Welch’s stardom extended beyond the business world.Reuters
Jack Welch, who led General Electric through two decades of extraordinary corporate prosperity and became the most influential business manager of his generation, died Sunday in New York City. He was 84.
The cause was renal failure, his wife, Suzy Welch, said. No other details were provided.
Combative and blunt, Jack Welch became the chief executive of General Electric in 1981, a few months after Ronald Reagan took office as president. It was a time of outsize gains for many of America’s big, multinational corporations and their leaders, who were helped by lower taxes and pro-business policies.
GE led the pack. The company’s revenue jumped nearly fivefold, to $130 billion, during Welch’s tenure, while the value of its shares on the stock market soared from $14 billion to more than $410 billion.
It was a time when successful, lavishly paid corporate executives were more admired than resented. Welch received a record severance payment of $417 million when he retired in 2001. Fortune magazine named him the “Manager of the Century,” and in 2000 The Financial Times named GE “the World’s Most Respected Company” for the third straight year.
Welch’s stardom extended beyond the business world. In a 2000 auction for the rights to his autobiography, Time Warner’s book unit won with a bid of $7.1 million, a record at the time. “Jack: Straight from the Gut,” written with John A. Byrne, was published the next year and eventually sold more than 10 million copies worldwide.
The Welch years at GE combined strategic insights with managerial innovations. Welch early on recognized the rise of Asia, then led by Japan, as a manufacturing powerhouse, and he shed GE businesses that he deemed vulnerable, moving into new ones.
He attacked bureaucracy and made sweeping payroll cuts, creating a more entrepreneurial, if more Darwinian, corporate culture. He led the globalization of GE’s business, both expanding sales and manufacturing overseas. And he made GE far more dependent on finance, as banking and investment grew as a share of the U.S. economy.
Welch distilled his management concepts into one-sentence nuggets. “Control your destiny, or someone else will.” “Be candid with everyone.” “Bureaucrats must be ridiculed and removed.” “If we wait for the perfect answer, the world will pass us by.”
His goal at GE, Welch wrote in his autobiography, was to create “a company filled with self-confident entrepreneurs who would face reality every day.”
The Welch formula was a sharp break from the management style at large corporations through the 1970s, with cadres of middle managers and large planning departments.
By the early 1990s, with GE’s profits and stock price rising sharply, GE seemed to offer a model for making big companies more nimble and competitive. “It was different way of management, and it took hold,” said Joseph L. Bower, a professor emeritus at the Harvard Business School, who wrote a widely taught case study of Welch and interviewed him over the years.
Welch was also attacked when he was leading GE, especially for slashing the GE workforce, which earned him the nickname “Neutron Jack.” But most of the second thoughts about him and his management legacy have arisen in recent years. The superstar chief executive, laser-focused on enriching shareholders, is often criticized today as a symbol of corporate greed and economic inequity.
The widely diversified corporation that Welch built is also out of favor, an idea underlined by GE’s precipitous decline in the last few years.
New York Times business columnist James B. Stewart wrote in 2017, “Hardly anyone considers Mr. Welch a management role model anymore, and the conglomerate model he championed at G.E. – that with strict discipline, you could successfully manage any business as long as your market share was first or second – has been thoroughly discredited, at least in the United States.”
The financial crisis of 2008 delivered a blow to GE’s fortunes. In the years before the crisis, the company had built sprawling lending operations that helped drive its growth. But the finance businesses became a crippling liability when, during the crisis, credit markets froze, and borrowers struggled to pay back their loans.
GE, like many large banks, tapped emergency government loans to help it get through the upheaval. In the years following the crisis, GE sold off most of its lending businesses, but other problems emerged, some of which were in its large power unit.
GE’s stock price now trades roughly 80% below the high it hit in 2000. The company has significantly lower revenue than it did that year. Last year, GE reported a loss of $5.4 billion.
Outsider on the Inside
During Welch’s two-decade run leading GE, such problems seemed inconceivable. When he became chief executive and chairman, he was already a 20-year veteran of the company. But he was an insider who behaved like an outsider. “We needed a revolution,” Welch recalled in his autobiography.
The transformation of GE under him came in stages. In the early 1980s, he got out of manufacturing businesses in which efficient Asian producers were driving down profits and gaining market share making televisions and small household appliances like irons, toasters and hair dryers.
Jettisoning those businesses was part of Welch’s design to cope with the threat by Japan Inc. and its manufacturing prowess. Later steps included a massive expansion of GE’s finance arm and the acquisition of RCA, mainly for its NBC television network. These were attractive, profit-generating businesses away from the march of manufacturing in Japan and other Asian countries.
