QUICK READ: Jack Welsh was no genius by any means. He was the first person to put shareholders above everything else resulting in thousands of layoffs and his strategic direction away from G.E.s core business caused the company’s downfall from which it’s still trying to recover.
According to the Washington Post, “Welch popularized the concept known as “shareholder value,” the idea that the primary duty of a company’s management is to increase its stock price for the benefit of shareholders. In pursuit of this goal, he bought and sold companies, shedding huge numbers of employees along the way. GE’s share prices soared”.
Never mind the fact Welch routinely closed GE’s Rust Belt factories and moved the jobs to Third World locales, where workers labored for less — much, much less — than the former GE employees. Never mind the fact that he cut funding for research and development, something that can undermine a company’s long-term health. And never mind the fact that the humane postwar arrangement between corporations and their employees — give us your loyalty and we’ll take care of you as best we can — ended in part because of Welch. He made money for shareholders, and that was the important thing.Helaine Olen Washington Post
Welch, like many a corporate honcho, believed in accountability for everyone but himself. When it came to his perceived needs, cost was not a concern. His compensation was outsize — he earned millions and millions of dollars annually. (In 1997, he earned 1,400 times more than the typical American factory worker). The pattern continued even after he exited GE: It came out during his 2002 divorce that the company had continued to pay for everything in his life, from his use of the corporate jet to meals at four-star New York restaurant Jean Georges. GE even settled the bill for the flowers in his apartment.
By the time Welch exited his position in 2001, GE earned a large chunk of its profits not from its traditional industrial strengths but as a financial services company. This turned out to be a major cause of the company’s undoing — it all but blew up in 2008, and Welch’s successors are still trying to put the company back together again. A share of GE is worth an astonishing 80 percent less than it was valued 20 years ago. So much for shareholder value.
I know we’re not supposed to speak ill of the dead, but his effect on American capitalism was too profound — and too destructive — to go unmentioned. Welch turned the focus of the company to its stock price. Everything became secondary to that including employees.
Because Welch was so idolized, the path he trod became the path every other CEO trod as well. They all began focusing on shareholder value. That became the basis on which they were judged and paid. And it warped the business culture, causing companies to put employees, vendors and even customers behind the primacy of shareholders. If you want to see what happens when you take maximizing shareholder value to its logical extreme, I give you Facebook. Or, for that matter, Enron.Joe Nocera, Bloomberg
Now that he is gone the media, for the most part, wants to sing his praises. How many lives did he destroy in the process of putting shareholders first? How much money did he spend when, after he left GE, he still was able to use the corporate jet free?
Right now the pharma industry is very much following the Welch model. Shareholders are king while people decide if they can afford prescription medications and CEOs rake in millions of dollars of compensation based on share price.
I’m sorry Mr. Welch is gone but please don’t make him out to be a business leader when he was strictly a greedy monster.