The Neutron Dissipates

Neutron Jack Welch, the former CEO of General Electric (“GE”) died at the age of 84 today. Mr. Welch was the “Management Guru” for my era, the era of Gen X. At the time of his retirement, Mr. Welch was hailed as the role model of what a CEO should be. When he took over the reigns of GE in 1981, the market capitalization was around US$12 billion. By the time he retired in 2001, the market value of GE stood at an eye popping US$410 billion (by way of a reference point, the economy of Ireland in 2019 was US$405 billion).

By way of a full and frank disclosure, I was a vendor to the Southeast Asian branch of GE Commercial Finance back in 2008. It was a very special time for the GE brand. Mr. Welch was still a legend and GE took pride in how it understood business and how to manage business. The key selling point for GE Commercial Finance was not their ability to provide financing but to provide management knowledge. The concept was known as “At the customer for the customer.” The people at GE were dynamic and full of life.

Unfortunately, I never got the chance to build the relationship with GE the way I wanted to. This was 2008 and the finance industry was heading for a nasty patch. The much-heralded finance arm that Mr. Welch had built in the 90s was about to turn sour. All activities with GE froze after Mr. Welch’s successor had said the quarterly results were “in the bag,” and when they were not, the stock price went to the shit. GE went quiet and that was pretty much it. The commercial finance arm was then sold to Standard Chartered bank and the people I knew there, including the CEO, Mr. Ed Ng, moved onto better things (incidentally, Mr. Ng’s immediate boss at the time was John Flannery, who would go onto be CEO but would only last 14 months in the job).

Much has been said about how Mr. Welch was the last of an era of the “Cult of the CEO, and many of the things that Mr. Welsh did are now being blamed for the troubles that GE is currently facing. The most prominent of those was the reliance of the finance arm for growth. Mr. Welch had famously promoted finance as the growth industry that didn’t require overheads (just lend the stuff in your bank account). However, like the banks it was competing with GE’s finance arm had cash flow issues and Mr. Immelt, Mr. Welch’s chosen successor had to famously look to Mr. Buffet for an investment.

Mr. Welch made his mistakes and while he did back the Occupant of 1600 Pennsylvania Avenue in 2016, Mr. Welsh was undoubtedly right on many of the big issues, which run contrary to Trumpian Protectionism.

The issue that first made Mr. Welch famous was his ability to fire people. Mr. Welch had a certain ruthlessness to him. Mr. Welch earned the nickname of “Neutron Jack” in his early years when he fired some 170,000 people (By comparison Melbourne Cricket Ground can hosts a mere 100,000). Mr. Welch famously made it a policy to cull the bottom ten percent of GE staff.

In this day and age of needing jobs, Mr. Welch’s philosophy sounds like it belongs to an era of dinosaurs, where the T-Rex munches on everything else. One of the reasons why Mr. Trump won the election was because people believed that he could make the jobs come back. I also think of bosses who take pride in the fact that they’ve never fired anyone and have fought tooth and nail to “save jobs.”

Having had jobs that, I couldn’t leave and having being fired from steady employment, I’m with the guys who do fire employees who don’t perform. I get the fact that many of my contemporaries and the generation before me grew up in an era where the employer was supposed to look after you by guaranteeing you a job.

However, as Mr. Welch rightfully argued, businesses are not there to guarantee jobs nor are they there to “look after you.” Businesses are there to guarantee their customers and their profits. The “paternalistic” view of business and employment is certainly comfortable but is it really good for anyone? Think of companies like Nokia, which was effectively the by word for mobile phones. They made excellent phones but couldn’t see that people would want to use their phones as mini-computers rather than just phones. It was only a matter of years in which Nokia, a by word for mobile phone and Finland became irrelevant and ended up selling its mobile business at fraction of what it was once worth.

What is true of businesses is also the same of individuals. The problem with knowing your pay cheque is guaranteed is the fact that you have utterly no incentive to perform. People become comfortable. Employees get into the mode about bitching about their jobs but never leave because, well, why should they, the cheque is going to be there at the end of the month. Employees with no motivation to improve do not as a rule make businesses more profitable.

I’m with Mr. Welsh when he states that you’re probably not performing because you’re not happy where you are, so you have the chance to find a place where you can be happy. I think of my luckiest moment in my PR career being when I left BANG PR. It ended my PR career (PN Balji advising me that I shouldn’t bother looking for a job because I’d never be able to explain why I never stayed anywhere longer than a year) but it gave me all three of my greatest moments, namely the Saudi Crown Prince visit and the IIM and IIT alumni events. These were events that put me, as an individual (without being told what to do by London or New York) on the level on dealing with cabinet ministers. It was something I could never have done had I ended up in the confines on a conventional agency. I don’t think my story is particularly unique.

The other issue that I believe Mr. Welch got right was on China, or the “strategic competitor.” Donald Trump and his ilk talked about the USA being “raped” by China through unfair competition. Something similar was said of Japan in the 80s. While, I do agree that China and Japan had engaged in “unfair” practices.

However, Mr. Welch did argue that that while China was a land of a billion competitors, it was also a land of a billion customers and offered opportunities for American businesses. Mr. Welch was actually respectful of the “threat” of competition from poor third world nations. “Who says we deserve what we’ve got?” he would say. “These people are after our lives. We’ve got to work like dogs.”

I will miss Mr. Welch. While he had a ruthless streak and made his mistakes, he did represent a sense of optimism and an era where some form of competence was held in high esteem. Mr. Welch thrived on challenges and if we should learn anything from him, it would be to embrace challenges rather than to seek protectionism and think of cowardice as a form of heroism.