GE's mastermind reflects on gains, setbacks

Welch built company into world's richest

September 07, 2001

NEW YORK - There won't be any fanfare today when Jack Welch starts his first day of retirement after spending his career turning General Electric Co. into the most valuable company on the planet.

While GE's board meets in Croton-on-Hudson, N.Y., with new Chairman and Chief Executive Officer Jeffrey Immelt in attendance, Welch will be working out at a gym near his Connecticut home - starting at 10 a.m., instead of the usual 5:30 a.m.

"I can hardly wait to go at 10," a smiling Welch said during an interview on his career, which included his legacy, the massive job cutbacks in the 1980s that earned him the name "Neutron Jack" and his failure two months ago to pull off a multibillion-dollar deal to acquire Honeywell International Inc.

During Welch's two decades as its leader, GE expanded from a $13 billion maker of appliances and light bulbs into a $480 billion industrial conglomerate that manages to provide strong returns even during tough economic times. It has 313,000 employees in more than 100 countries.

Along the way, Welch gained adoration from Wall Street and academics who see him as one of the most important and influential business leaders of the 20th century. Under his tenure, hundreds of GE employees became millionaires, and about 15 now run other large companies in the United States and abroad.

Welch will stay in the public eye for the next 2 1/2 months, as he pitches his autobiography, Jack: Straight from the Gut, in a nationwide tour. The first printing is for 1.2 million copies, and Welch received a $7.1 million advance.

After that, Welch plans to write about business management and advise six corporate clients he declined to identify on issues including leadership and developing corporate succession plans

"I want to stay active," he said from a large GE conference room with views of the Hudson River and Central Park on the 53rd floor of Rockefeller Center's GE Building.

Irish family

The only child of an Irish working-class family in Salem, Mass., Welch still has a clipped Boston accent and remains a die-hard Red Sox fan. He acknowledged that a group of investors asked him to consider joining them in a bid to buy the team, but said he declined because it would take the fun out of being a fan.

He joined GE about 40 years ago after getting a doctorate in chemical engineering from the University of Illinois, and he built GE's plastics business into one of the company's fastest-growing divisions.

After he was named CEO in 1981, Welch quickly shook up GE, laying off tens of thousands of employees in his first five years. That earned him his unwanted nickname, after the nuclear weapon that kills people but leaves buildings largely intact.

Welch was unapologetic about the decision, saying longtime GE employees were treated much better than the hordes of dot-com workers who found themselves out of work over the past year as the technology industry crashed.

"I'd like to think they didn't get laid off on a Friday and have the furniture auctioned on a Monday," Welch said. "They got benefits that were unheard of in those days."

Leaner company

Making GE a leaner company was necessary to ensure healthy profits during a period of high inflation and stiff Japanese business competition, he insisted.

"We had over 400,000 people doing roughly one-fifth the business we're doing today," Welch said. "Companies that didn't react, like Westinghouse, who we used to compare ourselves to every quarter, are gone. Gone from the landscape. So we had to change."

Welch also divested GE of billions of dollars in businesses that did not live up to his mantra that they be No. 1 or No. 2 in their markets.

The early moves dismantled GE's bureaucracy and eliminated many layers of reporting relationships. And it made employees who remained proud to be part of the GE team, Welch said.

"We generally have winning businesses," he said. "And the people are winning. They're feeling better; they like coming to work. It's a big deal."

Welch would make hundreds of acquisitions through the 1980s, transforming the company into a leading manufacturer of jet engines, medical equipment and power turbines. Welch counts his $6.4 billion acquisition of RCA, including the NBC television network, in 1986 as one of his best moves.

Nightmare results

But the purchase of Kidder Peabody later that year turned into a nightmare, after the brokerage faced scrutiny from federal law enforcers for complicity in the insider-trading scandals of the late 1980s.

Kidder ultimately paid the government $25 million to settle securities law violations. The pain got worse in 1994, when the brokerage was hit by allegations that a star bond trader concocted $350 million in phony profits to hide losses and fatten his bonus pay.

GE sold the company six months later to PaineWebber. Welch takes the blame, saying the acquisition was his biggest mistake.

"What I say in the book is I had too much hubris. ... I had made a number of acquisitions, and I got too big for my britches," Welch said.

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