Ex-Home Depot disputes book’s characterization of business legend Jack Welch

The late Jack Welch spearheaded the transformation of General Electric into a multinational corporation that at one point became the most valuable company in the world, earning him the reputation of “manager of the century”.

But a recent book raises questions about that legacy. In “The Man Who Broke Capitalism,” journalist David Gelles argues that Welch popularized a shareholder value approach to business at the expense of workers.

One of Welch’s former mentees disagrees with this characterization.

“I have nothing but the highest regard for Jack Welch,” former Home Depot CEO Bob Nardelli said in a recent interview with Yahoo Finance editor for “Influencers with Andy Serwer.”

Nardelli began his career as an entry-level manufacturing engineer at General Electric in 1971. He rose through the ranks, eventually becoming President and CEO of GE Power Systems in 1995. Along the way, he met de Welch, who became his mentor and role model. In fact, Nardelli quickly became known as “Little Jack”.

He still remembers how Welch pushed him to do his best.

“He was the person who could be very stern and give constructive feedback. But he would always put his arm around you and, you know, make you feel extremely important,” says Nardelli, who also served as CEO of Chrysler. “He had the magic of being able to, you know, challenge you… And at the same time, make sure you were highly valued and respected.”

Jack Welch speaks at a news conference in New York in this October 23, 2000 file photo where he discussed General Electric’s proposed acquisition of Honeywell for $45 billion in stock. Image: Reuters

Welch was chairman and CEO of GE for about two decades. During this time, he massively expanded and diversified the business. He extended it to businesses such as computers, credit card processing, and Internet services, among many other areas.

He even ventured into entertainment. In 1986, GE acquired RCA (Radio Corporation of America), which owned NBC.

“He was a real special breed that could run a conglomerate,” Nardelli said. “A lot of people can’t do that.”

As GE grew, Welch adopted a management style that emphasized a hands-on approach to business as well as radical accountability. For example, he identified and fired the bottom 10% of GE’s workforce every year to keep the company competitive.

“He set expectations that encouraged you to reach and stretch to achieve goals you might not have achieved otherwise, and hold you accountable,” Nardelli said.

Under Welch’s leadership, GE was a resounding success. The company’s market value grew from $14 billion in 1981 to $410 billion in 2001. In 1999, Fortune magazine proclaimed Welch “Manager of the Century,” and other leaders began to emulate his approach to business.

“It’s heartbreaking to see what happened to GE”

But Welch’s critics argue that his approach to management, while profitable in the short term, was ultimately unsustainable.

Since Welch retired in 2001, GE has experienced a precipitous decline, especially during the 2008 financial crisis. GE has also made several unfortunate acquisitions. For example, in 2015 it took over gas turbine operations from French company Alstom SA only for gas turbine demand to plummet. The failed deal resulted in a writedown of $23 billion.

In an article for Fortune, Professor Jeffrey Sonnenfeld of the Yale School of Management attributed many of GE’s failures to Welch’s misguided belief that he could succeed in any industry with his management philosophy rather than specific knowledge. to industry.

Baden, Switzerland.  November 2, 2015: Lighting tests during the installation of the new General Electric logo at the former headquarters of Alstom's thermal power station.

Baden, Switzerland. November 2, 2015: Lighting tests during the installation of the new General Electric logo at the former headquarters of Alstom’s thermal power plant.

“This notion of interchangeable management expertise, like interchangeable parts on an assembly line, contributed to massive strategic stumbles under Welch,” Sonnenfeld said.

The company was delisted from the Dow Jones in 2018, and three years later the once-dominant conglomerate revealed it planned to split its operations into three public companies focused on aviation, energy and healthcare. Its market capitalization is now $81 billion, about 20% of what it was under Welch’s leadership.

“It’s heartbreaking to see what happened to GE. I dedicated more than 30 years of my life to it,” Nardelli said. “To have something that was at the top, the best performing market cap, to now see that it’s barely a fraction of what it was, is heartbreaking.”

In ‘The Man Who Broke Capitalism’, David Gelles argues that the spread of Welch’s management philosophy had a corrosive effect effect on society. He even links Welch’s influence to two Boeing plane crashes in 2018 and 2019. He explains that three successive Boeing CEOs had previously worked at GE under Welch and internalized his focus on financial success. Therefore, they prioritized high shareholder value over strong aircraft engineering as they ran Boeing, according to Gelles.

“If you look at the history of Boeing over the past 25 years, you see very clearly the imprint of its leadership, its priorities as passed down through its followers,” Gelles said in a recent interview with Yahoo Finance. . “There was a bigger cultural problem inside Boeing. And that cultural problem ultimately comes back to Jack Welch.

Although he said he respected Gelles’ right to opinion, Bob Nardelli remains firm in the defense of his former mentor, who died in 2020 at the age of 84.

“I don’t think it’s appropriate to go after someone who’s passed away, who doesn’t have the ability to defend themselves,” Nardelli said. “So that’s just my point of view. I mean, I know some people applauded this book. I’m not one of them.

Dylan Croll is a journalist and researcher at Yahoo Finance. Follow him on Twitter at @CrollonPatrol.

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