Tuesday, June 23, 2009

Jack Welch University

Yesterday's Wall Street Journal featured Jack Welch's investment in an online business school and MBA in its Marketplace section.

The former GE CEO has bought a 12% share of the former Myers University, now renamed Chancellor University System, for "more than $2 million."

Welch and his latest wife, whom he married after having an affair with her while married to his prior wife, will both be involved in the venture. Welch's current wife, Suzy, was the editor of the Harvard Business Review until 2002, when her affair with then-married Welch brought about her resignation.

Another figure from Welch's past, Noel Tichy, his adoring biographer and one-time head of GE's Crotonville management center, is to be the online school's new Dean. Tichy was a relatively non-descript management professor in Michigan until he fell into the GE gravy train a few decades ago. The best break he ever had- until now, I suppose.

So, now Welch is going to lend his name to an MBA program and apparently transfer his vast knowledge of how to manage businesses successfully to thousands of MBA students via the internet.

Here's my question.

If Welch has value as an educator, shouldn't we see it in the performance of the company which he led for nearly 30 years, GE? Shouldn't his business and educational acumen have left a team of deeply-talented, well-educated (by Welch) managers to continue Welch's performance at GE?

However, that's not what actually occurred. No, instead, as I've noted in my numerous (labelled) posts about GE and Immelt, and the nearby price chart of GE and the S&P500 Index displays, the company's performance headed into the toilet as soon as Immelt, Welch's hand-picked successor, took the reins in September of 2001.

In fact, Immelt has managed to destroy all the premium, above-equity-index value his predecessor built over several decades Now, you'd have been about as well off owning the S&P since 1963 as you would have been buying and holding GE until the present.

You have to ask yourself, if this is the result of Welch's personally-trained and selected team at GE after his departure, just how effective is the vaunted "Jack Welch way?"

Based on the company's performance under those whom he groomed and chose, I wouldn't be writing checks to Chancellor for either of my children just yet. Or maybe ever.

I've always given Welch credit for his very adept handling of the mess of a company Reg Jones handed off to him in the early 1980s. He coped with inflation, high interest rates and misleading accounting values. Welch's instinctive concentration on businesses in which GE could be among the top three in share and were growing was the right move.

However, as I pointed out to him in a private meeting in the mid-1990s, his performance margin over the equities indices pretty much ended by then. Subsequent events in GE's power business proved Welch wrong in his predictions to me that it was poised to take off. My own advice, that the industrial units, being valued differently than growth businesses, were needlessly weighing on the financial and media properties, proved to be correct.

Further, in the latter years of Welch's tenure, GE's performance rested, I contend, more on Welch's persona and a sort of 'pixie dust' in the eyes of analysts, than on Welch's hard-nosed leadership and management.

After all, how much about GE could really have changed by late 2001, when, under Immelt, the firm's reported performances were savaged by analysts, reserves were called into question, and accounting practices were criticized?

I think you have to see GE's performance subsequent to Welch's departure as an early read on his effectiveness as a manager and teacher, and give him an "F" (hey- that's his middle initial, isn't it!). Hardly an endorsement of Jack's way, is it?

Yes, straight from the gut- Jack's lasting impact on his own chosen few hasn't been very pretty to see.

Granted, though, Professor Jack sounds a helluva lot better than Neutron Jack, doesn't it?


Anonymous said...

It never ceases to amaze me that someone like Jack Welch is held in high esteem by American businesses as someone to emulate. My God, what did he bring to GE that was fresh or innovative? His legacy lives on and it's CRAP! If we wish to emulate a great CEO of modern times, how about Lee Iacocca? Now there was a true leader with "pixie dust."

C Neul said...

Thanks for your comment. I assume you are being sarcastic regarding Iacoccoa. Without federal government loans, he'd have failed.

And, really, as I have contended in earlier posts, he merely delayed Chrysler's inevitable failure. He didn't save it at all.

There are CEOs who have consistently led their companies to superior total returns for years. Rueben Mark of Colgate and Carol Bartz of Autodesk come to mind.

There are others, but it's hard to have achieved for more than a few years, at best.


Anonymous said...

Actually, I was not being sarcastic about Iacocca. True, he did ask for government loans, BUT he paid them back - earlier than due. He also was the first CEO of any of the Big Three to approach the union and ask that they work with him for concessions. I believe GE terms this as "inclusiveness" - one of their esteemed "growth values" they use for window-dressing only.

The problem with the GE-style of management - be it Jack Welch or Jeffrey Immelt - is that no matter how they try to reinvent it using faux ethics, integrity, eco-imagination policies as garnish - they are STILL the same GE that they were back in the 1940's and 50's when they KNEW the danger of PCB's and continued contaminating populations of people, including their own employees for the sake of the almighty dollar. Their management style is to simply manage by fear - and they do.