What Jack Welch Got Wrong (Just About Everything)
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> In my new book, I explain what he got wrong.
It seems odd to accuse Welch of poor long-term results. The guy was CEO of GE for 20 years. To put this in context, that's longer than Google's entire post-IPO history. And during these 20 years, he grew GE by 30x, and outperformed the index 3.3x, despite GE already being a large blue-chip corporation when he took over. How many of the people interviewed by this author have a more successful long-term track record?
If you're judging Welch by metrics such as "compassion" and "empathy" and "humanity", you can argue that he got a ton wrong. By that same lens, you can also argue that people like Steve Jobs, Elon Musk, and Alex Ferguson were absolute failures. But if you're judging Welch as a businessmen, using the same metrics that most businessmen aspire to attain, it's downright silly to condescend to him.
You can get a lot of mileage from a loom if you burn it, so much heat! What will you even do with all that heat? And then you need to make more fabric. Too bad you burned your loom.
The finance division became GE's center of gravity, ultimately accounting for 40 percent of its revenue and 60 percent of its profit. With so much money coursing through the finance division, Welch used it to his advantage, shifting zeros throughout a sprawling international web of subsidiaries, and extracting whatever he needed to meet or beat analysts’ estimates for nearly 80 quarters in a row, an unprecedented run. It was what one influential analyst called 'earnings on demand.'
"There was very little transparency," said Beth Comstock, a longtime GE marketing executive. "GE had a financial army that was able to close the quarter the way we’d said we would."
And Welch pursued his quest to inflate GE's valuation with a gusher of share buybacks and dividends that fundamentally altered expectations about who is entitled to the riches of this land. After decades when corporations proudly talked about how much they were spending on payrolls, research and development, and even taxes, Welch made it clear that if companies wanted to succeed on Wall Street, they ought to put investors first.
The article explains this apparent contradiction. His sole objective was to increase share price at any cost, including derailing GE's core business and practicing all sorts of financial tricks. And the company collapsed after his exit, it is now worth less than before Welch took over. This is not what success looks like to me, even purely as a businessman.
Examples are companies like Amazon, Costco, or Walmart where the business model revolves around deepening the value proposition for customers through amortizing costs among greater customer numbers or aggregate buying power.
Insurance would be another example of this business model.
The institutional investors and funds managers profited massively. So much so that companies, such as IBM copied his playbook. It's strictly about making the 1% even richer and trampling over the 99%.
This is the American contribution to organizational dynamics.
Glad I became a "corporate America dropout" over 25 years ago.
This is the legacy that Jack Welch built.
Rather, he liquidated an American icon for short term profits.
Need a business version of strongtowns, although I suppose that’s a mix of orgs supporting b corps and employee owned enterprises.
I envy engineers and construction workers who build structures that last for decades, or centuries even, some physical permanence. Perhaps there is such a model to build and protect businesses instead of boom, exit, bust, regret, repeat.
Quality, value, longevity --- as opposed to maximum profit by any available means.
It is not possible to manage them in the same way as worker bees on a factory line.
Caveat being, if you have a programmer who is clearly not interested in dreaming or being an artisan, fire their fucking ass. That's like having a dj who doesnt want to pump up a crowd.