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 him the reputation as the “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 an approach to business that focused on shareholder value at the expense of workers.
One of Welch’s former mentors disagrees with that characterization.
“I have the highest regard for Jack Welch,” former Home Depot CEO Bob Nardelli said in a recent interview with Yahoo Finance’s “Influencers with Andy Serwer” editor-in-chief.
Nardelli began his career as an entry-level manufacturing engineer at General Electric in 1971. He rose through the ranks, eventually becoming president and CEO of GE Power Systems in 1995. Along the way, he met 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 his best.
“He was the person who could be very strict and give constructive feedback. But he would 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’re highly valued and respected.”
Welch served as GE’s chairman and CEO for nearly two decades. During this time, he massively grew and diversified the company. He extended it to businesses including computers, credit card processing, and Internet service, among many other areas.
He even ventured into entertainment. In 1986, GE acquired RCA (Radio Corporation of America), which owned NBC.
“It was a really special breed to be able to run a group,” 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 famously identified and fired the bottom 10% of GE’s workforce annually to keep the company competitive.
“He set expectations that encouraged you to reach and stretch to achieve goals that you might not have otherwise achieved, and he held you accountable,” Nardelli said.
Under Welch’s leadership, GE enjoyed spectacular success. The company’s market value jumped from $14 billion in 1981 to $410 billion in 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 argue that his approach to management, while profitable in the short term, was ultimately unsustainable.
Since Welch retired in 2001, GE experienced a sharp 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 business of French company Alstom SA only for gas turbine demand to collapse. The failed deal resulted in a $23 billion write-off.
In an article for Fortune, Yale School of Management professor Jeffrey Sonnenfeld attributed many of GE’s failures to Welch’s mistaken belief that he could succeed in all industries with management philosophy rather than knowledge of the specific industry.
“This idea of interchangeable management expertise, like interchangeable parts on an assembly line, contributed to huge strategic stumbles under Welch,” Sonnenfeld said.
The company was delisted from the Dow in 2018, and three years later, the once-dominant conglomerate revealed plans to split its operations into three public companies focused on aerospace, energy and healthcare. Its market capitalization 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 30-plus years of my life into this,” Nardelli said. “To have something that was at the top, the highest yield, the highest market cap, to now see it’s just 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 impact on society. He even links Welch’s influence to 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 focus on financial success. Therefore, they prioritized high shareholder value over strong aeronautical engineering as they led Boeing, according to Gelles.
“If you look at the history of Boeing over the last 25 years, you see very clearly the imprint of his leadership, his priorities as delivered through his students,” Gelles said in a recent interview with Yahoo Finance. “There was a bigger cultural problem within Boeing. And this cultural problem ultimately leads back to Jack Welch.”
While he said he respects 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. “This is my opinion. I mean, I know some people have applauded this book. I’m not one of them.”
Dylan Croll is a journalist and researcher at Yahoo Finance. Follow him on Twitter at @CrollonPatrol.
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