TR EMERITUS

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/      Read More →

At least 13 doctors and nurses have died from Covid-19 and more than 3,000 have been infected in China since December 2019, when the epidemic began in the central city of Wuhan in Hubei province, according to the latest figures released by the authorities. The latest casualty was an ophthalmologist, Dr Mei Zhongming who was a colleague of whistle-blower Dr Li Wenliang who died on February 7, sparking widespread grief and fury over the local authorities's attempt to shut him up by accusing the late Dr Li of spreading "online rumours". The 57-year-old ophthalmologist contracted the virus while he was working at Wuhan Central Hospital and died on Tuesday (3 Feb). He was the third doctor from the same hospital to fall victim, the second being 55-year-old Dr Jiang Xueqing, head of thyroid and breast surgery, who died 2 days earlier from the infection. The deadly virus has claimed the lives of several young medical workers. Among the youngest was 29-year-old respiratory and critical care doctor Peng Yinhua, who worked at the Jiangxia district People’s No 1 Hospital in Wuhan and died last month from the disease. Peng had planned to get married over the Lunar New Year holiday but postponed his wedding to help treat coronavirus patients. Another 29-year-old, gastroenterologist Xia Sisi, also died last month after she became infected while working at the Union Jiangbei Hospital in Wuhan. The SARS CoV-2 has killed more than 3,100 people and infected over 92,000, mostly in China, since the outbreak began, and it has spread to more than 50 countries in every continent except Antarctica. Meanwhile, the island city of Singapore has reported another 2 fresh cases of Covid-19 infections, bringing the total tally to 110. According to the health ministry, a total of 78 cases have fully recovered from the infection and have been discharged from the hospital. Of the 32 confirmed cases who are still in the hospital, most are stable or improving. Seven are in critical condition in the intensive care unit.      Read More →

Budget 2020 has to meet two goals. The first goal is to allocate funds for the normal activities during the year. The second goal, which is special for this year, is to provide relief to businesses and households to meet the economic downturn caused by the covid-19 virus. In his budget speech, the finance minister Heng Swee Keat introduced two packages, with a budget of $5.6 billion, to stabilise the economy, help workers to stay in their jobs, help enterprises with their cash flow and provide timely help to households to meet the cost of living. I shall not go through all the details of the many “bits and pieces” that contribute to the $5.6 billion. I agree with many commenters who said that the amounts allocated under several schemes are too small to be of much help. I shall just mention some of them. For example, the job support scheme to help enterprises retain local workers provides a subsidy of 8% of wages for three months only. This quantum is too small and too short to be of much help. There is also a corporate tax rebate of 25%. This does not seem to be of much help to businesses that are not profitable and is struggling to avoid closure. The one month of rental waiver for stalls rented from the government is another example of a parsimonious approach. Let me share my ideas on how I would use the $5.6 billion budget to really help the businesses and workers that are badly affected by the economic downturn. Protect jobs The businesses that are badly affected by the economic downturn have to cut down their wage cost to match the decline in their revenue. Most of them have to retrench their workers. The retrenched workers will not be able to find alternative jobs in a depressed economy. I suggest that the businesses be encouraged to adopt a different approach. Instead of laying-off some workers, they should put ask the workers to take no pay leave. For example, if they have to cut their wage cost by 30%, they should ask all the workers to take no pay leave for 30% of the work week. To help these workers to meet their monthly expenses, the government can provide a monthly loan to the affected workers to cover the loss of income. These loans can be administered by the Central Provident Fund and is based on the loss of income as declared by the employer. Some workers have savings and may not need to avail themselves of this loan. Others may not take the full amount of the loan, as they can reduce the expenses. The loans will carry an interest rate of 2% per annum and can be repaid in the future, when the economy recovers. If they are not repaid, the loans can be set-off against the CPF savings at the time of withdrawal or on the sale of a property covered by CPF. The workers on no-pay leave can use the free time to take up a training course (for which they may receive an allowance), take up part time work, or just take a break. They do not need to worry about the financial impact. For self employed workers such as taxi drivers, the loan can be set at a certain percent of the average monthly income in normal times. These measures give the workers a reason to remain confident about the future, as the economic downturn will be short lived. The mood of consumer confidence will be good for the economy. Reduce rental Apart from wages, rental represents another important component of the operating expenses of a business. The government can encourage by landlords to reduce the rental of the business premises to help the tenants to tide over this difficult period. This encouragement can take the form of a cash subsidy for 50% of the reduced rental. The landlords will be happy to do their part to help their tenants to get over the difficult period, as half of the cost is shared by the government. It is better than having no rental from tenants that have closed their business. This 50% subsidy can also be given to stall holders and taxi drivers who have to pay a rental for their taxis. Providing cash flow Many businesses may need assistance on their cash flow. The government can help them to get the financing from the banks by guaranteeing the loans that they have to take during this period. The loans will be capped at the amount of the monthly rental and the wage bill. It does not cover the other financial needs of the company. The banks will be willing to grant the loans at competitive rates, as they do not have to face the credit risk. How much will these measures cost? The measures that I have suggested are for the duration of the economic downturn. They can start now and continue for a year or two, until the economy recovers. The actual cost to the government is the rental subsidy and the future write-offs of the loans from workers and businesses that are not repaid. I do not know the actual amount, but I estimate that the budget of $5.6 billion would be sufficient to meet the actual cost. The government can monitor the actual loans and the rental subsidy that are granted monthly and see the progress. For the purpose of budgeting, they may assume that 20% of the loans may eventually have to be written off. My suggested schemes also have some self control mechanisms to prevent abuse. The government will need to engage auditors to check on these loans and subsidies, but the abuse is likely to be small.   Anon      Read More →