Monday, February 13, 2006

Jack Welch's Grab For Another Five Minutes

Holman Jenkins, Jr., the very talented editorial columnist for the Wall Street Journal, wrote yesterday of his recent interview with Jack Welch, retired CEO of GE.

What struck me most about the piece is that Jack Welch seems to be desperately grabbing for another five minutes of fame, to paraphrase the late Andy Warhol. Wasn't running GE for more than a decade sufficient?

It seems you can't turn on CNBC, open the WSJ, or visit a bookstore without seeing Neutron Jack's mug or byline. What is it with him? Does he have insecurity issues?

However, with regard to the interview piece, I continue to be mildly surprised, and, frankly, underwhelmed, that Welch seems to believe his great contribution now is to preach (the article featured a caricature of Welch in a minister's collar) about hiring great employees, being honest in performance reviews, and letting your managers run the company.

It seems to me that the first two are old hat. Who seriously needs Jack Welch to tell them to hire smart people, or fire the nonperformers? The last is perhaps why GE has never been included in my portfolio selections of consistently superior fundamental and technical performers. As a conglomerate, Welch didn't really seem to "lead" strategically, so much as "cheerlead."

Some years ago, I had the occasion to meet with Mr. Welch to discuss a new value-added measurement and management approach I had developed, which led to the portfolio management approach I now use. In the discussion, I showed him a chart using an early version of a concept I now view as crucial for CEOs. It plotted GE's market value change versus the market. At that time I used the Dow. Now it would be the S&P500.

What was evident then, in the mid-1990s, was that the bulk of Welch's market value creation at GE, relative to what an investor could have gotten in the market, occurred in the initial years of his tenure. His successful triage, upon becoming CEO, was instrumental in creating relative value for his shareholders.

So it seems to me that what would be most compelling to hear from Welch is how he did that. His defining value-creation era was, I believe, when he culled the mess he inherited from Reg Jones.

I'm not at all sure GE has been a consistently superior company since then. Its description by some market analysts as a close-ended mutual fund seems on target. For the last five years, it has lagged the S&P500. What does that say about the company Welch handed to Immelt?

In fact, it may be recalled, Immelt was roundly criticized for "owning" two inherited practices of Welch. One was overleveraging GE Capital, in order to grow earnings faster. The other was using these earnings to subsidize, dare I say mask, the slower growth and margin challenges of GE's industrial businesses.

It seems to me that Welch is trying awfully hard to remain in the business spotlight after his allotted five minutes of fame, and not even by counseling others on what he did uniquely well as CEO. Why?

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