https://www.linkedin.com/pulse/what-jack-welch-got-wrong-just-everything-david-gelles LinkedIn David Gelles Expand search * Jobs * People * Learning [David ] Dismiss [Gelles ] Dismiss [ ] Dismiss [Byron Center, MI ] Dismiss [ ] Dismiss Join now Sign in [1653358082] What Jack Welch Got Wrong (Just About Everything) * Report this post David Gelles David Gelles Published May 31, 2022 + Follow This is a preview of The Man Who Broke Capitalism: How Jack Welch Gutted the Heartland and Crushed the Soul of Corporate America -- and How to Undo His Legacy, on sale May 31. Jack Welch, the legendary chief executive of General Electric, is often remembered as the greatest CEO of all time. During his tenure, from 1981 to 2001, Welch turned GE into the most valuable company in the world, groomed a flock of proteges who went on to other big companies like 3M and Home Depot, and set the standard by which other CEOs were measured. Yet we shouldn't remember Welch as the "Manager of the Century," as Fortune magazine dubbed him upon his retirement. Rather, Welch was the personification of an outdated model of executive leadership, one defined by toxic masculinity, a disregard for workers, and a myopic obsession with short-term results. As the Corner Office columnist for The New York Times, I've spent the last several years speaking with hundreds of top CEOs about their careers, their mentors, and their approaches to management. Over the course of these conversations, it's become clear that the best leaders share a common set of attributes -- characteristics like emotional intelligence, the ability to think long term, and a commitment to serve multiple stakeholders at once. Although Welch embodied few of these qualities, his influence was unmatched during his heyday. And even today, Welch looms large in the mind of executives, living rent-free in the minds of CEOs around the globe. In my new book, The Man Who Broke Capitalism: How Jack Welch Gutted the Heartland and Crushed the Soul of Corporate America -- and How to Undo His Legacy, I explain what he got wrong. Leading with fear Welch was infamous for his explosive temper. He argued his way from one decision to the next, terrorized subordinates with shouting matches, and made even his allies cower in fear. As one GE employee said during his heyday: "Jack comes on like a herd of elephants. If you have a contradictory idea you have to be willing to take the guff to put it forward." Said another: "Working for him is like a war. A lot of people get shot up; the survivors go on to the next battle." That murderous metaphor was no accident. Throughout his career, Welch employed violent rhetoric when discussing layoffs. His favorite way to describe firing someone was to say that the person should be "shot." When discussing an employee he didn't like he would say, "Shoot them," and "They ought to be shot." Beyond its abject cruelty, that mercenary approach eroded morale inside GE, fostering a cutthroat culture that pitted colleagues against one another. That competitive culture was made policy by Welch with the advent of "stack ranking," a process by which he made managers sort their workers in to A, B and C players -- 20 percent were top performers, 70 percent were average, and 10 percent were sub-par. The bottom 10 percent were systematically let go each year. Stack ranking -- or "rank and yank" -- amounted to a heartless edict, ensuring that no matter how well GE might be doing, tens of thousands of its employees would be shown the door, year after year. It left everyday workers afraid for their jobs, colleagues in competition with one another, and teams out of sync. "It was a Jack Welch idea and it got adopted by a lot of people," said Dennis Rocheleau, who led labor negotiations for Welch. "It created horrible decisions in some instances, but it got mimicked by everybody. Jack Welch was larger than life, and people just said, 'If he's doing it, well, let's do it.'" The campaign against loyalty Upon taking over GE, Welch unleashed a series of mass layoffs and factory closures that destabilized the American working class. Hundreds of thousands of men and women lost their jobs as Welch sought to make GE a leaner company, believing that a smaller headcount was a desirable end in its own right, and that lower labor costs would lead to higher profits. After Welch laid off more than 100,000 people in his first years as CEO, he earned the nickname he hated but could never shake: "Neutron Jack," a reference to the neutron bomb, which purportedly kills people while leaving buildings standing. When Welch couldn't fire people outright, he turned to outsourcing and offshoring. He thinned the GE ranks by firing food service workers, security guards, janitors, and more, funneling workers to contractors that typically offered inferior pay, fewer benefits, and little job security. And he shipped thousands of jobs overseas to countries like Mexico and India, where wages were cheaper. Altogether, it was known by GE workers as "the campaign against loyalty." Welch memorably said that "ideally, you'd have every plant you own on a barge to move with currencies and changes in the economy." That way, he imagined, GE factories could