Jack Welch is probably the world’s most famous ex-CEO. Unlike many contemporaries he doesn’t want to join boards or run for political office. What he does like is giving straight from the shoulder reflections on his time at General Electric and on events in the corporate world. Jacqueline Burns provides a compilation of his interview with ABC presenter Maxine McKew.
Jack hammers it in to Australian business
Jack Welch is probably the world's most famous ex-CEO. Unlike many contemporaries he doesn't want to join boards or run for political office. What he does like is giving straight from the shoulder reflections on his time at General Electric and on events in the corporate world. Jacqueline Burns provides a compilation of his interview with ABC presenter Maxine McKew.
Ask 10 people to name the greatest corporate leader of the 20th century, and nine of them will likely respond, Jack Welch. At 44, Welch was crowned the youngest ever chairman and CEO of a major corporation – General Electric. That was impressive, but what was remarkable was his performance while on the corporate throne.
During his 20-year tenure, Welch rewrote
the corporate playbook and was the architect,
motivation and inspiration behind GE's incredible growth in shareholder value. The numbers speak for themselves.
• revenue grew from $US25 billion to
• stock price increased 40-fold
• market capitalisation climbed from $US13 billion to upwards of $US400 billion
• earnings rose from $US1.65 billion to over $12.7 billion
In his prime, Welch was described as a ferocious deal maker. These days, age 68, he uses his ferocity to question the norms and change the system. His first (long overdue) visit to Australia included
two invitation-only lunches, hosted by Deloitte Consulting.
More than 600 of Australia's most influential business leaders scrambled to hear Welch's views on corporate governance, leadership, change, the economy – and just about everything else.
What follows are some highlights of a conversation with Jack.
How are you reading the American scene at the moment? What warning signs are you seeing?
If you're an economist today, you'd say everything is right in America. The dollar is weakened, interest rates will probably go lower, money is available, consumer confidence is reasonable, the war went relatively well. And, with the dollar the way it is, everything is poised for recovery. Yet, business stinks. There's over-capacity in most industries, there's global over-capacity in most industries, and timing of the recovery is uncertain.
It's not Japan, it's not deflation [the dollar will solve that problem – the weakened dollar], the banks are in great shape, the balance sheets are in great shape [we faced our problems over the last three years], but nevertheless in many of the manufacturing segments there's still too much capacity built from the enthusiastic demand cycle of the late 1990s and that will have to be worked out.
Whether it's in three months, six months, nine months or 12 months – we'll have a recovery in profits very rapidly from productivity, from demand. We won't have a capital investment cycle and we could have unemployment rising for a brief period until it catches up with the game. But I'm very optimistic that the US economy over the next 15 months has got every single bullet in place to make a go.
What about the forecast for Australia?
In Australia, you have this wonderful economy but you will have to deal with a stronger dollar and a stronger dollar has enormous implications for manufacturing companies, mineral companies etc.
Over 20 years, I've seen Japan go from a weak yen to a strong yen and lose their country; I've seen America go from losing any chance of a strong dollar to becoming the most productive place in the world when the dollar got weak.
Currency has an enormous leveling effect. Australia will have to deal with a much tougher game if you're dealing in the global economy with a strong dollar.
How would you define the ultimate CEO? What essential qualities must he or she have to lead a company to success?
Passion. Focus. Caring – caring more than the next person. Focusing on people, on business – not focusing on markets; markets will take care of themselves. Our [GE] employees were our largest share owners – they had to win, they had to be happy. You absolutely cannot jump to the whims of journalists, analysts or regulators [regulators will over-regulate at one point, under-regulate at one point]. You've got to do your thing, know you're right, get input from everyone, and care for your people.
In America and in Europe, becoming CEO – getting the corner office – became a culmination of a career, rather than the beginning of a career.
Becoming CEO is the beginning of a career, it's not this achievement you've gained – it's the start of you
getting everybody energised to go to the next level.
Why is winning so important to you?
Only winning companies count. Governments raise no income – other than from companies and people who work – they're not a source of revenue. Winning is good – it's good for the soul, it's good for the people, it's good for every constituent. Winners give back.
When you're losing, companies are failing. There are no taxes, there are no revenues being handed back, there is no volunteering, there's insecurity about jobs. It's a real job for you in the midst of this regulatory craze that's going on right now to be sure that you keep in front of people the fact that winning is all that will make Australia and its people.
Regulators aren't going to make the country better, they're not going to grow jobs. Regulators are only there to restore confidence. In all seriousness, this idea that winning is not the greatest thing in the world is the
craziest thing in tough times.
