If anyone embodied the “cult of the CEO” over the past century, it was Jack Welch, the head of General Electric from 1981 to 2001, “who took the company founded by Thomas Edison a century before and brutally transformed it into the biggest US company by market value”, says the Financial Times. In his pomp, Welch, who has died aged 84, was hailed as a business superstar.
He was nicknamed “Neutron Jack” – originally coined by Newsweek for his prowess at slashing jobs, says The Guardian. In his first ten years at the helm, Welch cut GE’s workforce by 170,000 – setting the trend for the “downsizing” that swept the business world on both sides of the Atlantic in the 1980s and 90s. Welch insisted the “pruning” was necessary. It was certainly good for shareholders. On Welch’s watch, total returns, including reinvested dividends, were roughly 4,800%, says Breakingviews. Revenues went from $26.8bn in 1980 to $130bn the year before he left.
Pugnacious from the start
Born in 1935, in Peabody, Massachusetts, Welch’s chief influence was his mother Grace, whom he credits with instilling the confidence that “there was no limit to his potential”, says the FT. Welch later wrote that many of his basic management beliefs could be traced back to her: notably, competing hard, facing reality and “motivating people by alternately hugging and kicking them”.
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Welch took a degree in engineering from the University of Massachusetts and joined GE’s plastics division aged 25. He rose quickly through the ranks – becoming GE’s youngest vice-president in 1972. Welch knew General Electric inside out, says The Guardian. And when he took the top job in 1981, he “set about transforming the sprawling, sleepy bureaucracy”. He had two guiding principles – pursue a small number of objectives with single-minded passion and build a high-quality management team.
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Welch was scathing about many of his European competitors. By contrast, “he had the utmost respect for Asian competitors” – and was impressed by the idea that the US’s high standard of living was at risk from emerging nations, says the FT. “Who says we deserve what we’ve got?” he would say. “These people are after our lives. We’ve got to work like dogs.” Yet his departure as CEO in 2001 “marked the high point of his – and arguably GE’s – reputation”. The conglomerate’s sprawling lending operations, which had once driven growth, “became a crippling liability” during the financial crisis. GE tapped emergency state funds to stay afloat.
The end of the cult
The chief lesson of Welch’s career, says Breakingviews, is that “defining an era isn’t always a good thing”. The flamboyant GE boss “helped forge the twin cults of the American CEO and shareholder value”. Both have come back to bite. “Partly thanks to Welch, CEOs are paid as if they can foresee everything without help. Perhaps shareholders are learning that sustained performance takes more nuance – and a village.”
After the financial crisis, Welch came to repudiate “the approach to capitalism with which he had become indelibly associated”, says the FT. “On the face of it, shareholder value is the dumbest idea in the world…[it should be] a result, not a strategy. Your main constituencies are your employees, your customers and your products.”
