In 1981, when 44-year-old Jack Welch became the youngest CEO in General Electric’s history, he was an unlikely choice to head the venerable corporation that had begun as a conglomerate of Thomas Edison’s business ventures.
GE was still largely in the business of making household products and electronic appliances. Welch, who died last week at 84, was a brash, abrasive, energetic product of working-class Boston with a Ph.D. in chemical engineering. During his 20-year tenure, Welch radically transformed the company: He sold off faltering units and divisions, reduced GE’s workforce by half, took on debt to finance expansion, and moved the company into television, high-tech, and above all, finance.
He also redefined the role of CEO. Ensuring that he and his fellow executives were well-compensated, his object at all times was to enrich shareholders by playing in markets only if the company could dominate them.
Welch’s success was extravagant: Corporate revenue increased fivefold, profits rose even higher, and for some time, GE was the most valuable publicly traded company in America. The Financial Times called him “the father of the ‘shareholder value’ movement.”
Of course, such success came at a cost. Welch was distinctly unsentimental about selling off corporate assets that didn’t meet his goals, and employees were measured by ever-rising standards pegged to GE’s higher share price and profits. Welch was a ubiquitous analyst of his empire and swift to opt for surgery when troubles emerged and earnings were endangered. His managerial and personnel principles, expounded in a series of bestselling books, earned him a nickname he famously disliked: “Neutron Jack.” Welch was respected at GE, even revered, but not necessarily beloved.
It’s useful to recall the circumstances accompanying his rise at GE and Welch’s contribution to American prosperity. In the 1970s, the manufacturing economy was in swift and relentless decline, Wall Street was slumbering, and oil shocks, inflation, and stagnant annual growth contributed to a sense of chronic malaise. The American economy was in serious competition overseas, and American preeminence was by no means assured.
Welch, who took over GE just as Ronald Reagan succeeded Jimmy Carter in the White House, was determined to administer bitter medicine by raising productivity, lowering costs and overhead, and expanding General Electric into new and productive markets. He preferred to acquire or resuscitate successful businesses rather than maintain failing assets on life support, and his focus on shareholder value not only benefited investors but enriched pension funds, lowered prices, and raised quality for consumers.
By the end of the 20th century, Jack Welch was America’s most widely admired and imitated corporate titan.
Which raises an interesting question. Welch retired from General Electric in 2001 and celebrated his achievements in a memoir with a characteristic title, Jack: Straight From the Gut, along with a steady stream of advice on public issues. But his success was achieved largely before the internet had grown dominant in business and life, and the financial meltdown of 2008 left GE weakened and vulnerable, largely kept afloat by its financial services division, GE Capital.
Could GE’s condition, which remains problematical, be blamed on his successor, or was Welch a beneficiary of good timing? It is entirely possible that Welch, like many strong leaders, was a hard act to follow and that GE, in thrall to Welch’s vision of business, failed to adapt to our globalized, internet-connected world. Or it may be argued that Welch dealt successfully with the markets and economies and business climate of his time and could hardly be expected to anticipate things that no one knew.
In the end, Welch’s legacy in business is a case in point for managers of any giant enterprise. The only son of a railroad conductor, and afflicted with a crippling stammer in his youth, he rose through life and business through a steady application of will, enabling him to rescue and refresh a valuable vestige of the old American manufacturing economy.
It’s an old American story.
Philip Terzian is the author of Architects of Power: Roosevelt, Eisenhower, and the American Century.
