September 5, 2001
Marketplace
Why Jack Welch's Leadership
Matters to Businesses World-Wide
By MATT MURRAY
Staff Reporter of THE WALL STREET JOURNAL
John F. Welch Jr. leaves General Electric Co. this Friday after 41 years, half
of them spent as chairman and chief executive. But his long shadow will
linger.
Over two decades, the 65-year-old Mr. Welch
remolded the enormous conglomerate in his own
impatient, aggressive and alternately charming
and overbearing image. He hand-picked and
tutored the team officially taking over this week.
He pressured GE workers in plants and offices
around the globe to drive themselves to meet
ever-more-demanding efficiency standards, as
writ in the gospel according to Welch.
And his influence doesn't end at GE. Welch
progeny currently head more than a dozen U.S.
companies. Hundreds more hold senior corporate
posts. Workers who have never been near GE
are familiar with Welch catch phrases like "fix,
close or sell" and Welch-style employee ranking
systems. In Japan, he is almost a folk hero. His
forthcoming book and plan to stay active by
advising CEOs will keep his name in the public realm.
Of course, the Welch era ends on a less than stunning note. His intended coup
de grace, the proposed $45 billion acquisition of Honeywell International Inc.,
collapsed this summer amid opposition from European regulators. Mr. Welch
failed to persuade the officials that the deal wasn't anticompetitive, a rare
defeat for an executive who prides himself on being a skilled negotiator.
GE has taken other hits this year, too. None galls Mr. Welch more than the
decision of a White House administration he backed to force GE to pay
hundreds of millions of dollars to dredge portions of the Hudson River in New
York, where it dumped polychlorinated biphenyls, or PCBs, before they were
banned in 1977. Mr. Welch fought such a step for his entire tenure.
Still, Mr. Welch says, the biggest surprise of
being CEO for him was "how much fun it is.
You get a chance to do everything, you get all
these resources, you get great people, you get
to try out a lot of ideas. You can go to bat, take
swings, try things, see people you think are
potential stars and move them quickly. Life is
pretty damn good."
Why is Mr. Welch viewed as an icon? He
wasn't, after all, an inventor like Henry Ford, or
even an entrepreneur like Microsoft Corp.'s Bill
Gates or Sam Walton, founder of Wal-Mart
Stores Inc. It's sometimes forgotten that the
company he took over on April 1, 1981, already
had a 100-year history of management and
technological innovation dating back to Thomas Edison.
Mr. Welch's immediate predecessor, a lean, deliberate Englishman named
Reg Jones, had been among the nation's most-admired CEOs and twice was
asked to join President Jimmy Carter's cabinet. Over the previous five years
of inflation and recession, oil-price increases and a flat stock market, GE's
earnings had grown nearly 63%, on sales growth of 59%.
But Mr. Welch brought a charisma and manic drive different from his
predecessors. Where the ideal GE manager had been polite, slightly distant
and focused on process, Mr. Welch, a chemical engineer who had never
worked outside GE, had a reputation as a pushy hothead who rubbed some the
wrong way but prodded his team to new heights. He insisted that a
life-or-death global marketplace was about to ambush GE and the rest of
American business, and that a complete overhaul of stodgy U.S. corporations
was needed to meet it.
"Jack was an enemy of the bureaucracy," says Walter Wriston, the former
Citicorp leader who sat on GE's board for 31 years until the late 1980s. "He
had an IQ that's way off the chart and was extremely impatient with things
that didn't move very rapidly. A lot of us thought that's exactly what the
company needed."
As head of a large old-line company, Mr. Welch had a lab to test his ideas. As
much as any business figure of his era, he was an architect of the reshaped
industrial landscape of today and its business ethos of constant cost-cutting,
global growth and an emphasis on shareholder returns.
With an intense focus on the bottom line, Mr. Welch spent his early years
emphasizing a few simple but influential precepts, starting with his
now-famous dictum that GE should be No. 1 or No. 2 in all businesses or get
out of them. He dumped those with low-growth prospects, like GE's
name-brand clocks, TVs and toaster ovens, while expanding financial-service
provider GE Capital into a powerhouse and entering broadcasting with the
$6.5 billion purchase in 1986 of RCA Corp., owner of the NBC TV network.
