Jack Welch, retrospective 'villain'

GE's iconic former CEO's revered status has been tarnished in recent years, and David Gelles book is the latest attempt to blame Welch's toxic management style for the ills of today's capitalism

The Man Who Broke Capitalism: How Jack Welch Gutted the Heartland and Crushed the Soul of Corporate America – and How to Undo His Legacy

Author: David Gelles

Publisher: Simon & Schuster

Pages: 240

Price: Rs. 699

You either die a hero or you live long enough to see yourself become the villain

- Harvey Dent, in the Batman movie, The Dark Knight (2008) 

The late Jack Welch did not live long enough to see himself become the villain — he died on March 1, 2020 — though his image had taken a major hit, his legacy was largely in tatters and other, newer, corporate superstars had risen in the US. He continued to wield clout till the end of his life. With some help from his third wife, Suzy Welch, he had reinvented himself as an author, corporate speaker and even lent his name to a high-priced management course. He was still rich and had acolytes.

If he had lived for two years more, he would have seen himself painted as the prime villain in The New York Times business reporter David Gelles’ book which was published in 2022. As far as Mr Gelles is concerned, all the ills of capitalism that we see can be traced back to Welch’s toxic management style, which was lauded and feted during the latter’s two decade-plus reign over General Electric (GE). There are supporting villains — the economist Milton Friedman and former US President Ronald Reagan — but the main blame for taking the hammer to the more benign capitalism that existed till then belongs to Welch, in Mr Geller’s story-telling.

Mr Geller writes well. The book is an easy read. But it is a simplistic analysis of a complex issue, largely because of the author’s dislike for his subject.

Mr Geller gets many things right. Welch, in his heyday, was the corporate superstar not just in the US, but in the entire English-speaking business world. Welch had taken over the leadership of a revered US institution — GE, which had been formed in 1892 by a merger between Thomas Edison’s Edison General Electric Company and Thomas-Houston Electric Company — and had grown over the decades to be a sprawling manufacturing conglomerate. He was taking over from a highly respected CEO — Reginald Harold Jones, a genteel Ivy-League educated Englishman — who had nurtured the company for a decade and had been lauded as one of the best managers and influential businessmen of his era.

Welch was the polar opposite of Jones — he was brash, aggressive and impatient. GE was known for offering lifetime employment to workers who were lucky to join there. In that, it was similar to most of the big corporations in the US where worker loyalty to the company was highly regarded and in turn the company took care of workers for life. That era was also symbolised by Corporate America being the pillar of local communities. Entire cities and towns revolved around the manufacturing divisions and headquarters of big US companies.

Welch had decided to blow up that cosy corporate workplace. He had a laser focus on efficiency and shareholder value. He would axe hundreds of thousands of jobs in pursuit of cutting costs. He wanted the bottom 10 per cent of the workforce cut every single year and earned the nickname of Neutron Jack. He also negotiated hundreds of deals —buying, selling and sometimes buying only to chop up and immediately sell big and small firms in a bid to improve revenues and even more important to push the share-price up. He was not looking at long-term value but short-term share price movement.

He manipulated his company’s revenues and earnings while under-investing in R&D and manufacturing, betting on finance to massage GE’s earnings. He revelled in predicting quarterly earnings — and then meeting them, even if that involved some dubious accounting.

He was also an egregious example of a leader who put his own interests over everyone else’s, with an eye only for burnishing his personal image and wealth. But Mr Geller gives Welch too much credit for breaking capitalism. The US has had a long tradition of celebrating Alpha males in business and Welch was the biggest example of his era. But the US manufacturing conglomerate was doomed anyway. Globalisation  —which Mr Geller hardly dwells on — had seen manufactured goods in the US become increasingly uncompetitive. The rise of Japan, and later the East Asian Tigers such as South Korea and even later, China, was not of Mr Welch’s making and it is doubtful if many GE factories in the US would have survived even if some other leader was in place.

Also, if Welch became a superstar, it was because of what the shareholders and bondholders — including long-term investors —preferred to reward. They chose to reward quarterly results over long-term strategy, and cost-reduction to investing for the future. They also preferred quick returns — aided by policymakers who passed regulations to make share buybacks easy. The old benign capitalism about which Mr Geller is sentimental was at the end of its life anyway.

Nor are Mr Geller’s solutions about how to fix capitalism very well thought out.  Mr Geller lauds a couple of CEOs who are supposedly trying to fix capitalism — including Paul Polman, former chairman of Unilever. But again, the capitalism that Welch symbolised according to Mr Geller is being carried forward by Big Tech — from Amazon to Facebook and Google and Microsoft. Large scale sackings, terrible work conditions and use of gig workers to reduce costs and offshore tax breaks aren’t going to go away.

If long-term thinking, carrying all stakeholders along rather than shareholder primacy, and environmental, social, and governance credentials are becoming important now, that is largely because policymakers and financiers are taking up these issues. If Welch were to be a leader in today’s era, he would probably have also embraced these — or at least pretended to. He was, if nothing else, a supreme opportunist in business matters.

 The reviewer is former editor of Businessworld and Business Today and founder of Prosaic View, an editorial consultancy