Ex-Home Depot CEO disputes book's characterization of Jack Welch

Ex-Home Depot CEO disputes book’s characterization of Jack Welch

The late Jack Welch led the transformation of General Electric into a multinational corporation that, at one point, became the most valuable company in the world, earning him the reputation of “manager of the century.”

But a recent book raises questions about that legacy. In “The Man Who Broke Capitalism,” reporter David Gelles argues that Welch popularized a management approach that focused on shareholder value at the expense of workers and, ultimately, the company he ran.

One of Welch’s former trainees disagrees with that characterization.

“I just have the utmost respect for Jack Welch,” former Home Depot CEO Bob Nardelli said in a recent interview with the editor-in-chief of Yahoo Finance for “Influencers with Andy Serwer.”

Nardelli began his career as an entry-level manufacturing engineer at General Electric in 1971. He worked his way up to become president and CEO of GE Power Systems in 1995. Along the way, he met Welch, who became his mentor and model to follow. In fact, Nardelli soon became known as “Little Jack.”

He still remembers how Welch pushed him to do his best.

“He was the guy who could be very stern and give constructive feedback. But still he would hold you and, you know, make you feel extremely important,” says Nardelli, who also served as CEO of Chrysler. “He had the power magic, you know, to challenge you… And at the same time, make sure you were highly appreciated and respected.”

Jack Welch speaks at a news conference in New York in this Oct. 23, 2000 file photo where he discussed General Electric’s proposed acquisition of Honeywell for $45 billion in stock. Image: Reuters

Welch served as chairman and CEO of GE for nearly two decades. During that time, he grew and greatly diversified the company. He expanded it into businesses including financial services, real estate, and jet engines, among many other areas.

He even dabbled in entertainment. In 1986, GE acquired RCA (Radio Corporation of America), owner of NBC.

“It was a really special breed that could run a conglomerate,” Nardelli said. “A lot of people can’t do that.”

As GE grew, Welch adopted a management style that emphasized a hands-on approach to business as well as radical responsibility. For example, he identified and annually laid off the bottom 10% of GE’s workforce to keep the company competitive.

“It set expectations that encouraged him to reach and push himself to achieve goals that he otherwise wouldn’t have achieved, and he held him accountable,” Nardelli said.

Under Welch’s leadership, GE enjoyed surprising success. The company’s market value jumped from $14 billion in 1981 to $410 billion in 2001. Fortune magazine heralded Welch as “Manager of the Century” in 1999, and other executives began to emulate his entrepreneurial approach.

“It’s heartbreaking to see what happened to GE”

But Welch’s critics maintain that his managerial approach, while profitable in the short term, was ultimately unsustainable.

Since Welch retired in 2001, GE has experienced a precipitous decline, especially during the 2008 financial crisis. GE also made several ill-fated acquisitions. For example, in 2015, it took over the gas turbine operations of the French company Alstom SA only to have demand for gas turbines collapse. The failed deal resulted in a $23 billion writedown.

In an article for Fortune, Yale School of Management professor Jeffrey Sonnenfeld attributed many of GE’s failures to Welch’s mistaken belief that he could succeed in all industries with his management philosophy rather than with industry-specific knowledge.

Baden, Switzerland.  November 2, 2015: Lighting tests during the installation of the new General Electric logo at the former Alstom thermal headquarters.

Baden, Switzerland. November 2, 2015: Lighting tests during the installation of the new General Electric logo at the former Alstom thermal headquarters.

“That notion of interchangeable management experience, like interchangeable parts on an assembly line, contributed to massive strategic stumbles under Welch,” Sonnenfeld said.

The company was delisted from the Dow Jones in 2018, and three years later the once-dominant conglomerate revealed it planned to split its businesses into three public companies focused on aviation, energy and healthcare. Its market cap is now $81 billion, about 20% of what it was under Welch’s leadership.

“It’s heartbreaking to see what happened to GE. I put more than 30 years of my life into it,” Nardelli said. “To have something that was at the very top, the highest market cap with the best performance, and now see it’s just a fraction of what it was, it’s heartbreaking.”

In “The Man Who Broke Capitalism,” David Gelles argues that the spread of Welch’s management philosophy had a corrosive effect. effect on society. He even draws a connection between Welch’s influence and two Boeing plane crashes that occurred in 2018 and 2019. He explains that three successive Boeing CEOs had previously worked at GE with Welch and internalized his focus on financial success. . Consequently, they prioritized high shareholder value over strong aeronautical engineering while leading Boeing, according to Gelles.

“If you look at the history of Boeing over the last 25 years, you see very clearly the imprint of his leadership, his priorities as he passed them on through his disciples,” Gelles said in a recent interview with Yahoo Finance. “There was a bigger cultural problem within Boeing. And that cultural issue ultimately leads back to Jack Welch.”

Although he said he respected Gelles’ right to have an opinion, Bob Nardelli remains steadfast in his defense of his former mentor, who died in 2020 at the age of 84.

“I don’t think it’s appropriate to go after someone who’s passed away, who doesn’t have the ability to defend themselves,” Nardelli said. “So that’s just my point of view. I mean, I know some people have applauded that book. I am not one of them.

Dylan Croll is a reporter and researcher for Yahoo Finance. Follow him on Twitter at @CrollonPatrol.

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