The Neutron Dissipates

Neutron Jack Welsh, the former CEO of General Electric (“GE”) died at the age of 84 today. Mr. Welsh was the “Management Guru” for my era, the era of Gen X. At the time of his retirement, Mr. Welsh was hailed as the role model of what a CEO should be. When he took over the reigns of GE in 1981, the market capitalization was around US$12 billion. By the time he retired in 2001, the market value of GE stood at an eye popping US$410 billion (by way of a reference point, the economy of Ireland in 2019 was US$405 billion).

By way of a full and frank disclosure, I was a vendor to the Southeast Asian branch of GE Commercial Finance back in 2008. It was a very special time for the GE brand. Mr. Welsh was still a legend and GE took pride in how it understood business and how to manage business. The key selling point for GE Commercial Finance was not their ability to provide financing but to provide management knowledge. The concept was known as “At the customer for the customer.” The people at GE were dynamic and full of life.

Unfortunately, I never got the chance to build the relationship with GE the way I wanted to. This was 2008 and the finance industry was heading for a nasty patch. The much-heralded finance arm that Mr. Welsh had built in the 90s was about to turn sour. All activities with GE froze after Mr. Welsh’s successor had said the quarterly results were “in the bag,” and when they were not, the stock price went to the shit. GE went quiet and that was pretty much it. The commercial finance arm was then sold to Standard Chartered bank and the people I knew there, including the CEO, Mr. Ed Ng, moved onto better things (incidentally, Mr. Ng’s immediate boss at the time was John Flannery, who would go onto be CEO but would only last 14 months in the job).

Much has been said about how Mr. Welsh was the last of an era of the “Cult of the CEO, and many of the things that Mr. Welsh did are now being blamed for the troubles that GE is currently facing. The most prominent of those was the reliance of the finance arm for growth. Mr. Welsh had famously promoted finance as the growth industry that didn’t require overheads (just lend the stuff in your bank account). However, like the banks it was competing with GE’s finance arm had cash flow issues and Mr. Immelt, Mr. Welsh’s chosen successor had to famously look to Mr. Buffet for an investment.

Mr. Welsh made his mistakes and while he did back the Occupant of 1600 Pennsylvania Avenue in 2016, Mr. Welsh was undoubtedly right on many of the big issues, which run contrary to Trumpian Protectionism.

The issue that first made Mr. Welsh famous was his ability to fire people. Mr. Welsh had a certain ruthlessness to him. Mr. Welsh earned the nickname of “Neutron Jack” in his early years when he fired some 170,000 people (By comparison Melbourne Cricket Ground can hosts a mere 100,000). Mr. Welsh famously made it a policy to cull the bottom ten percent of GE staff.

In this day and age of needing jobs, Mr. Welsh’s philosophy sounds like it belongs to an era of dinosaurs, where the T-Rex munches on everything else. One of the reasons why Mr. Trump won the election was because people believed that he could make the jobs come back. I also think of bosses who take pride in the fact that they’ve never fired anyone and have fought tooth and nail to “save jobs.”

Having had jobs that, I couldn’t leave and having being fired from steady employment, I’m with the guys who do fire employees who don’t perform. I get the fact that many of my contemporaries and the generation before me grew up in an era where the employer was supposed to look after you by guaranteeing you a job.

However, as Mr. Welsh rightfully argued, businesses are not there to guarantee jobs nor are they there to “look after you.” Businesses are there to guarantee their customers and their profits. The “paternalistic” view of business and employment is certainly comfortable but is it really good for anyone? Think of companies like Nokia, which was effectively the by word for mobile phones. They made excellent phones but couldn’t see that people would want to use their phones as mini-computers rather than just phones. It was only a matter of years in which Nokia, a by word for mobile phone and Finland became irrelevant and ended up selling its mobile business at fraction of what it was once worth.

What is true of businesses is also the same of individuals. The problem with knowing your pay cheque is guaranteed is the fact that you have utterly no incentive to perform. People become comfortable. Employees get into the mode about bitching about their jobs but never leave because, well, why should they, the cheque is going to be there at the end of the month. Employees with no motivation to improve do not as a rule make businesses more profitable.