move around the world, chasing favorable exchange rates, tax breaks, incentives, and low wages in a seaborne race to the bottom. This was the Platonic ideal of a free market enterprise to Welch -- stateless, beholden to no community, and able to hire labor in a completely opportunistic way. "Jack didn't have a love affair with the individual employee at the hourly level," said Tom Tiller, who worked under Welch at GE before going on to run Polaris, the snowmobile maker. "It was always a bit of an adversarial relationship." Shareholder primacy More than anything else, however, Welch's was motivated by an unrelenting desire to drive GE's share price ever-higher. While economists like Milton Friedman had talked theorized that the social responsibility of business was to increase its profits, and nothing more, Welch was the first CEO to put that ideology into practice. He did it with dealmaking. GE made nearly 1,000 acquisitions during Welch's tenure, spending some $130 billion buying up companies. At the same time, GE sold some 408 businesses for about $10.6 billion. No company had ever done so many deals so quickly, and the biggest of these took GE far from its industrial roots, expanding the company into media and finance. "The model Jack had was really the Pac-Man model," said Beth Comstock, a longtime GE marketing executive. "Just eat up companies. Acquire growth, acquire growth, acquire growth." He did it by embracing financialization. GE was an industrial company when he took over -- making most of its money selling appliances, light bulbs, power turbines and jet engines. By the time he retired, the company derived much of its profit from GE Capital, which was essentially a giant unregulated bank. Welch called it 'the blob' -- it was an amorphous, ever-changing collection of financial assets, capable of delivering whatever adjustments were most advantageous to the parent company in a moment's notice. 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. Welch's legacy While it has been more than two decades since Welch was CEO of GE, his influence still looms large over corporate America. Too many executives still lead with fear, terrorizing their subordinates, fostering toxic workplaces, and pitting colleagues against one another. Practices like stack ranking endure to this day, cropping up at companies like Microsoft, Uber, and WeWork. The campaign against loyalty also continues unabated. Amazon is among the major employers that fosters a highly transactional relationship with its frontline workers, big companies are using offshoring and outsourcing as much as ever, and even though the labor shortage has pushed wages up somewhat, American workers are still falling behind. Welch's greatest legacy, however, is the degree to which he made it permissible for CEOs to pursue short-term profits at any cost. It is now routine for major corporations to undertake a round of layoffs in order to improve profitability, and for profits to redirected away from workers and into share buybacks in a bid to jack up the share price. Welch wielded vast influence while he was CEO, and his pupils went on to run dozens of other major companies, including Albertson's, Boeing, and Chrysler. Most of them failed. "A lot of GE leaders were thought to be business geniuses," said Bill George, the former CEO of Medtronic. "But they were just cost cutters. And you can't cost cut your way to prosperity." Instead of repeating the mistakes that Welch and his disciples, it's time we redefine what we think of as exemplary executive leadership. Rather than lead with fear, CEOs today need to lead with compassion and kindness. Rather than wage a campaign against loyalty, CEOs today should place worker wellbeing at the center of their strategies. And rather than worship at the altar of shareholder primacy, CEOs today must take care of all stakeholders -- including employees, suppliers, communities, the environment, and investors, too. To learn more, please consider buying a copy of my book The Man Who Broke Capitalism: How Jack Welch Gutted the Heartland and Crushed the Soul of Corporate America -- and How to Undo His Legacy. 541 108 Comments Like Comment Share Josh Saul Here is an interesting Jack Welch story that not many people know. The night of the 2000 presidential election, Jack is in the board room at 30 Rock (NBC) and is pretty drunk as the election was obviously not called early. Jack, a notoriously vocal Republican, went down to the NBC studio (this is a big no no) where the election broadcast and reporting was taking place, pulled aside the lead statistician who had worked calling elections for NBC for 20 years and berated him for not calling Florida for Bush. He screamed and yelled and basically told this guy that if he didn't call the election immediately he was fired. A minute later a Jack went back up to the board room as NBC called Florida for Bush. This precipitated other news agencies calling the election early, Gore calling Bush to concede, etc. That put Gore in the back seat playing catch up, and he never recovered. So basically Jack was responsible for that bad call and throwing the election to Bush. Like Sign in to like this comment Reply Sign in to