CASE STUDY - GE AND JACK WELCH Jack Welch was born in Salem, Massachusetts to John, a Boston & Maine

Railroad conductor, and Grace, a housewife. Welch attended Salem High School and later the University of Massachusetts Amherst, graduating in 1957 with a Bachelor of Science degree in chemical engineering. While at UMass he was a member of the Alpha chapter of the Phi Sigma Kappa fraternity. Welch went on to receive his M.S. and Ph.D at the University of Illinois at Urbana-Champaign in 1960. Welch joined General Electric in 1960. He worked as a junior engineer in Pittsfield, Massachusetts, at a salary of $10,500 annually. Welch was displeased with the $1,000 raise he was offered after his first year, as well as the strict bureaucracy within GE. He planned to leave the company to work with International Minerals & Chemicals in Skokie, Illinois. However, Reuben Gutoff, a young executive two levels higher than Welch, decided that the man was too valuable a resource for the company to lose. He took Welch and his first wife Carolyn out to dinner at the Yellow Aster in Pittsfield, and spent eight hours trying to convince Welch to stay. Gutoff vowed to work to change the bureaucracy to create a small-company environment.
"Trust me," Gutoff remembers pleading. "As long as I am here, you are going to get a shot to operate with the best of the big company and the worst part of it pushed aside." "Well, you are on trial," retorted Welch. "I'm glad to be on trial," Gutoff said. "To try to keep you here is important." At daybreak, Welch gave him his answer. "It was one of my better marketing jobs in life," recalls Gutoff. "But then he said to me--and this is vintage Jack--'I'm still going to have the party because I like parties, and besides, I think they have some little presents for me.'" Some 12 years later, Welch would audaciously write in his annual performance review that his long-term goal was to become CEO.[2]

Welch was named a vice president of GE in 1972. He moved up the ranks to become senior vice president in 1977 and vice chairman in 1979. Welch became GE's youngest chairman and CEO in 1981, succeeding Reginald H. Jones. By 1982, Welch had disassembled much of the earlier management put together by Jones.

Tenure as CEO of GE
Through the 1980s, Welch worked to streamline GE. In 1981 he made a speech in New York City called "Growing fast in a slow-growth economy".[3] This is often acknowledged as the "dawn" of the obsession with shareholder value. Later, in an interview with the Financial Times on the Global financial crisis of 20082009, Welch said, On the face of it, shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy... your main constituencies are your employees, your customers and your products.[4] He also pushed the managers of the businesses he kept to become more productive. Welch worked to eradicate inefficiency by trimming inventories and dismantling the bureaucracy that had almost led him to leave GE in the past. He shut down factories, reduced payrolls and cut lackluster old-line units. Welch's philosophy was that a company should be either #1 or #2 in a
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particular industry, or else leave it completely. Welch's strategy was later adopted by other CEOs across corporate America. Each year, Welch would fire the bottom 10% of his managers. He earned a reputation for brutal candor in his meetings with executives. He would push his managers to perform, but he would reward those in the top 20% with bonuses and stock options. He also expanded the broadness of the stock options program at GE from just top executives to nearly one third of all employees. Welch is also known for destroying the nine-layer management hierarchy and bringing a sense of informality to the company. During the early 1980s he was dubbed "Neutron Jack" (in reference to the neutron bomb) for eliminating employees while leaving buildings intact. In Jack: Straight From The Gut, Welch states that GE had 411,000 employees at the end of 1980, and 299,000 at the end of 1985. Of the 112,000 who left the payroll, 37,000 were in sold businesses, and 81,000 were reduced in continuing businesses. In return, GE had increased its market capital tremendously. In 1986, GE acquired NBC, which was located in Rockefeller Center; Welch subsequently took up an office in the GE Building at 30 Rockefeller Plaza. During the 1990s, Welch helped to modernize GE by shifting from manufacturing to financial services through numerous acquisitions. Welch adopted Motorola's Six Sigma quality program in late 1995. He led the company to massive revenues. In 1980, the year before Welch became CEO, GE recorded revenues of roughly $26.8 billion. In 2000, the year before he left, the revenues increased to nearly $130 billion. When Jack Welch left GE, the company had gone from a market value of $14 billion to one of more than $410 billion at the end of 2004, making it the most valuable and largest company in the world. At the time of his retirement, Welch received a salary of $4 million a year, followed by his record retirement plan of $8 million a year. In 1999 he was named "Manager of the Century" by Fortune magazine. There was a lengthy and well-publicized succession planning saga prior to his retirement between James McNerney, Robert Nardelli, and Jeffrey Immelt, with Immelt eventually selected to succeed him as Chairman and CEO. Nardelli became the CEO of Home Depot until his resignation in early 2007, and until recently, was the CEO of Chrysler, while McNerney became CEO of 3M until he left that post to serve in the same capacity at Boeing.

