddenly other CEOs saw that, hey, yeah, if we cut our labor costs quickly, we could potentially see a significant increase in earnings per share for the next quarter on Wall Street. And so there was this incentive system that encouraged other CEOs to start following his lead. And what’s so remarkable is that even after those early years of pretty withered press, he’s able to survive and eventually become revered as the absolute model CEO, to the point that Fortune magazine at the end of his career, called him “the manager of the century”.

On Welch’s impact on GE employees

During his time at GE, many GE workers benefited from the men and women of the company who invested in GE stock, they could see their fortunes increase with that of Welch and the company. But again, it depends on the time horizon we are looking at. If we just look at the years he ran the company and what he did and who benefited at that time, you can argue that of course he was good for at least the workers at GE who were not laid off under the punch or under its downsizing or offshoring or outsourcing.

But fast forward and watch what happens to these retirees. Watch what happens to the men and women who own GE stock as it plummets in the years after he leaves. Because when he leaves, all of these flaws are fundamentally exposed and Wall Street begins to see through the charade. His reputation with the workers was therefore complex. I think for some GE workers, they enjoyed the benefits. But even in the 90s, when Jack was rising high, it was becoming increasingly clear among the unions, among the union leaders, that Jack had led a charge in the early 80s that still resonated with them and ultimately helped to erode union membership. in this country to record low levels today.

On General Electric today

From the most valuable company in the world, GE has fallen to the point where it is no longer relevant in the US economy. In 2018, with all of Welch’s bad decisions catching up with the company, GE was removed from the Dow Jones Industrial Average, the bluest of the blue chip indices and a true indicator of the US economy. GE had been one of the very first companies included in the index, and it was ultimately the last of that original group to be removed, but its departure from the Dow Jones was that truly symbolic moment that finally opened the way to the news that happened last time. year, which was the fact that GE is finally parting ways once and for all.

Sam Briger and Joel Wolfram produced and edited this interview for broadcast. Bridget Bentz, Molly Seavy-Nesper and Natalie Escobar adapted it for the web.


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