He has been called the greatest CEO in America. On one side, you have an unparalleled record of earnings growth, sustained profitability, and growth in market capitalization that stretches for more than two decades. On the other side, you have a man who can be tough as nails, brusque, and at times impatient, yet who speaks reverentially of his late mother, to whom he attributes much of his success. He is Jack Welch, chairman and CEO of General Electric from 1981 to 2001.
So much has been said and written about Welch that you would think that he invented the role of the modern CEO. He, of course, would be the first to disagree. For one thing, he would laud his predecessor, Reginald Jones, for preparing him to lead the company. More important, he would attribute his success to a couple of seemingly simple themes: focus, execution, and people. Inherent in all three is communications. And it is his relentless commitment to disseminating the message that accounts for much of his success.
The facts of Welch's professional life are pretty straightforward. He got a Ph.D. in chemical engineering, then went to work for GE Plastics. He rose through the ranks, becoming a general manager at 33, then rising to a vice presidency and later to vice chairman of GE Credit. At age 45, he was named CEO.. According to Welch, his tenure at GE was focused on "three fundamental things": hardware, behavior, and work processes. By hardware, Welch means business priorities, i.e., being first or second in every market segment. Behavior refers to "boundarylessness, open idea sharing" among business units. Work processes concerns finding ways to improve the way the work gets done.
These fundamentals coincide with the three phases of Welch's career in the top slot. During phase 1, he was called "Neutron Jack," getting into and out of businesses and engaging in heavy layoffs. Phase 2 was called "Work-Out"; managers worked with their people to determine strategies and tactics. Senior leaders sketched the issues and left teams to "work out" solutions; the boss could reject or accept these solutions on the spot or ask for more inform-ation—but always with a timetable. Phase 3 was Six Sigma, a quality-centric approach to business and people, or, as Welch put it, "transforming everything we do."
Each of these phases required a "sell-in" period, and that's where Welch earned his stripes as a communicator, getting the word to GE's vast multidisciplinary business operations throughout the world. His secret? Simplicity. Welch intuitively understands how to break things down into simple parts to make them understandable by all.
Welch repeats himself purposely. "In leadership you have to exaggerate every statement you make. You've got to repeat it a thousand times. . . . Overstatements are needed to move a large organization." Welch is careful to point out that you need to back up the overstatements with action. For example, when he spoke of getting rid of people who achieved but in the process trampled on other people, he meant it, and those people were systematically rooted out of the organization.
An additional method for getting buy-in is to give the audience a reason to believe. Welch tells the story of the time he asked people to cut travel expenses by 30 percent. To forestall a backlash, Welch wrapped the message in the context of integrating work and life. "Look, you've [managers] been telling me your biggest problem is that you don't see your families enough. Now you're going to be seeing your families 30% more." Linking the leadership message to a strategy, or, better yet, an individual benefit, helps overcome resistance. Such linkage may require some clever thinking, but as Welch showed time and again, it is essential to ensuring buy-in and uniting people for a common cause.
Welch has said that a CEO's greatest failing is "being the last to know." A leader who never hears bad news is hopelessly out of touch. Welch made a point of surrounding himself with people whom he referred to as "business soul mates." These were individuals who could be counted on to give him the straight scoop on the issues. Another way Welch stayed tuned to the organization was by asking questions, sometimes for hours on end, until he learned what he needed to know.
Development of others is essential to Welch's success as CEO. Welch was an active and vigorous participant in what GE calls its Corporate Executive Council, which meets quarterly. Strategy and succession are principal themes of these meetings. At the 21/2-day sessions, senior leaders meet to "share best practices, assess the external business environment, and identify the company's most promising opportunities and most pressing problems."
Apart from getting perspective on the business, Welch used these sessions to coach and observe managers interacting with one another.
During another set of meetings, known as Session C, Welch worked with senior line managers and human resource leaders to assess managerial talent. "Candor" and "execution" were the buzzwords. When Session C concluded, Welch followed up with his handwritten assessment. In keeping with Welch's claim of backing words with action, it is GE's policy to link all management development to strategic business goals. Meritocracy is what GE strives to create, and this is the thing of which Welch claims to be most proud. It is no surprise, then, that many people refer to GE as the boot camp for managers, or "CEO University." The ranks of American corporations are filled with GE grads, including Larry Bossidy (Allied-Signal and later Honeywell), Robert Nardelli (Home Depot), David Cote (TRW), and Jim McNerney (3M).
