It is perhaps churlish to comment in less than flattering ways about someone who has just passed on to the great boardroom in the sky. But as a journalist at Business Week, I met Jack Welch when he was being lionized. Then I watched what happened after he left and Jeff Immelt tried to turn the ship around.
Welch was credited with a spectacular business performance because of his quarterly earnings and rising stock price. But it turns out that the way he achieved those results was not in the company’s long term interest.
First, he cut out the vast majority of the company’s R&D. If you cut out those expenses, your bottom line increases, at least in the short term.
Welch also created the credit arm of GE that fueled his company’s performance for so many years–until the bottom dropped out of financial markets. Then GE Capital became a distinct liability.
Welch got out with his stock options and reputation before the long-term implications of his management style became clear. One reason Immelt did not perform up to the expectations that many people had of him was that he was trying to dig out from the hole that Jack Welch built. The company was caught with a static mix of stand-alone businesses that had not benefitted from sufficient R&D and innovation. The result is what you see today.