He became a deal-making machine, overseeing 993 acquisitions with a total
value of just over $130 billion, while selling 408 businesses for a total of about
$10.6 billion.
Most famously, he shed more than 100,000 jobs during the 1980s -- a fourth of
GE's work force -- through mass layoffs, divestitures and forced retirements.
Tens of thousands of other high-paying manufacturing jobs were moved to
cheaper, union-free locales overseas as GE embarked on a global expansion
spree that is still going on. Under heavy fire from unions and many longtime
GE veterans, Mr. Welch gained a reputation as a bully, which he sort of liked,
and the nickname "Neutron Jack," which he has always hated but has never
quite been able to shake.
His targets were GE's layers of middle managers. Storming about the
company, Mr. Welch repeatedly scolded them to forget their lengthy memos
and thick planning books, lecturing, "I don't want planning. I want plans."
Those who didn't get with the program often got bounced.
Climbing the GE ladder, Mr. Welch "was a guerrilla fighter," says Bob Wright,
a GE vice chairman, head of NBC and a close friend. "He was always
personally vulnerable, never asked for any job security, never had a contract
or employment agreement of any type." As CEO, he says, Mr. Welch "was
either going to rescue the bureaucrats from their own fate or he was going to
get rid of them because he couldn't figure out why they would be in that
situation."
In all, GE's employment dropped from 402,000 at the end of 1980 to as low as
220,000 in the mid-1990s. It is back up to 314,000 today, mostly because of
acquisitions.
At the top levels of business, many managers praised the Welch approach as
liberating. "I still remember him coming to Louisville, and saying, 'Lemme tell
you how I'm going to get rid of all this bureaucracy,' " says Bruce Albertson,
formerly an executive at GE Appliances in Louisville, Ky. "Everyone was
sitting there saying, 'Yeah, right.' But he ripped the bureaucracy right out of
the middle of that company. All that churn we used to do, preparing internal
charts for people who gave them to someone else who gave them to someone
else who gave them to Jack, did go away."
Yet the upheaval, then unprecedented for a successful company, upended
thousands of lives and severely strained the bonds between GE and its
workers in Rust Belt towns like Schenectady, N.Y., and Lynn, Mass., where
the company had deep roots. Both inside and outside GE, restructuring and
layoffs became an accepted part of a manager's tool kit and a constant worry
for workers.
"It became a lot more intense," recalls Richard Robinson, a former technical
worker in the engineering department of a GE plant in Salem, Va., that makes
industrial drives. His unit, admittedly a struggling performer, set aggressive
goals every year, he says, "and we would meet and beat those goals, but it
was never good enough. It was always, 'We could have done more.' We felt
the philosophy at General Electric was that they could replace us in a
heartbeat." Mr. Robinson was laid off in 1997, recalled a few months later,
then cut for good in 1998 after 29 years with the company.
Mr. Welch's view is that he took the necessary steps to protect GE and thus
the majority of its workers. Layoffs and anxiety "happen when businesses
aren't strong enough. Winning models provide job security," he argues. "The
idea that you can sit around and have this benevolent institution ... they don't
survive. Look at the dot-coms."
Mr. Welch also oversaw his share of scandals, from the company's 1985
guilty plea to submitting time cards for too much overtime on government
contracts to the 1994 bond-trading scandal at its former Kidder Peabody &
Co. investment-banking unit.
But even critics concede Mr. Welch powerfully increased GE's financial
might. The company's 2000 earnings of $12.7 billion were more than eight
times the $1.5 billion profit it reported in 1980. Revenue has more than
quintupled to $129.9 billion. Through last Friday, GE shares had risen about
5,096%, inclusive of dividends, since the day Mr. Welch took over, according
to Ned Davis Research Inc., or about 21.3% a year. The S&P 500 increased
1,433% over the same period, or about 14.3% a year, also inclusive of
dividends.
