By Mick Brooks
On Tuesday, the Financial Times carried a full page advert from General Electric and an obituary for its former boss, Jack Welsh, who, the paper said, embodied the past century’s “cult of the CEO”. Even FT had to admit that “Jack divided staff into A, B and C players, with the Cs in the bottom 10 per cent ruthlessly ditched”. Here, Mick Brooks give a flavour of what Jack Welch was about.
Jack Welch was the Chief Executive Officer of the American firm General Electric from 1981 to 2001. In the year he retired GE was the top firm in the Financial Times Global 500, with a market capitalisation of $474,955m, sales of $110,832m, profits of $15,942m and capital employed of $119,198m.
Welch was a big beast of the big business of his time. GE was a conglomerate with a finger in all sorts of pies. It started in electricity, as Edison General Electric, but diversified under Welch into entertainment, financial services, aviation, healthcare and venture capital, among other businesses. GE did not nurture new or growing firms. It made no effort to develop the productive forces. It just took over existing outfits and sweated and squeezed them remorselessly.
‘neutron Jack’ killed jobs and left buildings intact
Welch was famous for ‘downsizing’, picking companies to bits like a vulture. He was known as ‘neutron Jack’ after the bomb that kills humans but leaves buildings standing. In his first five years as CEO, General Electric shed more than 100,000 workers, a quarter of the workforce. He also pioneered outsourcing, exporting industry and jobs to cheap-wage economies such as Mexico, leaving loyal US workers stranded.
Welch’s mantra was ‘maximising shareholder value’. Shareholders are seen as the owners of the company. They can do what they like with it. Nobody else matters – employees, customers and the wider interests of society don’t count as ‘stakeholders’ in company law.
Shareholders did well under Welch. By 2001, GE shares were worth more than 30 times what they had been in 1981. As a faithful servant to GE’s shareholders, Welch didn’t do too badly himself. He collected $40 million in remuneration in 1997 alone. Jack got 1,400 times as much as the average blue-collar GE worker in the US that year.
Stock options as ‘wages’
But don’t get the idea Jack was basically on a wage. Most of his wedge came from stock options – the right to buy the company’s shares. In the roaring stock market of the 1990s, it was a one-way bet for the rich. CEOs got 85 times as much as the rest of the workforce in 1990. By 1999 it was 475 times as much, and stock options were the crowbar opening up the gap between rich and poor.
He was (no surprise there) a staunch right-wing Republican and buddy to Donald Trump. Then there were Welch’s perks – tickets to the Metropolitan Opera, the New York Yankees and Wimbledon, an apartment on Central Park, New York and a corporate jet. So Welch and GE shareholders were doing each other proud.
Immediately after retirement, Welch was self-critical. “I should have torn down the structures sooner, sold off weak businesses faster than I did. This so-called ‘toughest boss in America’ wasn’t tough enough.”
GE hasn’t done so well since Welch retired. In recent years it has severely underperformed the stock market by about 75%, as its profitability collapsed. Why? Taking over companies and looting them is not a viable long term strategy for capitalism. It is an indication of the increasingly parasitic nature of the system. Welch’s career serves as a symbol of that decline.
On mature reflection, Welch admitted that shareholder value is, “the dumbest idea in the world.” Thousands of decent working class people learned that the hard way, thanks to Jack Welch.
March 4, 2020