Isn't this regulatory oversight entirely appropriate, given the investor rage we have seen – not just the US, but Australia and elsewhere – in the wake of "Enronitis"?
There's no question that regulatory oversight is always appropriate. But like the internet bubble, it can swing both ways. A new cottage industry has developed in most countries. It's called "governance experts". These experts have boxes they need to check.
If you've got so many independent directors, you're terrific. Now what's an independent director? Well, you can be sure you've got one if you've got three retired musicians and two almost dead poets and you put the five of them on your board – you'll get a check mark for that.
You put some wealthy, independent, self confident, tough-minded person, who might do a few bucks of business with you, and they're not independent. We've got these people running around with scorecards telling companies who belongs, who doesn't.
I'm in no way condoning bad behaviour but I've got examples that would just choke a bull.
What's the right regulatory balance?
The right balance is somewhere in between. If I were a CEO today, I wouldn't sit here and talk like this. I have the benefit of being retired. A CEO today is under a table in most countries, hoping some regulator isn't going to whack him on the head. So people like me have to say something that tries to bring some rationality. Because now it's a feeding frenzy. Clearly, there were wrongs. Clearly, we had to restore confidence. Clearly, much of Sarbanes-Oxley was good, but not this extent of it.
What kept you awake at night when you were the head of General Electric?
I think the one thing you always worry about when you run a company is, is there a bad apple? Our company was always big enough that we could take about any hit but I think you worry more than anything about a bad apple – somebody doing something stupid, somebody getting involved in some government fraud or doing something dumb. We were a company that also had a consumer franchise so when we had trouble it would be a front page story because we had consumer name. A Boeing, a Lockheed, a contractor that sold to no consumers – the press didn't have any fun with that so it was not an issue. We had to worry every day because our brand was so consumer-oriented and even the smallest infraction made headlines. State attorney-generals? Well, man, they all want to be governor. And if they can find a little tiny crack, they have a party with a big brand. So you're worried all the time that would happen. It was constant.
What did it take you to build a winning leadership team and to keep that team? What judgments did you have to make to make sure there wasn't a bad apple in there?
Candor in an organisation is the most important thing. It's so important, this whole idea of letting everybody know where they stand, evaluating them and telling them – never surprising them.
No one I ever asked to leave GE was surprised when because we'd had a couple of years of candid conversations. At least four times a year you have a chance to sit with somebody with a piece of paper and a pencil – at bonus time, at salary increase time, at appraisal time – and say, "Here are your pluses, here are your minuses".
And every time you let go a chance to tell them – under the guise that you're a nice guy, a nice woman, a good manager, a kind manager – that's false kindness. The only manager worth a damn is the manager who lets people know where they stand so they can move on with their life and get themselves a position that suits them.
Do values really matter?
In 1990, after seven years of fighting appraisals, I stood up in a room with 500 of our top people and announced we had let go of five senior vice presidents – CEOs of real businesses ranging from $US3 billion to $US11 billion. These guys had great numbers, great results, but still we asked them to go home.
Why? They weren't boundary-less, they didn't look for NIH [not invented here], only their ideas counted. They didn't care about diversity, diverse populations. They didn't care about globalisation and some of the things that were our values. I explained why the five had to go. You could have heard a pin drop in the place. And yet, from that day forward, we never had any nonsense about did values count. If you go around with a value statement, a mission statement, and these nonsense things, and you've got horses' asses working for you, you are dead. You can talk until you're blue in the face because it won't get you anywhere.
Think about this: there are four types of managers:
There's Type 1 who makes the numbers and has the values you want. – you promote those people.
Type 2 doesn't make the numbers and doesn't have the values – you don't want them near the building – get them out of there.
Type 3 is the one who has the values and can't make the numbers. Give them a second chance, maybe even a third. Give them a different environment.
But the one that kills all of you – and me too – is the jerk who makes the numbers and doesn't have the values. Everyone in the company knows what a skunk they are. And you're sitting up there smiling about a value statement and they're giving you numbers so your stock price might go up a buck or something like that. But you'll get nowhere because everyone in your organisation knows exactly who they are. And to think you're the only one who knows it is crazy.
Every one of you has got people out there who are doing it, who are getting numbers but who aren't
representing what you want. Your trick is to find them. Because if you keep them around, you'll never gain the credibility, you'll never get the spirit, you'll never get the people to believe in you – and to believe in the cause.
Is there time for reflection?
After 9/11, you'd hear this theory – "This was such a shock to us that we'd like to rethink our lives. We'd like just to pause, take a break, not work so hard, and not compete".
