How (not) to do business like Jack Welch

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Since leaving GE, Jack Welch has refused to retire gracefully or quietly. He has continued to stay vocal and keep his profile in the media, especially by writing and disseminating business advice. I suppose one shouldn’t begrudge him this – after all, he was branded “Manager of the Century” by TIME magazine, after nearly a quarter century in charge of one of the world’s largest companies.

But, does he deserve to be heard so much? Especially now that the model of leadership he espoused has been shown to lead to disaster. In my mind he is an example of much of what we don’t want in the future world of work.

An article which put my thoughts into words was published a while back in The Economist. It was responding to reports that Jack Welch will be lending his name to a new online MBA course. It highlights some of the concerns I have with a “winner takes all”, “profit at any price” ruthless leadership style Jack Welch espoused at GE. It also hints at probably the biggest issue that all such leaders have – they leave no legacy. When they leave, the empire they created collapses. When Welch left GE, he was asked what his legacy would be. He said that this was a question best asked after his successor had retired. That is the right attitude for a leader to have – the long term view. Unfortunately for Welch, it currently looks as if his legacy is a bad one!

Read The Economist article at their website, or an extract below.

The Jack Welch MBA
Jun 23rd 2009
Online, straight from the gut and politically incorrect

HERE is a qualification to conjure with: the Jack Welch MBA. At last, you too can manage like Neutron Jack, thanks to the legendary former General Electric boss’s $12m investment in Chancellor University in Ohio, which will offer the degree through its newly named Jack Welch Management Institute.

This is the latest evidence of the lasting power of the Brand of Jack, eight years after he retired from GE and ten years after Fortune declared him “Manager of the Century”. As well as the new business school, he has a regular column with his wife, Suzy, in BusinessWeek; a new online reality-television show, “It’s Everybody’s Business”, which they co-host on MSN; a thriving speaking career; and even a rapidly growing army of followers on Twitter.

Alas for anyone wanting to learn how to thrive like Mr Welch, the new MBA sounds like it will be a fairly standard business-school offering, albeit delivered mostly online to distance-learning students. But imagine if the MBA curriculum were actually based on Mr Welch’s management techniques: what an education that would be.

For a start, in keeping with the no-BS style of a man whose autobiography is called “Jack: Straight From The Gut”, your columnist suspects there would be no place for the sort of bleeding-heart “MBA Oath”, pledging to serve society rather than maximise profits, that Harvard Business School graduates have taken en masse this summer. After all, Mr Welch is credited with launching the shareholder-value maximisation movement with a speech in 1981 on “Growing Fast in a Slow-Growth Economy”. What Mr Welch cared about was quality—hence his embrace of the Six Sigma programme for total-quality management. He had no time for sentimentality: if a business was not first or second in its industry, it should be sold or closed. Promising to “safeguard the interests of my shareholders, co-workers, customers, and the society in which we operate”, as those Harvard graduates did? Give me a break!

There would certainly be a module on “How to Fire People in Large Numbers”. Mr Welch earned the sobriquet Neutron Jack by analogy with the neutron bomb, which kills people but leaves buildings intact. GE had 411,000 workers at the end of 1980, just before he took charge, and 299,000 at the end of 1985. He also introduced the practice of firing each year the worst-performing 10% of GE’s managers, pour encourager les autres.

One extremely popular class would be “Maximising Your CEO Pay”. This columnist once heard Mr Welch tell a chief executives’ boot-camp that the key was to have the compensation committee chaired by someone older and richer than you, who would not be threatened by the idea of your getting rich too. Under no circumstances, he said (the very thought clearly evoking feelings of disgust), should the committee be chaired by “anyone from the public sector or a professor”.

Equally unmissable would be the class on “Making Your Numbers”. Under Mr Welch, GE’s accounting was so creative it could be hung on the wall of the Museum of Modern Art (although it was all within legal bounds). Frequent use was made of off-balance-sheet vehicles, on a greater scale even than Enron. The firm’s huge, opaque financial arm, GE Capital, was used as a top-up fund in case profits in the rest of the business fell below the consistent growth promised by Mr Welch. Over the 80 or so quarters he was in charge, GE’s profits grew so consistently they were almost a straight line. Those were the days.

The corporate-governance module would be even more nostalgic, given Mr Welch’s dislike of newfangled concepts of accountability through the hiring of independent directors and so forth. One of the first things that Jeff Immelt, Mr Welch’s successor, did on becoming boss was institute reforms of GE’s corporate governance.

And there’s the rub. Since leaving GE, Mr Welch’s reputation has remained strong, whereas GE’s has sunk into the mire. Thanks to its plunging share price, its market capitalisation is now barely 20% of what it was when Mr Welch left. There has been growing pressure on Mr Immelt to offload GE Capital, both from shareholders and now, it seems, judging by the proposed reforms of financial regulation announced on June 17th, from the government. Mr Immelt’s grip on the top job seems to be weakening.

All of which raises a big question. Is GE’s poor performance since Mr Welch left a reflection of how good a job he did, and how hard he has been to replace? Or is it his legacy? What an excellent topic for a case-study discussion for the first batch of students taking the Jack Welch MBA.

Source: The Economist

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