Jack Welch

Who Was Jack Welch?

Jack Welch was the chair and chief executive of General Electric (GE) from 1981 to 2001. Under his leadership, Welch dramatically increased the market value of GE from $14 billion to $410 billion. He had a reputation as one of the top CEOs of all time. Fortune dubbed him "Manager of the Century" in 1999. When Welch retired, GE awarded him a severance estimated at $420 million, the largest ever at the time. Welch died on March 1, 2020, at the age of 84.

Understanding Jack Welsh

Welch began working for GE as a junior engineer in 1960 after receiving a Ph.D. in chemical engineering from the University of Illinois at Urbana-Champaign. He rose through the ranks to eventually run the company as chair and CEO between 1981 and 2001. Welch threatened to leave the company on a number of occasions in his early years of employment due to bureaucratic inefficiency. But as chair and CEO, he worked to eliminate bureaucracy and increase growth.

During the 1980s, Welch streamlined GE's sprawling businesses. He fired unproductive managers and eliminated whole divisions. He then acquired other companies and drove them to adopt better management models and increase profits for GE. He closed factories, laid-off workers, and presented a vision of "growing fast in a slow-growth economy," which was the title of a speech he gave in 1981, soon after he became chair. This period of massive restructuring earned him the nickname "Neutron Jack," because he took out the people while leaving the buildings standing, just like a neutron bomb.

Welch promoted the idea that GE and other companies should either be No. 1 or No. 2 in a particular industry or else leave it completely. Welch led the adoption of Motorola's Six Sigma program for increasing productivity in manufacturing, applying it to GE as a whole. He developed a "rank and yank" style of dealing with underperforming employees and managers by making clear cuts from staff based on their rankings against other employees and divisions.

At the same time, Welch cut fat from what began as a nine-level layer of management. He also worked to establish an air of informality, as though GE were a small company (rather than the amalgamated corporation it became during his tenure). Welch's core management belief was that high-performing managers could turn around almost any business, so GE experimented with everything from television to synthetic diamonds. Ironically, this led to an expansionary phase, making GE once again a conglomerate by nature — even if it was a more aggressively managed one.

The Legacy of Jack Welch

In retirement, Welch was active as a writer and public speaker, penning the 2005 memoir, Winning. He joined a business forum created by former President Donald Trump to provide strategic advice on economic issues. 

Immelt also presided over a drop in GE shares as the 2007-08 Financial Crisis hit GE's financial operations. The model Jack Welch left behind was good at squeezing profits from top businesses. However, it left GE ill-equipped to survive outside shocks and grow new businesses and innovations that would carry the company into the future. In short, GE's success was very much a product of great timing that was difficult to sustain over the long-term.

More importantly, Welch was perhaps the first CEO whose performance was seen mainly through the lens of share performance. While investors generally appreciate this view of corporations, it led managers to focus on short-term performance. This short-term performance focus can have a long-term detrimental impact on the sustainability of a company when taken to an extreme.