Well, who's going to let you pause? Are the Chinese really going to let you pause? It's not going to happen. We've chosen to be in a global, competitive world and we have to win. And Australia has to win. So far, you're doing a great job. But you can't stop.
And I don't think anybody would argue to keep the mediocre. There's no social contract in this country that says let's keep losers in this company, is there? Or have I missed it?
Have you ever been tempted by public life?
Oh, Jeez – I'd be terrible! I've been asked but I know my limitations. I don't want to have to deal with all this stuff. I like people but I don't want to end up always compromising.
I don't join boards, I wouldn't be a good board member. I'd get somebody up there showing me 25 slides – nonsense – like I'm going to listen to it and go through it? I know all that. I shouldn't do it – I'm not qualified. I think you've got to know what you can do and can't do.
What will a truly global company look like in 10 years time?
Unless it is a natural resource company, where it goes where the source is, it will be a company that truly looks like the countries it's in. It won't be an American company with operations in wherever; it will be a truly global company with a US home base or European home base or an Australian home base. It will be far more multicultural in its personality.
In the 1980s, the Japanese always put Japanese managers in charge of local branches. Contrast that with Samsung today. In the US, France, the UK etc, you see the best and brightest French working for Samsung, the best and brightest of the Americans . . . They know how to capture the soul of the country versus exporting their own talent to the region.
Conglomerates, they wax and wane in popularity.
Is there a right model?
Conglomerate is a bad word. It implies individual businesses. A multi-business company has the advantage of being able to manage more businesses in a cycle, and therefore invest for a longer term in some while others are being hurt. It also allows you to get more intellect. If your job is to be boundary-less in your behaviour, you are looking for the best ideas from everyone. That's the job of leading a company or leading a unit – to maximise the intellect in everyone by picking each of the people and getting the best ideas. Conglomerates don't do that.
How did you manage your work-life balance?
I played golf constantly. Does flexitime in any way inhibit promotions? I could give the politically correct answer and say, "Oh no, it means absolutely nothing if you take three afternoons off a week and have no face time with your boss. That'll have no impact on your career". Well, that's nonsense. It's just human nature that when you have someone who's there with you, doing the job, they're going to have a better shot than someone who isn't. That doesn't mean you can't accommodate them in your workforce, but to say they have the same chance is just not being fair. They're not going to have the same chance. People have to make sacrifices if that's what they want. They don't all have to get to the top job. But if you want that, you're not going to get it on flexitime.
Do you see a younger generation of both men and women demanding to work in a different way?
I see it in all companies, and yet I see the same winners winning. People demanding to have the other life and ending up accepting that other life. I just don't think this nirvana is going to work. You can get a good job, you can have a fulfilled life, a better life than the CEO. You can have a family, flexitime, all these things in companies. But in the end, if you want to run the place or run the division or be governor, or be any of these things, it takes a huge commitment. And if you don't get a kick out of it, don't do it. If it isn't a ball, don't do it. This is all about having fun. If you have more fun hanging around at home playing with the kids – do that. It literally is a choice. These things don't take half way effort; these things take commitment. No one is going to have it all. If you decide to have it all, you're probably not going to get it all.
With the benefit of hindsight, what lesson would you like to have been told at the beginning of your business career?
I would clearly have moved faster. I can't think of more than two or three decisions out of tens of thousands that I made that I wished I'd given six more months to and yet every one of us is guilty of taking longer than we should have, not taking the bold step faster.
What was your worst mistake and how did you correct it?
I've made a lot of them, but my worst one was buying an investment bank. It had a different culture. Talk about a learning culture: the last thing they wanted to do was learn; they wanted to get paid. It didn't fit our culture at all. I learned a lot from it – I didn't buy some companies on the West Coast in the 1990s because despite the fact that they may have been good buys, I didn't think we could fit the culture. Culture is very important to us – absolutely critical to us.
And finally, Jack, your impressions about Australia?
Australia has the world by the tail right now and it's absolutely fabulous what's happening here. The energy in this country is beyond reach. The optimism and the pride are palpable. And it's something that you ought to bottle and sell because it's really good stuff.
If every one of you go back and try to let the energy be uncorked in your organisations, letting individual dreams be reached, you will do one hell of a job for your companies, for yourselves and for your country.
The purpose of this database is to provide a full-text record of all articles that have appeared in the CDJ since February 1997. It is aimed to assist in the research and reference process. The database has a full-text index and will enable articles to be easily retrieved.It should be noted that information contained in this database is in pre-publication format only - IT IS NOT THE FINAL PRINTED VERSION OF THE CDJ - therefore there might be slight discrepancies between the contents of this database and the printed CDJ.
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