When I studied business in the mid-90s, there was no company more revered than General Electric and no CEO more respected than Jack Welch.
For years, GE was honored as the most admired company in the world and was the most valuable by market cap.
Jack Welch was the idol corporate chieftain case-studied in every business school and emulated by aspiring “corporate leaders”. He pioneered “the GE Way”.
GE had an array of world leading businesses from aircraft engines, turbines, health care, NBC, Universal Studios, to refrigerators and light bulbs. GE Finance led in aircraft leasing and financing of capital goods produced by GE’s industrial units.
GE executives were widely courted as corporate superstars.
When Welch retired in 2001 and Jeff Immelt took over as CEO, several frontrunners to succeed Welch immediately were headhunted to run other major corporations – Robert Nardelli at Home Depot, Jim McNerney at 3M and then Boeing, David Cote at TRW and then Honeywell.
Welch, a.k.a. Neutron Jack, was a ruthless cost cutter and famously claimed for any business GE was in, it should be either No. 1 or No. 2 or get out.
He was the original Wall Street darling, laser-focused on quarterly earnings and stock price. Welch aggressively offshored and outsourced manufacturing overseas to reduce labor costs and taxes.
Most importantly, Welch prioritized GE Finance over the legacy industrial and consumer BUs and turned GE essentially into a financial company by the time of his retirement.
In its height, Welch and GE were lionized with books such as his own memoir Straight from the Gut and Robert Slater’s Jack Welch and the GE Way.
Fast forward to today, GE has become a footnote in American business and its stock price is lower than 2001 when Welch retired.
The company was broken apart into three separate businesses.
Few b-school students know anything about the company and if any case studies were done on the company, it is to show how the mighty have fallen.
In 2018, as the ultimate coup de grace, GE was ousted from the Dow Jones Index and replaced by Walgreen.
GE’s fall symbolizes the fall of industrial America and the rise of financial capitalism.
Welch famously quipped “GE is not in the business of making engines or light bulbs, it is in the business of making money”.
This has become the ethos of Wall Street and high street.......
General Electric’s 1953 annual report boasted that the firm’s “biggest payday ever” was the record sum it had paid for labor, because prosperity shared with workers was judged a source of national strength.
That made GE one of the most progressive and responsible corporate employers.
However, in the twenty years Jack Welch was the CEO, he eliminated more than 100,000 GE jobs, shuttered dozens of US factories, moved production abroad, and transformed the company from an industrial titan into a quasi-bank whose largest profit engine was the unregulated lending arm GE Capital.
For his trouble, Jack Welch received a severance pay of $417 million when he retired in 2001, reportedly the largest such payment in business history at the time.
Welsh supplied a playbook that hundreds of other corporations copied, helping to hollow out America’s industrial base and shift the economy’s center of gravity from the factory floor to the trading floor.
Welch turned GE into both the emblem and the engine of America’s transition from a society that built things to one that trades paper claims on the value others create.
The Welch era marked a hinge moment in US economic history: the moment when deindustrialization and financialization became conscious corporate strategy rather than unavoidable fate.
The ruins of that model—industrial ghost towns, a shrinking middle class, and an economy prone to financial crisis—are the enduring legacy of the man once hailed as “Manager of the Century.”
Another gift from Jack Welch to corporate America is short-termism, a.k.a. quarterly capitalism.
Since R&D and CAPEX take a long time to yield results, they are abandoned in favor of projects that generate returns in the next quarter.
If financial engineering boosts the P&L immediately, why bother with real engineering?
The philosophy is adopted in the political world as well. Why would any politician build a highspeed rail network if such an undertaking will take 2 decades? The cost will be upfront and the benefits only come much later.
Will any rational term-based politician make such long-term planning today? The US inter-state highway system was built between 1956 and 1992, nearly 4 decades. Would such long-term whole-of-nation endeavor be possible today?
