Ex-Home Depot opposes book characterization of business legend Jack Welch

The late Jack Welch led the transformation of General Electric into a multinational that at one point became the world’s most valuable company – earning him a reputation as the “manager of the century”.

But a recent book raises questions about this legacy. In his book The Man Who Broke Capitalism, reporter David Gillis argues that Welch popularized an approach to management that focused on shareholder value at the expense of workers, and ultimately the company he was running.

A former intern with Welch disagrees with this characterization.

“I only respect Jack Welch,” Bob Nardelli, former CEO of Home Depot, said in a recent interview with Yahoo Finance’s editor-in-chief on Influencers with Andy Serwer.

Nardelli began his career as a junior manufacturing engineer at General Electric in 1971. Working his way up the ranks, eventually becoming President and CEO of GE Power Systems in 1995. Along the way, he met Welch, who became his mentor and role model. In fact, Nardelli soon became known as “Little Jack”.

He still remembers how Welch pushed him to be at his best.

“He was someone who could be very strict and give constructive feedback. He would still put his arm around you, you know, make you feel so important,” Nardelli, who also served as CEO of Chrysler, says. , for challenging you… and at the same time, making sure that you are highly respected and appreciated.”

Jack Welch speaks at a news conference in New York October 23, 2000 File photo as he discusses General Electric’s proposed acquisition of Honeywell for $45 billion in stock. Photo: Reuters

Welch served as Chairman and CEO of GE for nearly two decades. During that time, the company has grown and diversified extensively. He expanded it into businesses that include financial services, real estate, and jet engines, among many other areas.

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

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

As GE grew, Welch adopted a management style that emphasized a pragmatic approach to business as well as radical accountability. For example, he was famous for identifying and releasing 10% of GE’s workforce annually to keep the company competitive.

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

Under Welch’s leadership, General Electric enjoyed resounding success. The company’s market capitalization jumped from $14 billion in 1981 to $410 billion in 2001. Fortune magazine declared Welch “the manager of the century,” in 1999 and other executives began emulating his approach to business.

“It is heartbreaking to see what happened to General Electric.”

But Welch’s critics contend that his approach to management, while profitable in the short term, was ultimately not sustainable.

Since Welch’s retirement in 2001, GE has experienced a sharp decline, especially during the 2008 financial crisis. GE has also made several ill-fated acquisitions. For example, in 2015, it acquired the gas turbine operations of the French company Alstom SA only in order to collapse the demand for gas turbines. The failed deal resulted in a write-off of $23 billion.

In a Fortune article, Yale School of Management professor Jeffrey Sonnenfeld attributed many of GE’s failures to Welch’s mistaken belief that he could succeed across industries with his management philosophy rather than industry-specific knowledge.

Baden, Switzerland.  November 2, 2015: Lighting tests during installation of the new GE logo at the former Alstom Thermal Power headquarters.

Baden, Switzerland. November 2, 2015: Lighting tests during installation of the new GE logo at the former Alstom Thermal Power headquarters.

“The idea of ​​interchangeable management expertise, such as interchangeable parts on an assembly line, contributed to massive strategic pitfalls under Welch’s leadership,” Sonnenfeld said.

The company was dropped from Dow in 2018, and three years later, the once-dominant group revealed that it plans to split its business into three public companies focused on aviation, energy and healthcare. Its market capitalization is now $81 billion – nearly 20% of what it was under Welch.

“It’s heartbreaking to see what happened to General Electric. I spent 30 years of my life in it,” Nardelli said. It is heartbreaking.”

In his book The Man Who Broke Capitalism, David Gillis argues that the spread of Welch’s management philosophy has had the effect of eroding impact on society. He even links the Welch effect to two Boeing crashes in 2018 and 2019. He explains that three Boeing contract CEOs previously worked at GE under Welch and internalized his focus on financial success. Thus, they have prioritized high shareholder value over robust aerospace engineering during their leadership Boeing, according to Gillis.

“If you look at Boeing’s history over the past 25 years, you see very clearly the imprint of his leadership and his priorities as delivered through his disciples,” Gillis said in a recent interview with Yahoo Finance. There was a larger cultural problem within Boeing. And this cultural problem ultimately goes back to Jack Welch.”

Although he said he respects Gillis’ right to an opinion, Bob Nardelli has remained steadfast in defending his former mentor, who died in 2020 at the age of 84.

Nardelli said, “I don’t think it’s appropriate to go after someone who has died, not having the ability to defend himself. That’s just my point of view. I mean, I know some people have praised this book. I’m not one of them.”

Dylan Kroll is a reporter and researcher at Yahoo Finance. Follow him on Twitter at Tweet embed.

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