Certainly Mr. Welch benefited from one of the biggest business booms ever
seen, not to mention a soaring stock market that lifted most boats. (He also
benefited personally, last year alone receiving compensation of more than
$120 million.) But in addition, he steered GE through a tumultuous era of rapid
business and technological change in which many other old-line companies,
from once-mighty AT&T Corp. to perennial GE rival Westinghouse Corp.,
stumbled badly. In Mr. Welch's first year, GE was the nation's seventh-largest
company, with a market capitalization of $13 billion. Today it is No. 1, its
market capitalization at about $400 billion.
With his controversial methods and outspokenness, Mr. Welch also won
prominence at a time when businessmen morphed into celebrities. Where GE
executives formerly cultivated a cool, slightly distant manner, Mr. Welch, a
former high-school hockey captain from a working-class family in Salem,
Mass., is a combustible mix of restlessness, bluntness and emotional volatility.
With a warm public manner and lack of pretense, he usually insists that people
call him "Jack," and manages to remember the first names of thousands of
employees and shareholders. At 5-foot-8, shorter than many peers, and with a
heavy New England accent and a stammer he has fought since childhood, he
at times even seems vulnerable.
Kevin Sharer, a former GE executive who is now chairman and CEO of
Amgen Inc., remembers being summoned with his immediate boss to Mr.
Welch's office one Friday afternoon a few months after he started. "He
poured us a cocktail and told me how happy he was that I was there, and that
really was powerful," recalls Mr. Sharer.
He also possesses a macho, locker-room sense of competition, a love of
argument and a sarcastic, teasing humor that at times cuts too deep. An
admitted workaholic who loved putting in days of 12 hours or more and
dragging home binders of stuff to read at night, he demanded the same
commitment from others. When angry, he could lash out with lacerating,
personal diatribes that sometimes left shamed managers hurt and speechless.
Coloring his encounters were a quick, keen intelligence and intensity that
could
seem both appealing and, at times, frightening. "Even when he has fun, he's
driving himself," said Paolo Fresco, chairman of Italian automotive giant Fiat
SpA and a former GE vice chairman, in an interview last year. "He won't give
up till he has won, whatever he does."
In recent years, Mr. Welch focused much of his time on management systems
and developing talent to make GE, as he put it, into a "learning organization."
He was often suspicious of the "soft stuff" of management, including some of
the programs with which he is now associated. He doubted the quality
movement for a long time and accepted the Six Sigma efficiency plan, which
GE now touts, only after executives imported it while he was recovering from
bypass surgery in 1995. Similarly, Mr. Welch was long something of a
technophobe, and embraced GE's recent effort to move functions to the Web
only after years of pleas from some managers.
But once he made up his mind, he showed an undeniable talent for driving
change throughout the company, thanks to his communication skills and a
reorganization that had greatly increased the CEO's power. He sought to
replace the fierce "Neutron Jack" image of the 1980s with that of the
sweater-clad elder statesman of GE's Crotonville, N.Y., management-training
center. He regularly preached "differentiation," his system of rewarding great
managers and weeding out bad ones. To the end, Mr. Welch kept his hands
tightly on financial targets and performance reviews, and made the final
decisions on all options grants to workers and large acquisitions. He kept close
tabs on his 600 top managers and frequently challenged them with information
picked up through his own network of workers and customers.
It is as a manager that Mr. Welch would most like to be remembered. He
would like to think his contribution to management was the notion "that every
mind counts," he says. "You work like hell in an organization to be sure you
put the mechanisms in to raise the intellectual level of the organization by
taking everyone's ideas, constantly searching the world for the best ideas and
making sure everyone knows their ideas count."
Did he do that? "You should measure my success eventually by how well GE
does in the next five years," he says. "If I did my job right, they won't be
saying it was a one-man show."
Passing the Baton at GE
1. 1981: Welch takes office on April 1. Later that year he unveils his 'No. 1 or
No. 2' strategy to
tepid response and starts shaking up the company's portfolio.
2. 1982: 2. A round of layoffs begins. GE is criticized on '60 Minutes.'
3. 1983: GE sells its housewares division to Black & Decker for $300 million.
