GE’s Jack Welch is an icon and an influence on MBA students. His idea of winning is defined by GE’s
Mission Statement from 1981 through 1995. In his book, it is described this way: “To be the most competitive enterprise in the world by being No. 1 or No. 2 in every market—fixing, selling, or closing every underperforming business that couldn’t get there.”
The business model followed by General Electric, as described in Welch’s book Winning, delivered extraordinary growth, increasing the market value of GE from just $12 billion in 1981 to about $280 billion in 1998. “This guy's legacy will be to create more shareholder value on the face of the planet than ever—forever,” says Nicholas P. Heymann, a onetime GE auditor who follows the company for Prudential Securities.
To a great extent, Welch reinvented GE, turning it into a global giant. Still, the focus remained on winning. We must also note that during Welch’s leadership there were defense-contracting scandals and the Kidder, Peabody & Co. bond-trading scheme that generated bogus profits.
In 1986, GE bought the venerable 121-year old investment house Kidder, Peabody for $600 million. GE’s time on Wall Street was marked by financial scandals and waning profits at Kidder. I cannot prove that the mission statement Welch points to with pride led to the scandal (which was propagated by one employee, according to Welch). But Welch often uses sports metaphors to define “winning.” Who among us does not believe that at least some athletes’ competitiveness moves them to “do anything” to win, including cheating? If Welch gets credit for raising productivity and stockholder profits, then he also earns responsibility for the downsides, including the purchase of Kidder and the scandal.
Environments where scandals and cheating occur are a curse on our world. In the models developed by the Jack Welches of business, it is money, money, money all the time. To be fair, Welch does say this; “it goes without saying that you have to win the right way—cleanly and by the rules.”
So what happened to cause the scandals on Welch’s watch? Somebody didn’t get the message or they got it very clearly. Since nothing less than winning is acceptable, maybe the rules were stretched to achieve the mission.
Still, Welch made this model work better than perhaps anyone before or since. And in at least one way, Welch models the business paradigm presented in this book because he believes that there are no limits to human creativity.
''The idea flow from the human spirit is absolutely unlimited,'' Welch writes. ''All you have to do is tap into that well. I don't like to use the word efficiency. It's creativity. It's a belief that every person counts.'
For Welch the goals mean efficiencies, cost-cutting, increasing stock value, and winning. At one of GE’s legendary executive retreats, Welch said, ''The market is rewarding you like Super Bowl winners or Olympic gold medalists. I know I have such athletes reporting to me. Can you put your team against my team? Are you proud of everyone who reports to you? If you aren't, you can't win. You can't win the game.'
Welch is the standard for the smart, innovative, and profit-focused business person. That is why I choose Welch as the primary example of what this kind of “winning” looks like in dollars earned. In this model, winners are few and losers are many. We can see the results of that business model in the following numbers:
From 1985 to 2005, the Consumer Price Index (CPI) increased 82 percent. Sounds good, except the reality of this index affects different people in different ways. During that same two-decade period, the average Fortune 500 company pay for CEOs, including salary and options exercised, grew from $1.2 million to $11.8 million (in 2005 dollars). This growth represents an 883 percent increase, which outpaced the Consumer Price Index by $9.6 million. At the same time, the average weekly pay for hourly workers grew from $305 to $551, an 81 percent increase that trails the CPI by $3. So while CEOs outpaced the CPI by $9.6 million, the average worker lost ground.
Is Welch's way the right way to build a business? Is it good for the health of the planet's people? Who does it serve? And does business owe any obligations and have responsibilities to the planet and it's people or does it exit primarily to create goods and services and wealth for shareholders?
As Alex Rodriguez sits alone in the dugout, following the Yankee's third-straight first round elimination, business questions arise: Who will stay and who will go?