Jack Welch: How He Really 'Won'

Category: GE Commentary & Opinion
Source: Council in International and Public Affairs

Greed and Good: Understanding and Overcoming the Inequality That Limits Our Lives, by Sam Pizzigati (The Apex Press)

Council in International and Public Affairs (http://www.cipa-apex.org/ )

“Jack Welch: How to Win,” the cover of Newsweek's April 4 edition announced breathlessly. Inside, the Newsweek cover promised, readers would find an “exclusive excerpt” from the new book by America's “legendary CEO,” the now-retired chief executive at General Electric.

But readers who took the plunge inside would not quite find a step-by-step blueprint for corporate success. They would find instead an assortment of trite nostrums from Welch's latest book, Winning.

“Leaders,” read one, “have the courage to make unpopular decisions and gut calls.”

Newsweek, to be sure, is hardly the first media outlet to consider anything uttered by Jack Welch wisdom for the ages. Back in Welch's heyday, the 1990s, journalists were acclaiming his glory at every imaginable opportunity.

Indeed, noted one nationally syndicated columnist at the time, “you can hardly open a business magazine nowadays without seeing a salute to Jack Welch. The man’s a bloomin’ genius.”

Not just a genius. The “manager of the century,” or so Fortune tagged Welch in 1999. And who could better lay claim to that honor? Under Welch’s leadership, G.E., once a predictable appliance maker, had become the world’s largest nonbank financial corporation, with annual profits that no company anywhere could match — or even dream about matching.

In the face of such achievement, even crusty CEO critics paid homage.

“Jack Welch of General Electric made $75 million last year and he is a brilliant, brilliant chief executive,” CEO gadfly Graef Crystal told reporters in 2000. “You could make the case that if anyone deserves to be paid $75 million, it’s him.”

Actually, the General Electric board of directors came to believe, a mere $75 million couldn’t do Welch justice. The man needed a raise. He got it. In 2000, the G. E. board hiked Welch’s base salary by 20 percent, upped his bonus 27 percent, and awarded him almost $50 million worth of free shares of G.E. stock to “recognize his 20 years of outstanding service as chief executive.”

What brand of genius could be worth so much? America’s biggest book publishers felt America would pay to find out. In 2000, they staged a spirited bidding war for Welch’s memoirs. The eventual winner, Time Warner, offered Welch a $7.1 million advance, an unprecedented sum for nonfiction.

Welch’s book, published in 2001, went on to become a bestseller. But would-be captains of industry didn’t have to read Jack: Straight from the Gut — there's that “gut” word again — to learn the great man’s secrets. The “big ideas” behind Welch’s phenomenal success had already filtered through America’s corporate suites.

Welch’s most admired contribution to corporate wisdom? His competitiveness dictum. If you’re not competitive in a particular market, Welch famously advised, don’t compete.

Welch practiced what he preached. Early in his tenure as G.E. chief executive, he directed his managers to “sell off any division whose product was not among the top three in its U.S. market.” They did. G.E. would unload or shut down operations that impacted tens of thousands of workers.

Such moves kept G.E. focused, Welch explained, on the only bottom line that ought to matter, maximizing shareholder value. If General Electric could maximize that value by ditching plants, or shifting production offshore, so be it.

Welch played few favorites. He could be as ruthless with his white-collar help as his blue-collar factory workers. In fact, corporate human resources professionals consider Welch the “brains” behind what may be corporate America’s most brutal office personnel practice, the annual firing squad known as “forced rankings.”

At General Electric, under Welch, this approach to supervision forced managers to rank their professional employees, every year, by category. Each one had to be placed in the top 20 percent, the middle 70, or the bottom 10. The top got accolades. The bottom got fired.

“Not removing that bottom 10 percent,” Welch would tell G.E. shareholders, “is not only a management failure but false kindness as well.”

Jack Welch’s General Electric would have no room for “false kindness.” You were either competitively successful, as an employee or a division, or out. You had to deliver.

Except at the top. Jack Welch delivered nothing. He built nothing. He became the twentieth century’s most celebrated executive by identifying challenges — and running the other way. A G.E. division struggling to make a market impact? Dump it. An employee who isn’t putting up the numbers? Fire away.

Jack Welch did not turn marginal General Electric business operations into market leaders. He did not endeavor to transform weak staff into standouts. He, instead, surrounded himself with the already successful — already successful divisions, already successful employees — and rode their successes to his own personal glory.

We need to be fair here. Jack Welch did sometimes try to develop something new. In the late 1990s, for instance, at the height of corporate America’s Internet frenzy, Welch decided that G.E. needed to stake out a claim in cyberspace. General Electric, he told USA Today, has “got to have more ‘dot.coms.”

Welch set himself out to get those dot.coms. He poured cash into iVillage, Promotions.com, and a host of other cyber sites that promptly, within a matter of months, lost 90 percent of their value.

G.E.’s television network, NBC, also tried to launch an Internet portal. “NBCi” proved to be an even feebler entry into the portal sweepstakes than Go.com, an Internet turkey brought forth by another “legendary” CEO, Disney's Michael Eisner. The NBCi shares, worth $88.50 when they first started trading, ended at $2.19.

Several journalists had a field day ridiculing G.E.’s Internet fumbling.

“The NBCi story is a hoot and a half,” wrote one, Allan Sloan, in the Washington Post. “I can’t give you Jack Welch’s side of all this, because GE wouldn’t return my calls.”

Adopted from Greed and Good: Understanding and Overcoming the Inequality That Limits Our Lives, by Sam Pizzigati (The Apex Press). The complete Greed and Good text can be browsed online. For ongoing coverage of the issues around CEO pay excess — and other aspects of contemporary inequality — subscribe to the free Too Much online weekly.

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