Welch’s view was that big changes were a competitive necessity, but his sense of urgency was not widely shared.
“At the time, no one inside or outside the company perceived a crisis,” he wrote in his autobiography. “GE was an American Icon.”
He did inherit a strong company, with $1.5 billion in profits and $25 billion in sales, making it the ninth most profitable company in the Fortune 500 and the 10th largest. His predecessor, Reginald H. Jones, was a revered corporate manager and an industrial statesman.
“Face reality” was one of Welch’s favorite management mottos. And he saw global competition as a reality that had to be faced immediately. Shifting GE out of some businesses and into others was part of his plan. But so was a change in the company’s workforce and culture to make GE a leaner organization that could move and make decisions faster.
In pursuing that goal, Welch made deep payroll cuts long before the term “downsizing” became commonplace. He also instituted a kind of internal competition among GE workers, which applied mainly to GE managers. It became known as “rank and yank.”
Top performers got bonuses and stock options, while the bottom 10% were fired. It was a system of annual winnowing intended to produce outstanding managers. “Rigorous differentiation delivers real stars – and stars build great businesses,” Welch wrote.
But the Welch-led overhaul came at considerable human cost. Being a profitable, sustaining business was not enough to pass muster. GE businesses, he told securities analysts in his first year on the job, had to be “the No. 1 or No. 2 leanest, lowest-cost worldwide producers of quality goods and services” in their industries.
If they weren’t, Welch applied a simple edict: “Fix, sell or close.”
The businesses that survived were slimmed down severely. The GE workforce fell from 411,000 at the end of 1980 to 299,000 at the end of 1985. Of the 112,000 workers who left the company, about 37,000 were in operations that had been sold off. But, Welch wrote in his autobiography, “81,000 people – or 1 in every 5 in our industrial businesses – lost their jobs for productivity reasons.”
The moniker “Neutron Jack” appeared in Newsweek magazine in 1982 and soon picked up everywhere. Welch said he hated the label. But he always insisted the pruning was necessary, if painful. And by acting before trouble surfaced, he said, GE could afford to give the people it let go advance notice and comparatively generous severance pay.
Those early payroll cuts, critics say, were a byproduct of Welch’s emphasis on delivering a rising share price and higher profits. He was considered, as The Financial Times wrote, “the father of the ‘shareholder value’ movement.”
In fact, it was a term Welch rarely used, but its origin as a guide to management practice is generally traced to a speech he gave in 1981, laying out his plans for shedding slow-growth businesses and cutting costs.
Years later, in 2009, after the financial crisis hit, he repudiated the concept in an interview with The Financial Times, calling it “a dumb idea” and adding that shareholder value was a result of actions taken rather than a strategy in and of itself.
Shareholders Above All
But GE’s consistently rising returns and how Welch achieved them made him a standard-bearer of the shareholder value ethos, said Robert B. Reich, the former labor secretary in the Clinton administration and now a professor of public policy at the University of California, Berkeley. And that ethos, said Reich, led to the “shredding of the old, tacit contract between corporations and their workers,” in which employees shared in the company’s prosperity in good times and were laid off only in bad times.
Throughout the Welch years, GE remained the nation’s largest manufacturer, producing everything from jet engines to power generators to medical-imaging equipment. Welch invested in those operations and personally championed projects to improve their efficiency and performance, like Six Sigma, a statistical quality-control system for greatly reducing product defects.
The biggest shift in the company’s corporate profile was the expansion of the company’s finance arm, GE Capital. When Welch took over, it was a small side business, mainly to help customers finance the purchase of GE heavy equipment. In 2000, his last full year as chief executive, the finance unit generated profits of $5.2 billion, more than 40% of the company total, and had $370 billion in assets, spanning insurance, private equity, home mortgages, reinsurance and credit cards in Britain and Japan.
Well after Welch retired, the financial crisis would put GE, the nation’s largest nonbank financial institution, in peril. But during his tenure the finance business was a money spinner.
In finance, Welch saw “immense opportunity,” by combining “money and brains.” The brains, in his view, would come mainly from GE, applying its superior management. “There are more mediocre people making more money on Wall Street than on any other place on earth,” Welch wrote.
GE saw itself as the world’s premier management boot camp, its executives schooled in both the field and in regular stints at Crotonville, the company’s training center at Croton-on-Hudson, New York. During the Welch years, other companies repeatedly recruited talent from GE.
That belief in its management prowess animated the conglomerate strategy at GE – that skilled general managers could improve the performance of most any business. To Welch, the finance industry looked like inviting turf.