Some of the luster of Welch's legacy was tarnished when the perquisites that he continued to receive from GE after his retirement were revealed during divorce proceedings from his second wife. The amenities included a rent-free apartment in Manhattan, use of the corporate jet, and private security for overseas travel. The cost of these perquisites, according to Welch, amounted to less than the lump sum that GE's board had originally offered as part of his 1996 contract extension negotiations.
Welch, never one to flinch from a challenge, responded with an op-ed piece in the Wall Street Journal in which he defended his compensation as well as his legacy. But not wishing to reflect negatively on the company for which he had worked so long and so hard, Welch agreed to give up his perks package and reimburse GE for expenses that had been previously covered, including the New York apartment and corporate jet service. This bill, according to Welch may be $2.5 million annually, but as he says,
[Perception] matters. And in these times when public confidence and trust have been shaken, I've learned the hard way that perception matters more than ever. . . . I don't want a great company with the highest integrity dragged into a public fight. . . . I care too much for GE and its people.
In the wake of the corporate governance scandals, Jack Welch emerged as a statesman on corporate and shareholder interests, confessing that he was as shocked as anyone by the financial foul play perpetrated by companies like Enron and Global Crossing. He traces the rise in CEOs' pay to the alignment of management compensation with shareholder value. When companies' stock soared, as happened in the nineties, senior management compensation grew at the same rate. "If you focus on pay for performance, and if you focus on results, and you focus on delivery to shareholders, you will get a system that works." He admits that his total compensation for building GE's equity was generous, but he argues that it was determined fairly and honestly and for the benefit of shareholders and employees alike. He draws a distinction between the fraud perpetrated by a few and the honest earnings of the vast majority of senior leaders. Welch remains a true believer in the long-term future of his company, refusing to sell when the stock spiked, a move that "more than halved" his net worth: "I've gone up with it and I've gone down with it." In his speeches, Welch reflects the same spirit of optimism about corporate America that he injected into GE "We need to have an atmosphere where CEOs are out taking risks, are out doing things positively, are out creating an atmosphere that we can win again." To Welch, born into a union family and educated at a state school, it's all part of the American free enterprise system, of which he is a loyal and proud proponent.
Welch has a capacity for self-criticism. He says that his biggest mistake was not going fast enough. "I went too slow in everything I did. Yes, I was called every name in the book when I started, but if I had done in two years what took five, we would have been ahead of the curve even more."
In a reflective interview with the Harvard Business Review after he had left office, Welch was even more philosophical. "My success rate was 50-50 at best. . . . That improved later because I turned out to be pretty good at it." As for strengths, Welch considers himself only "marginally" creative, but "very intuitive. I don't get fooled very often."
In this same interview, Welch said that he wanted to be remembered as a people person, in contrast to earlier names like "Neutron Jack" or even "Neanderthal Jack." Why? "I like people. . . . People I work with like me." Welch's affinity for others gets to the heart of his strength as a communicator. Leaders who care and respect the employees in the organization will make the time to ensure that those employees understand the message, both for the good of the enterprise and for the good of the individual, enabling him or her to give the best and get the best in return.
Stuart Crainer, Business the Jack Welch Way: 10 Secrets of the Greatest Turnaround King (New York: AMACOM, 1999), pp. 3-4.
Thomas J. Neff and James M. Citrin, Lessons from the Top: The Search for America's Best Business Leaders (New York: Currency/Doubleday, 1999), p. 345.
Crainer, Business the Jack Welch Way, pp. 10-14.
Neff and Citrin, Lessons from the Top, p. 346.
Jack Welch, "Letter to Shareholders," General Electric Annual Report, 2000.
Harris Collingwood and Diane Coutu, "Jack on Jack," Harvard Business Review, February 2002, pp. 91-92.
Jack Welch, interview by Stuart Varney (University of Michigan Business School), CEO Exchange, PBS, 2001.
Collingwood and Coutu, "Jack on Jack," pp. 92-93.
Ram Charan, "GE's Secret Weapon," sidebar in "Conquering a Culture of Indecision," Harvard Business Review, April 2001, p. 81.
Leslie Wayne and Alex Kuczynski, "Jack Welch in Unlikely Company," New York Times, Sept. 16, 2002.
Jack Welch, "Commentary: My Dilemma—And How I Resolved It," Wall Street Journal, Sept. 16, 2002.
Paul Solman, "Executive Excess: Part 4," NewsHour with Jim Lehrer, PBS, Dec. 5, 2002.
Neff and Citrin, Lessons from the Top, p. 346.
Collingwood and Coutu, "Jack on Jack," pp. 92, 94.
Ibid., p. 94.