reply to this comment 2h * Report this comment Victor Escalante His acquisition fetish of other companies sounds like the mindset of Harold Geneen, former ITT CEO. I'm curious if Jack was a protoge of Geneen? Like Sign in to like this comment Reply Sign in to reply to this comment 2w * Report this comment Tim Smith I finished the audio book a few days ago. One question I have: what did Reginald Jones, Jack's predecessor think of all of this? Like Sign in to like this comment Reply Sign in to reply to this comment 3w * Report this comment Bonita Hall (S) A reminder and a memory: Like Sign in to like this comment Reply Sign in to reply to this comment 3w * Report this comment Wolfgang Jussen I have to admit that I was fascinated from Jack Welch's book ,,Winning". I got it in Hongkong in mid of 2000 years during my 19 years China tour. I mostly used the advises what could motivate my Chines coulleguses and explains some basic needs for driving efficiency. It worked with the young, well educated and hungry Chines talents. I also head my daunts about Welch's famous lines. Your must be no. 1 or 2 in your business. Otherwise have to fix it or close it. Thanks for the post. I just ordered this book and will enjoying the review with my international business experiences. Like Sign in to like this comment Reply Sign in to reply to this comment 3w * Report this comment Tomasz Boinski Great book #goodread Like Sign in to like this comment Reply Sign in to reply to this comment 3w * Report this comment Barbara A Nelson Jack Welch was the typical corporate Demi-god. Any company who followed his philosophies damaged and destroyed middle class America. One of his main tactics was to put employees against one another and systematically burn out and then fire 20-25% of a companies work force every 4th quarter, and then hire new victims. Not my idea of a stellar CEO. He got away with a lot of toxic policies. Like Sign in to like this comment Reply Sign in to reply to this comment 3w * Report this comment Yves Samson Beside Jack Welch's disastrous management style, the worst impact of his ideas on the industry is represented by inadequate understanding and application of 6-Sigma and lean management concepts. Boeing is probable one of the best examples of what happens when managers apply management concepts without understanding the company (core) business and the related constraints ... and duties. The same remark applies as well to the pharmaceutical industry with an exponential increasing of drug shortages over the last 20 years, and, at the same time, with an increasing number of decision makers with any kind of "belts". The shareholder primacy should be only considered from a long term perspective, any other approaches are purely speculative and speculation destroys people richness, company sustainability, and finally the community. Like Sign in to like this comment Reply Sign in to reply to this comment 1 Like 3w * Report this comment Dr. Carl N. Nett "The man who broke capitalism"??? When was capitalism broken? It wasn't. It hasn't been. Ever. Your title is a fraud. I see you are a reporter by training. MSM. That explains a lot. Like Sign in to like this comment Reply Sign in to reply to this comment 1 Like 3w * Report this comment Keith Henson It is easy to find fault with people who hollowed out the US manufacturing. People are starting to think that there might be other things than the shareholders and the next quarter's profit. No doubt that Jack took capitalism to an extreme. Like Sign in to like this comment Reply Sign in to reply to this comment 4w * Report this comment See more comments To view or add a comment, sign in To view or add a comment, sign in More articles by this author * Mindful Work is almost here! Feb 11, 2015 Others also viewed * YCombinator advises its portfolio founders to "plan for the worst" in the coming months Victoria Yampolsky 4w * Make Room Jason Alba 5d * Jack Was Pretty Damn Good Jeff Immelt 3w * Great business decisions often require imagination more than data Roger Martin 2w * The top 10 jobs to get ahead Andrew Seaman 7mo * We will just call 'Hybrid Work,' work. Gavin McMahon 4w * Hot Seat Epilogue Jeff Immelt 4mo * What Actually Mattered This Week: America's Promise to Ukraine, January 6 Fallout Ian Bremmer 2w * What Actually Mattered This Week: Biden's Saudi Arabia Reversal, Putin's War Passes 100 Days Ian Bremmer 3w * Is employee loyalty a thing of the past? Tomas Coulter 4y * LinkedIn (c) 2022 * About * Accessibility * User Agreement * Privacy Policy * Cookie Policy * Copyright Policy * Brand Policy * Guest Controls * Community Guidelines * + l`rby@ (Arabic) + Cestina (Czech) + Dansk (Danish) + Deutsch (German) + English (English) + Espanol (Spanish) + Francais (French) + hiNdii (Hindi) + Bahasa Indonesia (Bahasa Indonesia) + Italiano (Italian) + Ri Ben Yu (Japanese) + hangugeo (Korean) + Bahasa Malaysia (Malay) + Nederlands (Dutch) + Norsk (Norwegian) + Polski (Polish) + Portugues (Portuguese) + Romana (Romanian) + Russkii (Russian) + Svenska (Swedish) + phaasaaaithy (Thai) + Tagalog (Tagalog) + Turkce (Turkish) + Jian Ti Zhong Wen (Chinese (Simplified)) + Zheng Ti Zhong Wen (Chinese (Traditional)) Language