Criticism
Some industry analysts claim that Welch is given too much credit for GE's success. They contend that individual managers are largely responsible for the company's success. [5] For example GE Capital, under Gary C. Wendt, contributed nearly 40% of the company's total earnings while NBC and Robert C. Wright worked to turn the network around, leading to five years of double-digit earnings growth. It is also held that Welch did not rescue GE from great losses as the company had 16% annual earnings growth during the tenure of his predecessor, Reginald H. Jones. Critics also say that "the pressure Welch imposes leads some employees to cut corners, possibly contributing to some of the defense-contracting scandals that have plagued
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GE, or to the humiliating Kidder, Peabody & Co. bond-trading scheme of the early 1990s that generated bogus profits".[2] Welch has also received criticism over the years for an apparent lack of compassion for the middle class and working class. Welch has publicly stated that he is not concerned with the discrepancy between the salaries of top-paid CEOs and those of average workers. When asked about the issue of excessive CEO pay, Welch has stated that such allegations are "outrageous" and has vehemently opposed proposed SEC regulations affecting executive compensation. Countering the public uproar over excessive executive pay (including backdating stock options, golden parachutes for nonperformance, and extravagant retirement packages), Welch stated that CEO compensation should continue to be dictated by the free market, without interference from government or other outside agencies.[6] In addition, Welch is a vocal opponent of the SarbanesOxley Act of 2002.[7] His views are often described as controversial, particularly regarding CSR, which he regards as an attractive strategy as long as customers are prepared to put up with the higher prices that go with it. The 2009 recession, says Welch, makes it very difficult for consumers to choose higher prices simply for the benefit of "feeling good about themselves". On environmentally friendly cars, he says: "When gas costs $4 per gallon, a hybrid Toyota Prius is an attractive value proposition. When gas is $2 per gallon, that's no longer the case. When most consumers have good jobs and feel secure in them, it makes sense to expect them to pay more for a product that's environmentally friendly. When bank accounts have been drained, that more expensive product is a very tough sell."[8]

Personal life
Welch has had a slight stutter since childhood. He had four children with his first wife, Carolyn. They divorced amicably in April 1987 after 28 years of marriage. His second wife, Jane Beasley, was a former mergers-and-acquisitions lawyer. She married Jack in April 1989, and they divorced in 2003. While Welch had crafted a prenuptial agreement, Beasley insisted on a tenyear time limit to its applicability, and thus she was able to leave the marriage with an amount believed to be in the range of $180 million. [9] The third wife of Jack Welch is Suzy Wetlaufer, who co-authored his 2005 book Winning as Suzy Welch. Wetlaufer served briefly as the editor-in-chief of the Harvard Business Review before being forced to resign in early 2002 after admitting to having been involved in an affair with Welch while preparing an interview with him for the magazine. Welch underwent triple bypass surgery in May 1995. He returned to work full time in September of the same year and also adopted an exercise schedule that included golf. Welch is a member of Augusta National Golf Club. However, in Winning, Welch acknowledges that back problems forced him to give up playing golf, and that, surprisingly, he doesn't miss it. He acknowledges using his time formerly spent on the golf course to consult with companies and indulge other personal interests such as modern art, international travel, teaching and attending Red Sox games. Since then, he has picked up his golf game, playing at courses such as Nantucket Golf Club, Sankaty Head Golf Club, and the Country Club of Fairfield, CT, among others.

On January 25, 2006, Welch gave his name to Sacred Heart University's College of Business, which will be known as the "John F. Welch College of Business". [10] Since September 2006, Welch has been teaching a class at the MIT Sloan School of Management to a hand-picked group of 30 MBA students with a demonstrated career interest in leadership.[11] He is also a global warming skeptic.[12] Yet he has said that every business must embrace green products and green ways of doing business, "whether you believe in global warming or not...because the world wants these products." [13] Thanks to a donation from Jack Welch the Jack Welch Management Institute at the Chancellor University in Ohio was found in July 2009. The institute offers a MBA program based on Welch's management philosophy. Classes are offered both online and at the schools Cleveland campus.[14]

References
1. ^ Storrs, Francis (March 2006). "The 50 Wealthiest Bostonians". Boston magazine. http://www.bostonmagazine.com/articles/the_50_wealthiest_bostonians/ . Retrieved 200810-03. 2. ^ a b How Jack Welch Runs GE 3. ^ Betsy Morris, 'Tearing up the Jack Welch playbook' (11.7.2006) Fortune at CNNmoney.com 4. ^ Guerrera, Francesco (2009-03-12). "Welch rues short-term profit obsession". Financial Times. http://www.ft.com/cms/s/0/294ff1f2-0f27-11de-ba10-0000779fd2ac.html. Retrieved 2009-03-12. 5. ^ Khurana, Rakesh (2002-09-13). "Good Charisma, Bad Business". New York Times. http://query.nytimes.com/gst/fullpage.html?res=9C02E0DD1031F930A2575AC0A9649C8B63& sec=&spon=&pagewanted=all. Retrieved 2008-07-06. 6. ^ 'Hardball with Chris Matthews' for July 12, 2006 7. ^ Jack Welch Gives Straight Talk About Winning 8. ^ 'Profits first, CSR second' for May 26, 2009 9. ^ Lovers seek lawyers as divorce booms 10. ^ Sacred Heart University Names College of Business for Legendary GE Chairman Jack Welch 11. ^ Corporate icon Jack Welch to teach at MIT Sloan 12. ^ Peter Sasso reports on MSNBC's Morning Joe: global warming skepticism 13. ^ Fresh Dialogues Interview with Alison van Diggelen, May 2009 14. ^ The Jack Welch MBA, July 2009

QUESTIONS FOR DISCUSSION: 1. What type of personality can be assigned to Jack Welch? 2. Which theory of personality is aptly applicable to Jack Welch? 3. Apply nature Vs nurtuere theory to Jack Welch.