Thursday, July 19, 2018

The fall of GE and the legacy of Jack Welch

The fall of GE and the legacy of Jack Welch
by Allen Laudenslager & Bryan Neva

The legacy of John Francis "Jack" Welch Jr. is epitomized in the recent downfall of GE, an American titan of industry. GE was co-founded by Thomas Edison in 1892 and was one of the earliest companies listed on the Dow Jones Industrial Average but was recently dropped due to its falling stock price and loss of value.

The company's difficulties can be traced directly to the management decisions made over the last 38 years beginning with the hiring of Jack Welch as CEO in 1980 and continuing with Jeff Immelt in 2000. GE shifted from a manufacturing company, which created world-class products and developed new and innovative manufacturing methods, into a finance and mergers & acquisitions (M&A) firm.
More than any other person, all those decisions can be traced back to Jack Welch's vision in which he charted the short-term thinking and profit-at-any-price mentality that typified the policies and practices at GE that lead directly and inevitably to it’s current reduced state. And what is most appalling is that so many people saw the trend and publicly warned GE's board of directors that they were building a house of cards that would eventually collapse.

Welch, Immelt, and GE tried to defy the natural law in building their house of cards: if you don't build your house on a firm foundation, eventually, it will collapse! And the other natural law that you'll reap what you sow: you can't plant weeds and expect beautiful flowers to grow; you can't plant ugly, nuisance trees and expect to harvest a bountiful crop of delicious fruit. 

Welch and Immelt treated their employees as expendable units-of-production. They didn't take care of the assets that helped generate revenue for the company. Instead, they made money their god. The only thing that mattered to them was their stock price.

While the GE family of employees, customers, and suppliers will now have to pay the bill for all of GE's short-term thinking over the past 38 years, GE's management gets off scot-free with golden parachutes.

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