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Passing of GE’s Welch May Be a Cautionary Tale

Bill Koenig
By Bill Koenig Senior Editor, SME Media

COMMENTARY

When former General Electric Co. chief Jack Welch died this week at 84, it was as if a legend had departed. He was the CEO who had transformed an aging industrial concern into a vibrant giant.

Certainly, Welch was a celebrity CEO. He was portrayed as dynamic. Welch made magazine covers and was hailed as a management genius, even “manager of the century.”

When he appeared on CNBC, the financial news channel owned by GE under most of Welch’s tenure, it was treated as an event. Under Welch, chief from 1981 to 2001, terms such as Six Sigma became trendy in corporate management circles.

Welch even had the colorful nickname “Neutron Jack,” for the way he cut jobs and cast-off units that didn’t perform up to his standards.

In GE’s own statement, Welch was described as “larger than life and the heart of GE for half a century.”

The cautionary part of Welch’s story was how his seeming magic didn’t always translate to others.

Welch’s immediate successor, Jeff Immelt, had his ups and downs. Immelt, in his 16-year run as head of GE, divested financial and media holdings, acquired while Welch was CEO, to concentrate on manufacturing.

Immelt departed in 2017 to at best mixed, and often critical, reviews.

An example of the latter: John A. Byrne, co-author with Welch of Jack: Straight From the Gut, wrote in a 2018 USA Today commentary that Immelt “completely demolished the House that Jack Built… The only mistake Welch made was in picking the weakest of three potential successors. It is, surely, the biggest management error of Welch’s career.”

GE has since struggled and is trying to revive its fortunes under current CEO Lawrence Culp. The ending of that story isn’t yet known.

Another GE executive who was in contention to succeed Welch was Robert Nardelli. After being passed over at GE, Nardelli went to Home Depot. He was forced out. Nardelli later became head of Chrysler Corp. after it was sold by Daimler AG to private equity company Cerebrus Capital Management.

Chrysler almost went out of business. It survived thanks to a U.S. government bailout that saw Italy’s Fiat take over Chrysler. The management system that Nardelli had learned at the House That Jack Built, in the end, didn’t help Chrysler.

What’s more, the Welch playbook didn’t always work well when imported by other companies.

Part of the Welch mystique was a corporate culture where the bottom 20 percent of employees were targeted to be forced out. Jacques Nasser, Ford Motor Co. CEO from 1999 5o 2001, adopted that system, part of an overall effort to remake Ford in GE’s image. It didn’t work and Nasser was deposed.

Today, GE is no longer seen as invincible. Welch still has his admirers. The Wall Street Journal, in an editorial about the former CEO, said Welch’s successors “lacked his perception and adaptability.” Instead, the paper opined, “Jack Welch was the right executive at the right time to invigorate one of America’s greatest industrial names.”

Perhaps so. Still, there are indications the GE playbook that Welch wrote had its limits. GE once was considered a management school. Having a GE pedigree made executives sought after by recruiters. At the very least, playbooks often need updating. Celebrity also has its limits.

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