4. 1984: Fortune magazine dubs Welch the 'toughest boss in America,' which
stings him. GE
sells Utah International for $2.4 billion.
5. 1985: In the first of several scandals under Welch, GE pleads guilty to
improper time-card
charges on a defense contract. In December, GE announces it will buy RCA,
owner of NBC,
for $6.4 billion. Talk-show host David Letterman tags his new bosses
'knuckleheads.'
6. 1986: GE acquires 80% of Kidder, Peabody & Co. for $602 million. It also
provides the lights
for the rededication of the Statue of Liberty.
7. 1989: GE unveils 'Work-Out,' Welch's first big management initiative, and
begins employee
meetings to find ways to eliminate needless tasks. Welch marries investment
lawyer Jane
Beasley.
8. 1991: GE passes IBM as the nation's most valued corporation.
9. 1994: GE pays $69 million in fines to the Justice Department and pleads
guilty to four felonies
after Israeli Air Force general Rami Dotan allegedly colludes with an
employee at GE Aircraft
Engines to divert $30 million of U.S. government funds into personal accounts.
Joseph Jett, a
trader at Kidder, Peabody & Co., is accused of booking $350 million in
phantom profit from fake
trades. GE takes a $1.2 billion loss and sells its Kidder stake to PaineWebber
Group for a 25%
stake. (GE made $1.4 billion when Swiss bank UBS AG bought PaineWebber
in 2000).
10. May 1995: Welch undergoes quintuple-bypass surgery. GE adopts Six
Sigma quality
control effort.
11. 1997: GE's market capitalization surges past $200 billion.
12. January 1999: Welch launches e-commerce blitz, encouraging GE units to
set up new
'destroy your business' projects to identify opportunities.
13. 2000: Welch, who turned 65 in November, names his successor, Jeffrey
Immelt. GE
announces $45 billion deal for Honeywell.
14. 2001: Honeywell deal collapses. Welch retires.
September 5, 2001
Marketplace
Conversation With Jack Welch
Following is an edited conversation with Jack Welch, on the eve of his
retirement from General Electric and the appearance of his upcoming
book on management:
Question: What do you think your greatest success as CEO was?
Answer: It's not for me to say. I think the best thing you can say about GE
during this period is just factual: That it became the most valuable company in
the world, the most admired for a number of years, grew earnings all the time,
engaged people like no other institution ever has. Everybody got involved. We
made it together, a whole gang of people, into a very informal company.
Shareholder value was never the thing. It became called that afterwards.
What we were talking about was that only successful companies can be good
citizens. The idea that you can sit around and have this benevolent institution
... They don't survive. Look at the dot-coms. All you do go is back the last 12
months. If you're not successful with competitive products serving global
markets fast, you don't make it. That's what it's all about and we were saying
it when no one was saying it. And in doing so it was all about creating great
jobs and a healthy company.
I think the idea that we had the market at our back ... The economy was all
over the place. The market provided wind in our sails, but it did for anybody
who performed. But the market didn't do anything for those who didn't
perform. The economy of the 80s was up and down.
Q: How do you fit the Jack Welch era in with the previous history of GE
and management?
A: (Former CEO) Ralph Cordiner decentralized the company. That was a
major structural change. Fred Borch started a whole series of ventures,
nuclear power, computers, aircraft engines. Reg Jones consolidated. And put
a lot of controls in around the ventures, sold the computer business,
consolidated things. I focused more on the organization and the people and the
delayering and the liberation. I wanted to liberate the company. I talked about
that in the first speech, I talk about it my book.
I don't think it's personality. This isn't a one-person thing. It's an informal
company. Anyone feels they can say anything. That's a big deal.
Q: What do you think your overall contribution to management was?
A: I hope it is that every mind counts and you work like hell in an organization
to be sure you put the mechanisms in to raise the intellectual level of the
organization by taking everyone's ideas, constantly searching the world for the
best ideas. And everyone knows their ideas count. They count and their ideas
count, and they know only satisfied customers can create job security. Job
security does not come from companies. Thousands of people were laid off
because the dot-coms didn't satisfy customers. The massive layoffs, the
hundreds of thousands of people out on the streets because there weren't
satisfied customers.
