David Gelles wrote an article for the New York Times titled How Jack Welch’s Reign at G.E. Gave Us Elon Musk’s Twitter Feed (May 21, 2022).
« Almost immediately after Mr. Welch retired in September 2001 with a $417 million severance package, G.E. went into a tailspin from which it would never recover. His pupils, though, went on to run dozens of other major companies, including Home Depot, Albertson’s, Chrysler and Boeing. Most of them failed. And in the decades since Mr. Welch assumed power, the economy at large has come to resemble his skewed priorities. Wages stagnated and jobs moved overseas. C.E.O. pay went stratospheric and buybacks and dividends boomed. Factories closed and companies found ways to pay fewer taxes. »
« G.E., too, is still reckoning with Mr. Welch’s legacy. For two decades after he retired, a succession of C.E.O.s tried and failed to return the company to its former glory. Then last year, G.E. management admitted defeat and made an announcement — the company would be broken up for good. »
« G.E. was an industrial company when he took over — making most of its money selling appliances, light bulbs, power turbines and jet engines. By the time he retired, the company derived much of its profit from GE Capital, which was essentially a giant unregulated bank. Mr. Welch called it “the blob” — it was an amorphous, ever-changing collection of financial assets, capable of delivering whatever adjustments were most advantageous to the parent company in a moment’s notice. »
« The finance division became G.E.’s center of gravity, ultimately accounting for 40 percent of its revenue and 60 percent of its profit. »
« Mr. Welch was never called to account for this questionable financial engineering while he was C.E.O. But in 2009, G.E. announced that it had settled sweeping accounting fraud charges with the Securities and Exchange Commission that pointed to decades of impropriety. G.E. had been overstating profits in a bid to jack up its share price in the years after Mr. Welch retired, using myriad well-honed tactics to fudge the numbers, the S.E.C. said… This wasn’t a one-off anomaly, as the S.E.C. made clear. Distorting earnings was a well established practice inside the company. In its complaint, the S.E.C. took pains to note that G.E. met or beat analyst expectations every quarter from 1995 through 2004. The implication was unmistakable: When Mr. Welch was at the height of his powers, the same sort of deceptive tactics were being employed. »
« For a time in the early 2000s, five of the top 30 companies in the Dow Jones industrial average were run by men who had worked for Mr. Welch. “That’s why they got hired,” said William Conaty, G.E.’s longtime chief of human resources. “Because they had the playbook. They had the G.E. tool kit. And boards back then thought that was the answer.” »
« The Welch protégés who struck out on their own rarely fared well. At Home Depot, Albertson’s, Conseco, Stanley Works and many other companies, the same story seemed to repeat itself ad infinitum. A G.E. executive was named C.E.O. of another company. News of the appointment sent the stock of that company soaring. The incoming leaders were lavished with riches when they took their new jobs, signing multimillion-dollar contracts that ensured them a gilded retirement, no matter how well they performed. A period of job cuts usually ensued, and profits sometimes rose for a few quarters, or even a few years. But inevitably, morale cratered, the business wobbled, the stock price sank and the Welch disciple was sent packing. »
« “A lot of G.E. leaders were thought to be business geniuses,” said Bill George, the former C.E.O. of Medtronic. “But they were just cost cutters. And you can’t cost cut your way to prosperity.” »
« More than any company besides G.E., it was Boeing that was most directly shaped by Mr. Welch. Over the past 25 years, a succession of men who worked for Mr. Welch refashioned the airplane maker’s culture to resemble G.E.’s, transforming a company that once made a priority of aeronautical engineering into one that thrived on financial engineering… the flawed development of the 737 Max, which crashed twice in five months, killing 346 people. And while a number of factors contributed to those tragedies, they were ultimately the product of a corporate culture that cut corners in pursuit of short-term financial gains. »
David Gelles is author of The Man Who Broke Capitalism (May 2022).