Sunday, March 8, 2020

Good and dead: he made GE what it is today

The obituary page of The Massachusetts Spy

By Luke Reschuss
Obituary Editor

Corporate CEO extraordinaire and legendary executive Jack Welch died this week at 84, and as you might imagine there was an outpouring of encomia for the former all-powerful head of General Electric, which under his leadership grew to become a global conglomerate with world-class manufacturing, entertainment, and financial operations.  Here's a representative sample from The Washington Post:

Welch knew that he who counts the beans keeps them
Like the former president, the former CEO is one of the people responsible for the way we live now.

I do not mean that as a compliment in any way.

Welch popularized the concept known as “shareholder value,” the idea that the primary duty of a company’s management is to increase its stock price for the benefit of shareholders. In pursuit of this goal, he bought and sold companies, shedding huge numbers of employees along the way. GE’s share prices soared. For this, Welch was celebrated: imitated by competitors and lionized by the fawning business press.
Never mind the fact Welch routinely closed GE’s Rust Belt factories and moved the jobs to Third World locales, where workers labored for less — much, much less — than the former GE employees. Never mind the fact that he cut funding for research and development, something that can undermine a company’s long-term health. And never mind the fact that the humane postwar arrangement between corporations and their employees — give us your loyalty and we’ll take care of you as best we can — ended in part because of Welch. He made money for shareholders, and that was the important thing.
Wait, what?

Well, that must have been a cranky outlier.  Here's veteran business journalist Joe Nocera: “ I know we’re not supposed to speak ill of the dead, but his effect on American capitalism was too profound — and too destructive — to go unmentioned.”

Did we just walk into a Sanders rally or what?  Are we talking about the corporate titan and management genius who was lionized by the press throughout and after his reign as General Electric CEO?  (Of course, the fact that for most of that time, he controlled a vast news operation including a business news channel, had absolutely nothing to do with his fawning press coverage.)

And the minute that he's no longer in a position to grant favors or shower money and fame on ink-stained wretches it turns out he was in fact a terrible manager and a miserable human being, whose ego- and wallet-aggrandizing effort to hype GE's stock price led to the collapse of what was once one of the world's most admired corporations, which it turn lead to destruction of hundreds of billions of dollars of shareholder value?

Apparently so, said Helene Olen in the Post (link supra):

Welch, like many a corporate honcho, believed in accountability for everyone but himself. When it came to his perceived needs, cost was not a concern. His compensation was outsize — he earned millions and millions of dollars annually. (In 1997, he earned 1,400 times more than the typical American factory worker). The pattern continued even after he exited GE: It came out during his 2002 divorce that the company had continued to pay for everything in his life, from his use of the corporate jet to meals at four-star New York restaurant Jean Georges. GE even settled the bill for the flowers in his apartment.

By the time Welch exited his position in 2001, GE earned a large chunk of its profits not from its traditional industrial strengths but as a financial services company. This turned out to be a major cause of the company’s undoing — it all but blew up in 2008, and Welch’s successors are still trying to put the company back together again. A share of GE is worth an astonishing 80 percent less than it was valued 20 years ago. So much for shareholder value. 

Let's see here, if you worked at GE for decades and put your pension money in GE stock, your $1 million is now worth $200,000 (although there were some dividends along the way).  So that's why you're filling Suzy Wetlaufer Welch's latte order in your declining years.

And it turns out he hyped GE's stock price the old-fashioned Wall Street way: by engaging in risky financial finagling and leaving it to his successors to pick up the pieces:

Welch turned GE Capital, which had formerly been used to underwrite consumer loans for refrigerators and other GE appliances, into a black box from which Welch could extract whatever profit he needed to make his quarterly numbers. What’s worse, GE Capital began making the same kind of risky loans as the rest of Wall Street — loans that got the company into trouble when the financial crisis arrived. Luckily for Welch, he was long gone by then. His successor, Jeffrey Immelt, took the blame for essentially following Welch’s lead.

Nice work if you could get it, and the rewards were commensurate, including a severance package worth a mere $417,000,000.

So he was nothing more than a filthy philadering financial finagler.  You'd never have known from the reverence he enjoyed in his own lifetime, where he was regarded as a prophet, if not a saint, of greed:

 In 1999, Fortune magazine, itself destined to fade into irrelevance, named him Manager of the Century nine years before GE imploded in the financial crisis.  He was also known, apparently with the respect due a Corleone, as Neutron Jack for the jobs he terminated and lives he destroyed (not to mention the incalculable damage done to future generations by his dumping of toxic PCB's in the Hudson River.)

As a result, here's how he was regarded as recently as last summer by a representative cross-section of America gathered at the Nantucket Golf Club:

Jack was treated like royalty at the club . . . . Throughout our last lunch, other boldface names, who also were club members, came by to pay their respects to one of the greatest chief executives in the history of American business. The same thing had happened a year earlier during my first visit with Jack — also at the Nantucket Golf Club — when no less a cast of characters than Phil Mickelson, the golf star, and Bob Diamond, the former chief executive of Barclays, as well as a few private-equity moguls, came by to say hello to him.

Jack, who died on Sunday, at the age of 84, loved the attention. He beamed. After all, in this crowd, among many others, he was revered. In 1981, he had taken over a company with a market capitalization of $14 billion, and in 20 years turned it into the most valuable company on the planet, with a market valuation of more than $410 billion. Welch’s General Electric was Google, Apple and Microsoft rolled into one massively valuable and admired company. 

He made Pittsfield what it is today: a polluted ruin.
The market valuation of General Electric at the close of business on March 5, 2020, by the way, was just over $82 billion.

And don't forget his legendary management acumen.  Who can forget the six sigma creed that he imposed on GE?  Everyone, these days:  Twenty years ago it was considered business genius.  Jack Donaghy swore by it.  And now:

Reports indicate that Six Sigma may be obsolete or worse. A QualPro study found that over 80 percent of large companies using Six Sigma trailed the S&P 500 since implementing it. 

Just like GE itself.

Or Jack's brilliant insight that you identify your best performers and s**tcan your worst?  Genius!  A lesser executive might try to figure out why those folks were underperforming (perhaps from ingesting too many PCB's) and try to help them get better, but not Business Genius Jack.  Also a true business genius would have recognized the outsized risks GE Capital was taking on to meet his earnings targets and controlled it.

So why was Jack so venerated by his fellow plutocratsSimple: he was the exemplar of the cutthroat vicious bullying CEO who sucked hundreds of millions out of his company and persuaded his supine directors that he deserved it.  He was the role model for every rapacious narcissist who blighted an executive suite since.

No wonder they loved him.

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