The GE icon became famous for conflating leadership with stock price — a practice that still haunts most businesses today
Jack Welch had terrific timing. Or at least he did in one key aspect of his long tenure as the chief executive officer of General Electric: Welch, who died yesterday at age 84, took the reins in the early 1980s — shortly before the start of the one of the great bull market runs in the history of the U.S. stock market. He retired in September 2001; his successor took over just a few days before 9/11, and right in time to absorb the dot-com meltdown.
This is not to say that the G.E.’s share price rose through Welch’s tenure simply because the broader markets did (although having the wind at your back never hurts). Indeed, G.E. decisively outpaced the market in those years. So much so, in fact, that it became one of the true glamour stocks of the 1990s — an era when the stock market became a kind of pop culture phenomenon, obsessed over on CNBC, open to wider participation through cheap online trading, hyped relentlessly by a business and finance press experiencing its own parallel boom.
This is the period that kicked off the dubious practice of measuring business leadership prowess almost entirely through the prism of share prices, or valuation more generally. And that is where Welch’s timing was exquisite: It was a time that practically demanded heroes (somebody had to be on the cover over all those magazines!), and Welch was happy to oblige.
Welch’s actual track record and legacy at G.E. the business (as opposed to GE, the ticker symbol) has proved rather more complicated.
By the time he retired, a slew of books claiming to reveal Welch’s leadership ways and wisdom clogged the business section of Barnes & Noble, and finance pundits called him “the CEO of the century,” among other accolades. In the years after, he wrote his own (mega-selling) books about his business philosophy, opined in the finance media, and founded the Jack Welch Management Institute. He was famous enough to cameo as himself on 30 Rock.
But Welch’s actual track record and legacy at G.E. the business (as opposed to GE, the ticker symbol) has proved rather more complicated. The company has had a rough ride, as Welch’s hand-picked successor, Jeffrey Immelt, presided over a series of external crises as well as deep-rooted business problems. Most notably: GE Capital, the consumer-finance arm celebrated during the Welch era, turned out to be ill-equipped for the 2008 financial crisis, and was largely dismantled and jettisoned. Indeed, Immelt spent a lot of his tenure walking back the conglomerate model that Welch had assembled, and that was proving too unwieldy and complex for the disruption-filled 2000s.
The problems were persistent enough that even the emergence of a new bull market didn’t help. In a 2017 New York Times column on the occasion of Immelt’s pending retirement, the writer James B. Stewart noted that G.E. shares had fallen by 25% over the prior decade, “in contrast with a 59% rise for the S.&P. 500.” While Immelt came in for some criticism from the expert observers Stewart spoke to, Welch did, too. Immelt may have been slow in backing away from G.E.’s strategy of operating a slew of unrelated businesses (so long as each was top performer in its category) — but it was Welch who pursued that strategy so aggressively in the first place. This conglomerate approach has become “dated,” as one finance professor put it to Stewart: “Maybe it’s still used in a few old-line manufacturing businesses, but not in the rest of the economy, where a start-up can destroy your business.”
Under Welch, G.E. stock soared because Welch was great, and the proof of that greatness was the soaring share price. Really, there was no way Immelt could repeat that trick indefinitely.
Because Welch’s tenure became so synonymous with a rising share price, you might assume that the G.E. he inherited was an awful mess. Not so. G.E. had decades of strong leadership; in the classic business book Built To Last, authors James C. Collins and Jerry I. Porras praise the company’s “remarkable track record of continuity in top management excellence over the course of a hundred years.” Bloomberg columnist Joe Nocera, in his own look back at Welch’s legacy last summer, points out that Welch’s predecessor, Reg Jones, “was widely considered the country’s best CEO.”
But whatever you make of the business Immelt inherited, he definitely inherited an inflated share price. Under Welch, G.E. stock soared because Welch was great, and the proof of that greatness was the soaring share price. Really, there was no way Immelt could repeat that trick indefinitely.
If Welch ever felt any responsibility for the problems Immelt faced — or doubts about whether his hero status was full deserved — he didn’t go out of his way to show it. In fact, he was reported to have turned on Immelt in private, supposedly even telling others that choosing Immelt was “one of the biggest mistakes” of his career, as one report put it. (Immelt is said to be working on a book that will apparently offer his take on Welch, among other subjects.)
Earlier, Welch had sounded a more modest note, telling an audience that despite his apparently wild success and the adulation he enjoyed, it was too early for him to take a victory lap: “My success,” he said, “will be determined by how well my successor grows [G.E.] in the next 20 years.” But that was back in 1999, when G.E.’s stock was still on fire, and the Welch myth was taking its definitive shape. His timing, as ever, was perfect.
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March 03, 2020 at 03:25AM
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The Flawed, Twisted Legacy of Jack Welch - Marker
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