the late Jack Welch led the transformation of General Electric into a multinational corporation that at one point became the most valuable company in the world, earning the reputation of “manager of the century.”
But a recent book raises questions about that legacy. In “The Man Who Broke Capitalism,” journalist David Gelles argues that Welch popularized a management approach that focused on shareholder value at the expense of workers and, ultimately, the company he ran.
One of Welch’s former tutors disagrees with that characterization.
“I just have the highest regard for Jack Welch,” former Home Depot CEO Bob Nardelli said in a recent interview with Yahoo Finance’s editor-in-chief for “Influencers with Andy Serwer.”
Nardelli began his career as an entry-level manufacturing engineer at General Electric in 1971. He rose through the ranks to become president and CEO of GE Power Systems in 1995. Along the way, he met to Welch, who became his mentor and role model. In fact, Nardelli soon became known as “Little Jack.”
He still remembers how Welch pushed him to be the best.
“He was the individual who could be very stern and give constructive feedback. But he would still put his arm around you and, you know, make you feel extremely important,” says Nardelli, who also served as Chrysler’s CEO. “He had the magic of being able to, you know, challenge you… And at the same time, make sure you were well respected and respected.”
Jack Welch speaks at a news conference in New York in this Oct. 23, 2000 file photo where he discussed General Electric’s proposed acquisition of Honeywell for $45 billion in stock. Image: Reuters
Welch served as GE’s chairman and CEO for roughly two decades. During this time, the company grew and diversified massively. He expanded it to businesses such as financial services, real estate and jet engines, among many other areas.
He even ventured into entertainment. In 1986, GE acquired RCA (Radio Corporation of America), owned by NBC.
“He was a very special breed who could run a conglomerate,” Nardelli said. “A lot of people can’t do that.”
As GE grew, Welch adopted a management style that emphasized a hands-on approach to business as well as radical accountability. For example, he identified and fired the bottom 10% of GE’s workforce annually to keep the company competitive.
The story continues
“He set expectations that encouraged you to reach and stretch yourself to achieve goals that you might not have otherwise achieved, and he held you accountable,” Nardelli said.
Under Welch’s leadership, GE was surprisingly successful. The company’s market value jumped $14 billion in 1981 to $410 billion in the year 2001. Fortune magazine announced Welch as the “Manager of the Century” in 1999, and other executives began to emulate his approach to business.
“It’s heartbreaking to see what happened to GE”
But Welch’s critics claim that his approach to management, while profitable in the short term, was ultimately unsustainable.
Since Welch retired in 2001, GE has experienced a precipitous decline, especially during the financial crisis of 2008. GE also made several ill-fated acquisitions. For example, in 2015, it took over the gas turbine operations of French company Alstom SA only for gas turbine demand to collapse. The failed deal resulted in a write-down of $23 billion.
In an article by the fortuneprofessor Jeffrey Sonnenfeld of the Yale School of Management attributed many of GE’s failures to Welch’s mistaken belief that he could succeed in all industries with his management philosophy rather than industry-specific knowledge.
Baden, Switzerland. November 2, 2015: Lighting tests during the installation of the new General Electric logo at the former thermal headquarters of Alstom.
“This notion of interchangeable management expertise, like interchangeable parts on an assembly line, contributed to massive strategic stumbles under Welch,” Sonnenfeld said.
The company was delisted from the Dow in 2018, and three years later, the once-dominant conglomerate revealed that it planned divide their businesses in three public companies focused on aviation, energy and healthcare. Its market cap is now $81 billion, about 20% of what it was under Welch’s leadership.
“It’s heartbreaking to see what happened to GE. I put more than 30 years of my life into it,” Nardelli said. “To have something that was at the top, the highest performing market cap, to see now that it’s barely a fraction of what it was, is heartbreaking.”
In “The Man Who Broke Capitalism,” David Gelles argues that the spread of Welch’s management philosophy had a corrosive effect. effect on society. He even draws a connection between Welch’s influence and two Boeing plane crashes that occurred in 2018 and 2019. He explains that three successive Boeing CEOs had previously worked at GE under Welch and internalized his approach in financial success. Consequently, they prioritized high shareholder value over strong aeronautical engineering while leading Boeing, according to Gelles.
“If you look at the history of Boeing over the last 25 years, you see very clearly the imprint of their leadership, their priorities as they were passed down through their disciples,” Gelles said in a recent interview with Yahoo Finance. “There was a bigger cultural problem within Boeing. And that cultural problem eventually leads back to Jack Welch.
While he said he respected Gelles’ right to an opinion, Bob Nardelli remains steadfast in his defense of his former mentor, who died in 2020 at age 84.
“I don’t think it’s appropriate to go after someone who’s dead, who doesn’t have the ability to defend themselves,” Nardelli said. “So that’s just my point of view. I mean, I know some people have applauded this book. I’m not one of them.”
Dylan Croll is a reporter and researcher for Yahoo Finance. Follow him on Twitter at @CrollonPatrol.
Click here for the latest stock market news and in-depth analysis, including the events that move stocks
Read the latest financial and business news from Yahoo Finance
Download the Yahoo Finance app for apple or android
Follow Yahoo Finance at Twitter, Facebook, Instagram, Flipboard, LinkedIni YouTube
[ad_2]
Source link