You guys (in the press) have missed the boat on
this. It's when customers aren't satisfied, when
companies aren't competitive, when the business model isn't providing value.
It's not about mean managers or any subject like that, it's not about the pursuit
of profits. It's all that works.
Q: What do you think about the Neutron Jack tag you were given in the
1980s?
A: It's such a stupid, stupid, stupid idea. What about Neuton Dot-Com XYZ?
I think the whole concept is so dumb, by a bunch of kids with pencils and
papers who write stories. You're missing the whole point. Only competitive
enterprises with satisfied customers and winning models provide job security.
Q: Many others went on to restructure as you did, while GE thrived in
the 1990s. In hindsight, do you feel some vindication?
A: It isn't vindication. These aren't the things you feel. You feel proud of the
company's performance and people. You don't feel, 'Ha! Neutron was
wrong.' That isn't something you feel.
Q: At what point did you realize you really knew the job and were good
at it?
A: I was always learning, but I got more confidence naturally, as things went
along and I tried things and they worked. I was more confident in Brussels in
the spring of this year (to negotiate with regulators over the proposed
acquisition of Honeywell International Inc.) than I was in the spring of last
year. Every year you gain more confidence. I was very comfortable knowing
that was not the right deal for our shareholders.
[The 1986 acquisition of] RCA was a big turning point, the rejuvenation of the
size, the size impact on the company, getting an network, doubling aerospace,
doubling semi-conductor business. That sort of kick-started us and got us
moving.
Q: Some people say that as a manager you actually were slow to
embrace some initiatives, like Six Sigma and digitization.
A: That's interesting. Quality for sure I was a skeptic about. I didn't feel any
great e-business push in the company. Quality came when we had a survey
and Larry (Bossidy, the former GE vice chairman and then-Honeywell CEO)
came and talked about his successes with it.
There's no question about that, that's why only had four to five major
initiatives. That's why each initiative had such passion and commitment. We
didn't have 50 of them.
Q: How did you drive change through the company?
A: You've got to buy the book. Everything in the GE operating systems fed an
initiative. We went to Boca (Raton, Fla., the site of GE's annual senior
management meeting in January), and showcased the best players. Session C
(GE's performance reviews) we asked to see all the people leading the
initiative. If an organization takes on its initiatives and doesn't put its very
established people so that everyone in the place sees it, and understands it,
then it doesn't take hold.
We could have had Six Sigma quality, but if we hired 26 statisticians to be
leader of this and put them in a room, it wouldn't have happened. We had to
take the best and brightest and put them there, so the whole organization says,
"They took Mary or Joe off this key assignment and they put them in quality.
They must mean it." And then you have to back it up with the reward system.
We had only Black Belts getting stock options. Every mechanism has to feed
it.
We've got operating mechanisms now. We've got our hands on levers, can
see company, its visible to us, and we don't have a lot of bureaucracy, staff or
headquarters getting in the way of that.
Q: Some insiders say Six Sigma can at times seem too unwieldy and
bureaucratic itself. Do you think that's true?
A: I don't disagree with that. There's a lot of rigor in Six Sigma. But look
what's happened to our margins, look what's happened to our sales, look
what's happened to market shares, look what's happened to product intros.
Are some people impacted by more rigor and less seat of the pants?
Absolutely. Is it more bureaucratic at times? Probably. But what's the end
result? More new products than anyone else, the highest quality with highest
shares ... and opertating margin continues to expand in a brutal economy.
If you're the CEO, you fight being sure there's too much show and tell. You
fight some of those things, but you don't want to take the rigor out of the
process, particularly when you're getting these results. If Six Sigma were
choking the company, you wouldn't have these products and all this margin
expansion.
Q: What work do you leave unfinished?
A: I feel comfortable that where I left it was all I had. Now there's a chance
to take every one of these initiatives to bigger, wider broader points. With
fresh eyes and fresh spirit. I can hardly wait to get out. I can hardly wait for
someone else to take these things and spin them their way, put some energy
behind them.
