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Master investor Warren Buffett keeps telling us that successful investing is simple: just buy strong companies with smart management, then hold on to them. Probably no company and no manager better illustrate that point than General Electric and its feisty, driven and sometimes arrogant chief executive, Jack Welch.
GE, at 103 years of age, is one of the most profitable and powerful businesses in America today. GE employs about 250,000 people who operate in more than 100 countries. The United States has only a handful of corporations with the history and authority of GE. It is in a class with such ancient and influential Japanese conglomerates as Mitsubishi and Sumitomo, European corporations like Unilever and Nestle, and deeply rooted U.S. giants like DuPont and Coca Cola.
Since its inception, GE has endured 19 presidents, 23 recessions, the Great Depression, six wars and countless changes to the tax code. During that time GE has been awarded more patents than any other company in the United States.
When Welch took over 17 years ago, most observers thought he was lucky, stepping into such a successful, well-managed, venerable company. That year GE's profit was up 9 percent to nearly $1.7 billion. Only nine other Fortune 500 companies had earned more. The media, GE's workers and many others were dumbfounded when Welch urgently demanded change before it was too late. They thought he'd been overcome by his new power.
Although at 41 he was the youngest CEO ever named at GE, Welch had been on the inside for all of his career. He knew what others had not yet fully recognized — a stodgy GE was headed for ossification. Welch knew that the business world faced cataclysmic changes in a new global, high-technology environment. He didn’t think GE was ready.
It took time before people saw the wisdom of what Welch was doing, ripping apart GE, laying off thousands of people, then carefully rebuilding the corporation. At first he was called "Neutron Jack," an executive who, like the bomb, destroyed people but left buildings standing. But recognition did come. Industry Week noted that Welch, "the most acclaimed SOB of the last decade (1980s) is the most acclaimed CEO of this one."
After a decade and a half of relentless turmoil, GE was the leader of the pack among the best-managed and most-profitable companies. It achieved the highest valuation of any publicly traded company in the world.
"Welch's GE," says Victor H. Vroom, a consultant and a professor at the Yale School of Organization and Management, "is a model for the promise — and the problems — of creating the modern industrial company."
Here is a sample of Welch's philosophy, in his own words:
- On leadership:
"The world of the 1990s and beyond will not belong to 'managers' or those who can make the numbers dance. The world will belong to passionate, driven leaders — people who not only have enormous amounts of energy but who can energize those whom they lead."
- By the year 2000, half of all GE's revenues will be generated abroad. Welch says this about the risks of operating in the international business arena:
"You know, people say, 'You’re taking too big a risk in China.' What are my alternatives? Stay out? China may not make it, and we may not make it in China. But there's no alternative to being in there with both feet, participating in this huge market, with this highly intelligent crowd of people. We don’t know China. Every time I leave China, I know how much I don’t know. I was there three times last year. We ran a 'best practices study.' We talked to a zillion firms. We know this much: We’re going to be there."
- On simplifying and streamlining business practices:
"You can’t believe how hard it is for people to be simple, how much they fear being simple. They worry that if they're simple, people will think they're simple-minded. In reality, of course, it’s just the reverse. Clear, tough-minded people are the most simple."
- Simplicity helps corporations to move quickly, something that gives U.S. businesses an enormous advantage in global markets:
"Speed is everything. It is the indispensable ingredient in competitiveness. Speed keeps business and people young. It’s addictive, and it’s a profoundly American taste we need to cultivate."
Welch grew up in Salem, Massachusetts. The son of a railroad conductor, he failed to win a scholarship to an Ivy League school, so attended the University of Massachusetts instead. He once offered this economic advice to President Clinton:
"Americans are winners by nature, not whiners. Don't baby or patronize them or try to protect them. Appeal to their competitiveness, challenge them to break the barriers that separate and slow them down. Keep the bureaucrats and industrial policy types away from their enterprises; let them go and watch what happens. No one who has done that has ever been disappointed."
Janet Lowe's eighth book, "Jack Welch Speaks: Wisdom from the World's Greatest Business Leader," published by John Wiley & Sons, hit bookstores last month.
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