And for years it was – an engine for delivering steady gains in profits and in the GE share price.
Son of a Railroad Conductor
John Francis Welch Jr. was born Nov. 19, 1935, in Peabody, Massachusetts. At the age of 9, the family bought its first house in nearby Salem. Jack, an only child, grew up in a working-class Roman Catholic family. His father, John – “Big Jack,” in the household – was a railroad conductor; his mother, Grace, was a homemaker.
His father was often away for work, but his mother was ever-present – “the most influential person in my life,” Welch wrote. By his account she was highly competitive, both his greatest fan and his harshest critic. When he threw his stick across the ice, after losing a high school hockey game, she stormed into the locker room. “You punk!” he recalled her shouting. “If you don’t know how to lose, you’ll never know how to win!”
But encouragement and reassurance came in abundance as well, building his self-confidence. Young Jack had a stutter. “It’s because you’re so smart,” his mother told him, he wrote. “No one’s tongue could keep up with a brain like yours.”
Many of his basic management beliefs could be traced to his mother – competing hard, facing reality and “motivating people by alternately hugging and kicking them,” he wrote.
Neither of his parents had graduated from high school, but Jack Welch earned a bachelor’s degree from the University of Massachusetts, Amherst, and went on to obtain a Ph.D. in chemical engineering from the University of Illinois, Urbana-Champaign. He was a good student, but, he acknowledged, he did not have the temperament to be a bench scientist.
Welch chose industry instead, joining GE in 1960 as an engineer in its plastics division in Pittsfield, Massachusetts, with a starting salary of $10,500. After a year, he was frustrated laboring on the lower rungs of the corporate ladder, displeased with the standard $1,000 raise he was offered. He decided to leave. But a young executive persuaded him to stay, and Welch began rising through the ranks.
By 1968, he was running GE’s plastics unit. By all accounts, he loved business – the competition, the challenges, the camaraderie. In Pittsfield, for example, he gathered his staff and their families on summer weekends for golfing and fishing and on winter weekends for skiing. They were always friendly competitions, and business was often part of the conversation.
Joe Liemandt, whose father, Gregory, worked for Welch, recalled that as a 12-year-old Welch tutored him on the importance of gross profit margins. “It was a tight-knit extended family, and you got a lot of business growing up,” said Liemandt, who became a software entrepreneur.
Years later, Liemandt said, after his father had left GE and died of cancer, Welch called him offering his condolences and said, “If you ever need anything, don’t hesitate.”
Welch’s ascent to chief executive in 1981 was hardly a sure thing. At 45, he was the youngest CEO in the company’s history. His predecessor, Jones, was a slender, courtly leader, a frequent visitor to Washington in an era of heavier regulation of business, urging a cooperative relationship between corporate America and government rather than an adversarial one.
Some members of the GE board opposed Welch’s appointment, seeing him as something of a renegade and the choice as divisive. “With Jack, it was not only the carrot but the stick – and that was controversial,” said Byrne, a former editor of Business Week and the co-author of Welch’s memoir.
Welch was married three times. He met Caroline B. Osburn at the University of Illinois, where she was studying for a master’s degree in English literature. They were married in 1959, had four children – Katherine, John, Anne and Mark – and were divorced in 1987.
Welch met Jane Beasley, a lawyer, on a blind date arranged by Walter B. Wriston, the former chairman of Citicorp and a GE director at the time. They married in 1989 and divorced in 2003, after a court case that disclosed the perks GE had agreed to provide Welch in his retirement.
Beasley’s filings included documents showing that Welch had extensive use of corporate aircraft and a Manhattan co-op apartment, with services like laundry and flowers, as well as dining bills at the restaurant Jean Georges. GE did not disclose those benefits to shareholders and later reached a settlement with the Securities and Exchange Commission for failing to do so.
Welch married Suzy Wetlaufer, a former editor of The Harvard Business Review, in 2004. They had met in 2001 while she was interviewing him for the magazine. She resigned from the magazine in early 2002, after she admitted to having an affair with Welch while preparing an article about him and while Welch was still married to Beasley.
Welch and Wetlaufer, who changed her name to Suzy Welch, have co-written two business books: “Winning,” published in 2005, and “The Real Life MBA,” published in 2015.
Complete information on survivors, besides Welch, was not available, but GE said he also had four stepchildren and 10 grandchildren.
In the two decades since Welch left GE, many of the management precepts he personified have fallen out of favor. “But he was the right person for the time,” Byrne said. “He was a whirlwind. And he absolutely loved business – the competition, the winning and the theater of it. Business was everything to him.”