Jack Welch

During Jack Welch’s tenure, GE increased its market capitalization by over $400 billion.

This is the story of a lucky man, an unscripted, uncorporate type who managed to stumble and still move forward, to survive and even thrive in one of the world’s most celebrated orporations. Yet it’s also a small-town American story.

— Jack Welch

John Francis “Jack” Welch, Jr. was Chairman and CEO of GE between 1981 and 2001. Welch gained a solid reputation for uncanny business acumen and unique leadership strategies at GE. During his tenure, GE increased its market capitalization by over $400 billion. He remains a highly regarded fi gure in business circles due to his innovative management strategies and leadership style.

His net-worth is estimated at $720 million.

Welch was born in Peabody, Massachusetts, in 1935. He graduated from the University of Massachusetts Amherst in 1957 with a Bachelor of Science degree in chemical engineering. He received his M.S. and Ph.D. at the University of Illinois in 1960.

My mother was the most influential person in my life. Grace Welch taught me the value of competition, just as she taught me the pleasure of winning and the need to take defeat in stride. If I have any leadership style, a way of getting the best out of people, I owe it to her. She always insisted on facing the facts of a situation. One of her favorite expressions was “Don’t kid yourself. That’s the way it is.” “If you don’t study,” she often warned, “you’ll be nothing. Absolutely nothing. There are no shortcuts. Don’t kid yourself!”

— Jack Welch

Welch joined General Electric in 1960. He worked as a junior engineer in Pittsfi eld, Massachusetts, at a salary of $10,500 a year. Welch was displeased with the $1,000 raise he was offered after his first year, well as the strict bureaucracy within GE.

He planned to leave the company to work with International Minerals & Chemicals in Skokie, Illinois.
However, Reuben Gutoff, a young executive two levels higher than Welch, decided that the man was too valuable a resource for the company to lose. He took Welch and his first wife Carolyn out to dinner at the Yellow Aster in Pittsfield, and spent four hours trying to convince Welch to stay. Gutoff vowed to work to change the bureaucracy to create a small company environment.

Over dinner, for four straight hours, he was hell-bent on keeping me at GE. He made his pitch, promising to give me a bigger raise and, more important, vowing to keep the bureaucracy of the company out of my way. I was surprised to learn that he shared my frustration with the bureaucracy.

— Jack Welch

Welch was named a vice president of GE in 1972. He moved up the ranks to become senior vice president in 1977 and vice chairman in 1979. Welch became GE’s youngest chairman and CEO in 1981, succeeding Reginald H. Jones. By 1982, Welch had disassembled much of the earlier management put together by Jones.

Through the 1980s, Welch worked to streamline GE and make it a more competitive company. He also pushed the managers of the businesses he kept to become more productive. Welch worked to eradicate inefficiency by trimming inventories and dismantling the bureaucracy that had almost led him to leave GE in the past. He shut down factories, reduced payrolls, cut lackluster old-line units.

The reality was that at the end of 1980, GE was a formal and massive bureaucracy, with too many layers of management. It was ruled by more than 25,000 managers who each averaged seven direct reports in a hierarchy with as many as a dozen levels between the factory floor and my office. More than 130 executives held the rank of vice president or above, with all kinds of titles and support staffs behind each one. (Today, in a company six times as large, we have roughly 25 percent more vice presidents. We have fewer managers, and most now average over 15 direct reports, not seven, with in most cases fewer than six layers between the shop floor and the CEO.)

— Jack Welch

Welch’s philosophy was that a company should be either #1 or #2 in a particular industry, or else leave
it completely. Although he was initially treated with contempt by those under him for his policies, they
eventually grew to respect him. Welch’s strategy was later adopted by other CEOs across corporate
America.

Being No. 1 or No. 2 wasn’t merely an objective. It was a requirement.

— Jack Welch

Each year, Welch would fire the bottom 10% of his managers. He earned a reputation for brutal candor
in his meetings with executives. He would push his managers to perform, but he would reward those in the top 20% with bonuses and stock options.

He also expanded the broadness of the stock options program at GE from just top executives to nearly
one third of all employees. Welch is also known for destroying the nine-layer management hierarchy and bringing a sense of informality to the company.

During the early 1980s he was dubbed “Neutron Jack” (in reference to the neutron bomb) for eliminating employees while leaving buildings intact. In Jack: Straight From The Gut, Welch states that GE had 411,000 employees at the end of 1980, and 299,000 at the end of 1985. Of the 112,000 who left the payroll, 37,000 were in sold businesses, and 81,000 were reduced in continuing businesses. In return, GE had increased its market capital tremendously.

We went from 411,000 employees at the end of 1980 to 299,000 by the end of 1985. During that time we newly recruited 6,000 people. Of the 118,000 people who left the GE payroll, about 37,000 were in businesses we sold, but 81,000 people lost their jobs for productivity reasons. Throughout the company, people were struggling to come to grips with the uncertainty.

— Jack Welch

In 1986, GE acquired NBC, which was located in Rockefeller Center; Welch subsequently took up an office in the GE Building at 30 Rockefeller Plaza. During the 1990s, Welch helped to modernize GE by shifting from manufacturing to financial services through numerous acquisitions.

Welch adopted Motorola’s Six Sigma quality program in late 1995. In 1980, the year before Welch became CEO, GE recorded revenues of roughly $26.8 billion. In 2000, the year before he left, the revenues increased to nearly $130 billion. When Jack Welch left GE, the company had gone from a market value of $14 billion to one of more than $410 billion at the end of 2004, making it the most valuable and largest company in the world.

At the time of his retirement, Welch received a salary of $4 million a year, followed by his record retirement plan of $8 million a year. In 1999 he was named “Manager of the Century” by Fortune magazine.

There was a lengthy and well-publicized succession planning saga prior to his retirement between James McNerney, Robert Nardelli, and Jeffrey Immelt, with Immelt eventually selected to succeed him as Chairman and CEO. Nardelli became the CEO of Home Depot until his resignation in early 2007, while McNerney became CEO of 3M until he left that post to serve in the same capacity at Boeing.

Throughout my 41 years at GE, I’ve had many ups and downs. In the media, I’ve gone from prince to pig and back again. And I’ve been called many things. In the early days, when I worked in our fledging plastics group, some called me a crazy, wild man. When I became CEO two decades ago, Wall Street asked, “Jack who?” When I tried to make GE more competitive by cutting back our workforce in the early 1980s, the media dubbed me “Neutron Jack.” I’ve been No.1 or No.2 Jack, Services Jack, Global Jack, and, in more recent years, Six Sigma Jack and e-business Jack. Those characterizations said less about me and a lot more about the phases our company went through. Truth is, down deep, I’ve never really changed much from the boy my mother raised in Salem, Massachusetts.

— Jack Welch

While many chief executives take the opportunity of retirement to enjoy a more sedate existence, Welch has embarked on a second career and life, replete with books, magazine columns and speaking engagements that have added to his already considerable celebrity.

His fellow chief executives clamor for his time: he is a paid consultant to G100, an exclusive club for chief executives that meets twice a year. He is also a paid adviser to Barry Diller, the chief executive of IAC/InterActiveCorp, as well as Clayton, Dubilier & Rice, the big private equity firm.

All together, Welch appears to be making at least $10 million a year.