David Gelles Dissected The Man Who Broke Capitalism–Jack Welch–at December’s Meeting
By David A. Andelman
When I left CNBC in Washington in 1994, Jack Welch was very much in charge of its owner, General Electric, whose stock was riding high at $50 a share (nearly $100 in today’s dollars). The company had been most generous to me, a very small cog in its corporate wheels, but I was moving to Bloomberg where ownership of individual companies’ shares was frowned upon. At the same time, there was something that told me the Jack Welch years were just too good to be true. So, I sold out. Much to my chagrin, I watched the shares rocket to $450 a share just a few years later, then begin a long, slow descent to where they find themselves today.
I never had a very good sense of just how far off the rails General Electric had gone and at what cost until I listened to The New York Times reporter David Gelles regale a Silurians luncheon on December 21 with tales culled from his remarkable book, The Man Who Broke Capitalism: How Jack Welch Gutted the Heartland and Crushed the Soul of Corporate America―and How to Undo His Legacy .
“When I started looking around, I found so many other CEOs who had been influenced by Welch or actually studied directly with him. But I [also] started to see his fingerprints all over our economy,” Gelles began in his conversation with longtime CNN business anchor and Silurian president-emeritus Mike Kandel. “It was this system that became an insidious way for companies to do business.”
The leadup to this profile of a superstar gone wrong is the Corner Office column Gelles has written for The Times for years. “In the course of those conversations, one name kept coming up, and it wasn’t Steve Jobs. It was Jack Welch. That bugged me for a while. Why was it that a CEO who had been retired for 20 years was still looming large in the minds of today’s CEOs? That was just sort of a puzzle for me.” But one that he has now brilliantly unpacked.
Welch’s system “involved extraordinary deal making,” Gelles continued, “more than 1,000 mergers and acquisitions in his 20 years at GE. That’s to the tune of one per week and all of that was in the service of not only making GE more profitable, but just bigger. Bigger was better. And in the process of that, it got so far away from its industrial roots.” The principal problem was that the real financial engine that propelled GE stock for so long had little to nothing to do with its deep roots in manufacturing. “The vast majority of the profits [of GE] were coming from GE Capital. It was coming from things like high interest credit cards and commercial real estate portfolios,” Gelles told Silurians. “And so, when the financial crisis hit, guess who is left holding the bag with one of the biggest subprime portfolios? It was GE, and that’s why they needed a bailout from Warren Buffett and the federal government.”
Gelles reminded his listeners that GE “traces its roots to Thomas Edison. GE was responsible for so many of the sort of major technological marvels that we all know and take for granted.” But it began to get away, far away, from these roots, especially under Welch. “Moreover, with the aura that Welch projected as an innovator and especially developer of executive talent, it had that reputation of turning out the best of the best corporate leaders. If you hired an executive who had worked for GE you were getting an absolutely top-notch CEO.” In all too many cases that was simply not the case.
Still, as Gelles suggested, it is not impossible that the media should share some of the blame. “The business press in particular, and I regard myself as a central part of the problem,” Gelles conceded. “Since Welch, with everyone from Elizabeth Holmes to Mark Zuckerberg, we are in the habit of celebrating our business leaders as cultural heroes—as sort of exemplary people. And that’s actually that sort of the idea that I start the book with. I ask this question: why do we lionize billionaires? What is it about America that makes the richest among us our heroes? And I don’t have the perfect answer, but [in this book, I’m] trying to sort of scratch at that question as I tried to understand why Welch was able to be so successful for so long.”
Gelles especially cited the example of another mega American corporation —Boeing and its crisis with the 737Max. “This relentless pressure is to sell as much as what we have,” Gelles continued. “There’s very little regard given to research and development. Relate that to what happened to Boeing with the 737Max. The 737 was introduced in the 1960s when the Beatles were still playing. And it’s still the plane. People are flying it. [But] Boeing has just simply not done the work and spent the money to figure out what a truly modern midsize passenger jet for the 21st century should be like. They just haven’t done the work. They haven’t put the money there. They need to do that, but they keep kicking the can down the road
All that said, Gelles does concede that Welch “was insanely smart. This guy knew more about just about everything than anyone he was talking to, [yet he was] at times cruel.” Then Gelles pointed out, “he engaged in behavior that today would be on the front page of The New York Times because it could easily be regarded as sexist or homophobic or deeply inappropriate in a modern office culture, but he got away with it because it was a different time. And he was Jack Welch.”
Finally, Gelles concluded that The Man Who Broke Capitalism is really “a conversation about a system [that] it goes well beyond Welch at this point. In theory, the CEO works for the board and in theory, the board works for the investors, but too often the boards are effectively captured by their CEOs, and they become these clubby little affairs where everyone’s just, you know, trying to not rock the boat.”
“In his heyday, GE was responsible for something like 1% of [America’s] GDP,” Gelles said. “Jack Welch was a CEO who mingled with presidents, who was essentially a statesman and the impact he had on all these other CEOs, the impact he had on business school curriculums, on the boards of directors, not only at GE but it all these other companies is just unparalleled, and I think will remain unmatched for a really long time. So, I say he is why I wrote the book.”
Perhaps not really to celebrate but to debunk.
The date: Wednesday, December 21, 2022
The time: Noon.
The place: The National Arts Club, 15 Gramercy Park South.