I’m with Mr. Welsh when he states that you’re probably not performing because you’re not happy where you are, so you have the chance to find a place where you can be happy. I think of my luckiest moment in my PR career being when I left BANG PR. It ended my PR career (PN Balji advising me that I shouldn’t bother looking for a job because I’d never be able to explain why I never stayed anywhere longer than a year) but it gave me all three of my greatest moments, namely the Saudi Crown Prince visit and the IIM and IIT alumni events. These were events that put me, as an individual (without being told what to do by London or New York) on the level on dealing with cabinet ministers. It was something I could never have done had I ended up in the confines on a conventional agency. I don’t think my story is particularly unique.

The other issue that I believe Mr. Welsh got right was on China, or the “strategic competitor.” Donald Trump and his ilk talked about the USA being “raped” by China through unfair competition. Something similar was said of Japan in the 80s. While, I do agree that China and Japan had engaged in “unfair” practices.

However, Mr. Welsh did argue that that while China was a land of a billion competitors, it was also a land of a billion customers and offered opportunities for American businesses. Mr. Welsh was actually respectful of the “threat” of competition from poor third world nations. “Who says we deserve what we’ve got?” he would say. “These people are after our lives. We’ve got to work like dogs.”

I will miss Mr. Welsh. While he had a ruthless streak and made his mistakes, he did represent a sense of optimism and an era where some form of competence was held in high esteem. Mr. Welsh thrived on challenges and if we should learn anything from him, it would be to embrace challenges rather than to seek protectionism and think of cowardice as a form of heroism.

 

Tang Li

*The author blogs at http://beautifullyincoherent.blogspot.com/

 

 

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6 Responses to “The Neutron Dissipates”

  • Sojoürner:

    Hmmm – More gibberish from Tang Li. The G.E. story is the best example of this while it was under the control of Jack Welch. Mr. Welch’s goal was to maximize profits by outsourcing labor to lowest cost countries. He changed G.E. from a manufacturing giant to a financial services company into a debt loaded bank. Jack Welch turned a company that once made things and employed hundreds of thousands. His hand chosen replacement Jeff Immelt was loading up on subprime loans until it all burst.

    Immelt is the last guy to give direction. Look at what some other high ranking GE Alumni (Robert Nardelli – Home Depot) have done to destroy American companies. On GE really “making stuff,” it reminds me of the story about Lloyd Blankfein (CEO, Goldman Sachs) and Mike Neal (CEO, GE Capital) who were lost on a desert island with nothing but their clothes. They were discovered five years later and in a press release, they announced that while there they had both made over twenty billion dollars by trading their hat back and forth.

    GE’s financial services businesses accounted for about one-third of the company’s revenues in 2010, not more than half, and has little to do with American prosperity also doesn’t stand up to scrutiny maximizing financial leverage to the detriment of competitors and American workers. Yet he was made the darling of the Business schools and even the media. American business has forgotten what Henry Ford believed.

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  • Bapak:

    Sound like the writer is telling us Singapore must be treated like this CEO’s way.

    If so, when is SG CEO demise?

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  • oxygen:

    @ Tang Li

    GE CAPITAL BANKROLLED the “good times” of GE Appliances but it is only as good as GE Capital sustains its own competitive survival. It carries a lot of consumer bad debts exposed in the GFC.

    J. Immelt was his legacy fabrication of J. Welch’s creation. He was a non-performer.

    Anyone who bought GE shares near the top when he vacated the top job and selected Inmelt to be his successor LOST THEIR SHIRT, PANTS AND SOMETHING ELSE TOO.

    I count my blessing not owning any GE shares.

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  • patriot of TUMASIK:

    Tang is now telling ALL who he is and it is OBVIOUS he is No small fish in a Tank but a bigger one swimming among the Swamps…why are you not in Politics???… or does it irks you and the safer way is to comment & judge Blogging and Posting…you can definitely show your prowess in the arena of Public Forums leh!!!…”Just do IT” and not try to make yourself a Literati and Pundit in Blogs & Post

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  • UniQ:

    Dear TS,

    Please do run a business and have a bunch of people working for the Company while some are even sole breadwinner in the family. Then you let me know how you could balance ‘profitability’ and ensuring viable Employment.

    Your thoughts are from many top employed professionals. These are not business founder. Allow me to share a statement that I try very hard to maintain till today :
    自勇不息
    口得在心

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  • Mattman:

    It’s Welch not Welsh. Somehow I thought Welch was much older than 84. Given people like Sanders and Biden are running for President, it seems a bit young to die when you have that much money to enjoy life, and experience to contribute to good causes. RIP Jack.

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