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Jack Welch: The Man Who Broke Capitalism – David Gelles

by Venky

(Image Credit: goodreads.com)

Jack Welch’s deified status as the icon and iconoclast who redefined General Electric, and thereby making it the most valuable company on the Planet, took a surprising and shocking dent with Thomas O’Boyle’s explosive publication, “At Any Cost: Jack Welch, GE and the pursuit of profit”. The book, released in 1998, represented a damning polemic that challenged the haloed reputation of a man who within corporate circles was frighteningly referred to as “Neutron Jack”. This moniker represented Welch’s approach to “downsizing”. Well before the term itself came in vogue. Akin to a neutron bomb which vaporizes humans but leaves structures intact, Welch wielded a rapier of job cuts. Enslaved to an extraordinarily reductionist philosophy that played with zeroes annually (reduce the zeroes against the number of employees while increasing the zeroes following the revenue numbers), Jack Welch made recklessness the handmaid of ruthlessness that contrived to destroy lives and livelihoods.

However Welch shrugged off criticisms like a duck getting rid of water off its back and continued to inhabit a rarefied atmosphere in corporate circles. Controversies and criticisms died a natural death as the initial excitement and furore surrounding the audacious publication of Boyle’s expose dimmed down. Until the business reporter at the New York Times, David Gelles decided to churn waters that had gone eerily calm. In his latest book, “Jack Welch, The Man Who Broke Capitalism”, Gelles brings to the fore not just the pernicious practices of Welch, but his insidious influence that has permeated the core of capitalism thereby making it indistinguishable from the original form it represented, and was expected to represent.

When Welch assumed the mantle of leadership at G.E, one of his first moves was to eliminate the word “loyalty” from all internal correspondences. Dismantling the implicit practice of offering lifetime employment to workers, Welch even introduced a “rank-and-yank” forced rating under which employees had to be rated on a continuum that rated performance from the best to worst. A natural concomitant of such a rating being firing the lowest-rated 10 percent every year. Welch’s operating philosophy consisted of three fundamental tenets – downsizing, financialization and deal making.

Welch’s infamous legacy however lay in transforming G.E from a bastion of innovation and engineering into a gargantuan and unregulated bank. Deal making was the instrument that aided in this change. A compulsive and incorrigible deal maker, Welch acquired, on an average, corporates worth $130 million every week for 20 years, and disposed of a business every two weeks. This kind of financialization drove Wall Street into raptures of delight. The spectre of “Welchism” seeped into the DNA of Corporate America and Welch proteges ran amok in various industries after their tenure at G.E.

And boy were they rewarded for their unalloyed shenanigans! Welch made the Forbes list of the 400 richest Americans and CEO pay reached obscene levels. Meanwhile, the American minimum wage has remained stagnant at $7.25 an hour. It should have been approximating $25 if the wage had been in lockstep with inflation over the last 20 years. When Welch relinquished his position at GE, he still retained all the privileges that were available to an executive occupying the highest echelon at the company, in addition to receiving a severance pay of $417 million, the largest such payment in business history at the time. The perquisites ranged from an unconditional use of the company jet, an apartment at the Trump International Hotel & Tower, expenses associated with the upkeep and maintenance of the apartment that amounted to a whopping $80,000 per month, box seats at the Metropolitan Opera at Lincoln Centre, courtside seats to watch the New York Knicks play, helicopter and limousine services, rental cars, cell phones, satellite communication appliances and even light bulbs!

Corporate America was so obsessed with the notion of “Welchism” that CEOs who learnt their lessons at Welch’s knees ran rampant at other organisations. From Boeing to Home Depot, these ‘head honchos” wreaked havoc by liberally exercising the trifecta of Downsizing, Financialization and Deal Making. 

Gelles however, chooses to end his book with a note of optimism. Using stereotypical examples of stakeholder activism, he alludes to the revolutionary tactic adopted by the former head of Unilever, Pol Polman in abolishing the practice of quarterly earnings calls and a few other examples as denoting a turning point in the world of corporate capitalism. Patagonia and B Corp companies, Seventh Generation and Natura all make their customary appearances in this Chapter which, honestly reads more than just a tad bit contrived.

Gelles also provides a few proposals of his own. A need to pay better pay and benefits, sharing profits and equity, upskilling workers and providing a representation to them on Corporate Boards are some of the measures which according to Gelles, needs to be instituted and implemented post haste. Such procedures would ensure that capitalism goes back to its original intent and thus, beyond “Welchism”.

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