Jack Welch: a titan who embodied the worst traits of modern capitalism | Business leader
Obituaries of Jack Welch, the former boss of US conglomerate General Electric (GE) who died last week, have struggled to conclude whether he was a titan of business or ultimately a figurehead who exemplified the worst traits of modern capitalism.
As a business celebrity, there is no doubt he ranks as one of the most praised executives of his era, not least by US presidents. Following his death on 1 March, Donald Trump said: “There was no corporate leader like ‘Neutron Jack’. He was my friend and supporter. We made wonderful deals together.”
Picture archives show him on the golf course with Trump’s predecessors, Democrat and Republican, who marvelled at the transformation wrought by Welch between 1981 and 2001, when he was chairman and chief executive of GE.
In 1999, Fortune magazine went so far as to name him its manager of the century, saying: “He showed business people everywhere a method of attacking change of any kind.”
GE, which during Welch’s reign made everything from plastics and to aircraft engines to televisions and fridges, wasn’t the only company to champion management as a skill to be learned, with its own training centre that Welch would often attend as a lecturer. Firms such as Mars were also lauded for superior management training and supplying much of US commerce with highly regarded leaders; it was just that Welch liked a public fight and the coverage that came with it.
Such was his fame that publishers paid $10m for a self-penned book, Jack: Straight from the Gut. The “Neutron” moniker, which he disliked, stuck with him after he followed through, year after year, with a policy of shutting businesses and clearing out staff who failed to meet his demand for high returns.
He assessed staff annually and ranked them according to their ability to generate profits. The bottom 10% of managers were regularly let go in a cull that also included more than 170,000 employees in his first 10 years in charge.
Not only did this attitude drive unions to despair, it arguably sowed the seeds of the company’s decline. GE today is worth a fifth of the value on the New York Stock Exchange that it enjoyed in 1999, shortly before Welch stepped down.
Where he came unstuck was a strict adherence to shareholder value and a policy of slavishly following what the management accounts told him were his best performing businesses.
In his book Obliquity, the economist John Kay argues that the most successful companies and people focus on being the best they can at producing particular goods and services, with profits sure to follow. A microscopic focus on numbers will only lead to short-term returns.
Welch would criticise his more paternalistic rivals, including Rolls-Royce, for being nothing more than state-subsidised playthings run by book-keepers. Yet it was his obsession with figures that led him into financial services, a move that soaked up the company’s reserves and came unstuck in the 2008 financial crash. GE Capital was a huge lender before the crisis and was forced to retrench in its aftermath.
In his book, Welch pointed to his achievement in building a company with revenues of $27bn at the start of the 1980s into one with sales of $130bn in 2000, during a period of globalisation that put low-cost south-east Asian countries and China in the ascendancy. His legacy, however, must be offset against GE’s treatment of employees, an embrace of debt that symbolised the excesses of the pre-crash era, and the fostering of a short-termist culture that appears to linger in the present-day White House. The rock-star manager of this century will have to behave differently.
John Lewis needs a master of the retail universe
Doctor Who has Jodie Whittaker and Bond’s producers brought in Phoebe Waller-Bridge to rescue its latest script from disaster. Can a bit of female empowerment help that venerable British institution, the John Lewis Partnership, fight of the forces of change that threaten its very existence? Profits are down by nearly a quarter, led by a gobsmacking 65% dive at the group’s John Lewis department stores.
The new chairman (her chosen title), Sharon White, is facing the kind of challenge that even a master of the universe might quake at. How does one regenerate a retailer in the face of the uncertainty around Brexit and the coronavirus, while consumer habits shift rapidly towards online shopping and away from “stuff” in general? Clothing has dropped down shopping lists, while homewares are in the doldrums as housing sales remain slow and new competitors such as Dunelm and Made.com vie for attention.
White’s comments last week showed she has been quick to grasp the issues at hand and is prepared to bring fresh thinking on, for example, the department store’s “never knowingly undersold” price-matching policy. She has been brave in admitting that jobs are likely to go and underperforming stores could shut.
With rivals such as Debenhams, House of Fraser and Beales on the ropes, there is clearly an opportunity for a well-funded and well-run department store to survive. But can it thrive? Shutting shops is likely to lead to negative publicity that may put a further dampener on sales. Walking the line between efficiency and protecting an ethos of care for staff and customers will be tricky.
White will need to find a balance between new ideas and capitalising on the knowledge and experience of her team. She has no experience of running a retailer – can she listen as well as preach?
There can be no ‘levelling up’ if British employers shun regions
The news for regional jobs in Britain was not good last week. The collapse of Flybe will have severe consequences for economic prosperity in smaller communities, with about 2,000 jobs at risk at the regional airline. Barclays announced last week it would close a major office in Leeds, with the outright loss of more than 200 jobs. Both of these developments over the past week are instructive of a wider trend in Britain, the most unequal country for regional prosperity among large wealthy nations.
While Boris Johnson has pledged to “level up” poorer regions to bring them closer into line with the rest of the country, it is equally important that the country’s biggest companies play their part.
Lloyds Banking Group has a slogan that risks sounding as empty as Johnson’s: “Helping Britain Prosper”. Yet the UK’s biggest mortgage lender has announced plans over recent weeks to axe about 780 jobs and close 56 branches across the country. The news adds to a disappointing trend since the financial crisis, as the bank has effectively halved the size of its workforce to about 70,000. Thousands of regional roles have vanished.
Banks and other big firms have offshored regional British jobs to eastern Europe, India and elsewhere, under pressure from shareholders to boost their profits at the expense of local communities. Virgin Money – which has merged with the soon-to-be rebranded Clydesdale and Yorkshire Bank – is in the process of sacrificing 500 roles and 52 branches on the altar of shareholder value. Direct Line will cut 800 jobs from its 11,000-strong workforce as part of a £60m cost-saving drive. All these illustrate the increasingly lopsided nature of the UK economy, exacerbating divisions between small towns and big cities.
For too long, jobs have been lost in regional communities as big business pulls back to metropolitan centres. Levelling up should be about more than just the public sector – private enterprise must play its part.