Q: Some critics say you may have lacked some long-term, more ethereal
vision as a leader. What do you say to them?
A: I tried to see a world where foreign competition and where globalization
and all these things were going to occur. While you say all these people were
saying that, I didn't see 'em out there. I made all these comments in 1981, all
these people were saying I was crazy. Doesn't that reflect somebody who
doesn't want to talk numbers, doesn't want to talk in the immediacy of the
moment and trying to portray where the company is going to be and where his
vision is? And then I spent the next 20 years trying to implement that vision. I
outlined what the world was going to look like -- it was going to be global, we
were going to be a leader in our businesses, couldn't hang on to laggards for
whatever reason -- we had to do all these things to be not a caboose on the
GNP but an engine on GNP. All these things were abstract
Q: Some managers at GE say they love you, but they're eager to have the
chance to prove that GE wasn't just a one-man show. What do you think
of that?
A: Pray to God that's what they do. If I did my job right, they won't be saying
was a one-man show. You should measure my success eventually by how
well GE does in the next five years.
Q: What was the most surprising thing you learned about what it means
to be CEO?
A: How much fun it is. I didn't know how much fun it would be. I thought it
would be fun, but it's just the best there is. You get a chance to do everything,
you've got all these resources, you've got great people, you can try out a lot of
ideas, go to bat, take swings, try things, see people you think are potential stars
and move them quickly. You can watch people flourish, give them all kinds of
new opportunities. You get to meet new people, get to go to great places. Life
is pretty damn good. You work like hell, but you're doing work you love. You
never go to meetings that are boring because you pick the meetings.
Q: Is there some different quality that CEOs have or need from other
executives?
A: I think people who become CEOs for sure have a lot of different
characteristics, but they sure care like hell. They care a lot. They think about
it all the time, they care about it, they want to do it right. It takes luck. And
then it takes focus. That's an important word. Passion is an important word.
Caring is an important word.
Q: How has the job of CEO changed since 1981?
A: The difference in general is CEOs today, in my opinion, feel that getting to
become CEO is the beginning of the career, not the culmination of a career.
I think it was more a lot in general, not speaking specifically about any one
company, a lot more presiding over than living in mentality in 1981.
It's caused by a changing world. The '60s and '70s were born out of a
competitive world where there were no Asian competitors. Japan had been
devastated by war. Europe had been devastated by war. They were just
coming back. Competition really heated up in the 70s. And we had a system
that was all built on a military-industrial complex hierarchy. We had a
superstructure to manage growth and growth was in air and competition was
next door. You could see it, feel it know what was happening.
Today, I'd the overwhelming thing is once you know what you know now,
how much faster you move. Speed is so important. It just overwhelms most
things. Also, what you know today versus what you knew 10 years ago. For
instance, you just know, I'm not exactly sure how, but you know China's role
in the global economy in the next decade is going to be enormous. You just
know that. You know that competitive forces that are out there in China
you've never heard the names of are going to change the landscape of the
developed worlds in Europe, Japan and the U.S.
Q: What's your reaction to the worker in our story who talked to us
about the increased intensity and lack of job security at GE under your
watch?
A: That man worked in Salem, Va. He probably worked in the industrial
drives systems business, which was No. 4 or 5 in their industry. That man
unfortunately was one of the people in GE that suffered through a business
where all those fears exist. That's why you gotta be a leader. And that's what
I talk about in the book ... That business is never going to be one of job
security, no matter good the workers are, until they get on top of the business.
The guy has a point, the guy is right. Every day they come to work in Salem
they have to worry. His feelings are appropriate. How do you think the people
in these dot-coms felt coming to work?
I understand what he said. I wish he didn't say it, I wish we had a better
business in Salem, I wish we were stronger. The only way we're ever going to
make that Salem team feel more secure is by winning more orders in the
marketplace with better products. This man has every right in the world to
feel those things, an it's a natural, honest comment. And I think a CEO's job is
to get as many businesses as they can to feel secure.
There isn't a guy that enjoys creating insecurity in the organization, or enjoys
laying people off. It happens when businesses aren't strong enough.
--Matt Murray