Reginald Jones, one imagines, never backed anyone up against a wall. And he would never have been caught dead in North Palm Beach.
Did he see something in Welch that he could not find in himself? Was he so critical of his own tenure at America’s flagship corporation that he felt a hundred-and-eighty-degree turn was in order? The most charitable explanation is that the transition from Jones to Welch came at the end of one of the more unsettling decades in the history of American capitalism, and Jones may have felt that the sun had set on his brand of corporate paternalism.
After Welch, at age forty-five, was named the new C.E.O. of General Electric, Jones called him into his office to bestow some final words of wisdom. Another recent book about Welch, David Gelles’s “The Man Who Broke Capitalism” (Simon & Schuster), recounts the exchange:
Then Jones threw his successor a party at the Helmsley Palace Hotel, in midtown Manhattan, where Welch had a few too many cocktails and slurred his way through his remarks to the group. The next morning, Jones stormed into Welch’s office. “I’ve never been so humiliated in my life,” he told Welch. “You embarrassed me and the company.” Welch worried that he would be fired, losing his chance at glory before it had even begun. Cohan writes, “He was despondent for the next four hours.” By lunch, apparently, he had put his existential crisis behind him. That’s our Jack.
Welch believed that the responsibility of a corporation was to deliver predictable and generous returns to its shareholders. In pursuit of this goal, he exploited a loophole in the regulatory architecture of corporate finance. Companies that made things—companies such as G.E.—had long been permitted to lend money to their customers. They could behave like banks, in other words, but they weren’t really banks. Banks were encumbered by all kinds of regulations that had the effect of limiting their profit margins. The markets considered them risky, so they paid dearly to raise capital. But blue-chip G.E. had none of those burdens, which meant that, when it came to making money, Welch’s non-bank bank could put real banks to shame. He then used the proceeds from G.E. Capital to acquire hundreds of companies. In the warm glow of G.E.’s riches, Welch articulated a series of principles that captivated his peers. Fire nonperformers without regret. Shed any business that isn’t first or second in its market category. Your duty is always to enrich your shareholders.
In his interview with Varney, Welch took a question from the audience about how, in enacting these principles, a C.E.O. could tell the difference between leaders who create an “edge” and those who simply create “fear.” Welch explained that there were four types of manager:
In a perfect world, the interviewer would have asked a follow-up question: What are these “values” that you’re talking about? Surely the desire to meet Wall Street’s quarterly estimates—as much as it felt like a value in Welch’s universe—does not amount to an actual moral belief system. And then perhaps a second follow-up: Doesn’t the fourth category—the “tough” manager who makes the numbers but does not have the values—sound a lot like you, Mr. Welch?
But few ever asked questions like that of Welch. So the man himself remains opaque, and the best we can do is try to piece together the clues scattered throughout “Power Failure.”
One time in Welch’s senior year of high school, his hockey team lost to a crosstown rival, and Jack, who had scored his team’s only two goals, threw his stick in anger. Cohan writes:
After college, at the University of Massachusetts, Amherst, he earned a Ph.D. in chemical engineering at the University of Illinois. His thesis was on condensation in nuclear power plants. “I thought it was the most important thing in my life,” he tells Cohan. For many people, years of immersion in a complex intellectual endeavor would leave an imprint. Not for Welch. Condensation in nuclear power plants does not come up again.
Golf, by contrast, was “one of the few constants in Jack’s life,” Cohan writes. “One way or another, there was always golf.” But did he like the game for its own sake? Or was it simply, to adapt Clausewitz’s dictum, the continuation of business by other means? After Welch left G.E., the details of his retirement package were made public. It included a pension of $7.4 million a year and a mountain of perks. He got the use of a company Boeing 737, at an estimated cost of $3.5 million a year. He got an apartment in Donald Trump’s 1 Central Park West, plus deals at the restaurant Jean-Georges downstairs, courtside seats at Knicks games, a subsidy for a car and driver, box seats at the Metropolitan Opera, discounts on diamond and jewelry settings, and on and on—all this for someone worth an estimated nine hundred million dollars. And then, finally, G.E. agreed to pay the monthly dues at the four golf clubs where he played. It would be nice to hear from the high-priced attorney who negotiated that last line item. Would it have been a deal breaker? Did Welch believe golf had been so central to his performance as C.E.O. that it made sense for the company’s shareholders to pay those monthly dues?
A few months after he recovered from his bypass surgery, Welch went to see his heart surgeon, Cary Akins. They had become friends. “He was incredibly cordial for somebody who was that powerful,” Akins tells Cohan. Welch had wanted the operation to be done on a Friday, so that he would have three days of recovery under his belt before the news hit the stock market—and Akins obliged. Now Welch wanted to talk.