Welch took over a GE that was at the time, a major company. At the time, he viewed GE as bloated and needing to change. While he might've been right about that, the approach he took was perhaps less ideal.

One of the worst things he helped make commonplace among American companies is the concept of stack ranking. The way it worked was like this: people were divided into three groups: A, B and C. A's were the top performers who needed to be rewarded generously, B were adequate performers who should be allowed to stay, and then C were those who needed to be fired.

So far so good right? Well, not exactly. For Welch, these three buckets could be separated into the top 20%, the middle 70%, and the bottom 10% (20/70/10). Based on the above points, the bottom 10% would thus need to be fired annually.

In the short term, this helped in making the company lean and look more productive, increasing the bottom-line and portraying an image of success. However, the long term consequences of such a change was cultural degradation and the introduction of new bloat and waste (running all of those performance reviews and firing and rehiring so many people takes a lot of money.) Consider the case of a perfectly adequate team: the entire team has achieved their targets and has contributed to the company as per their job description. The issue? In stack ranking, 10% of this team would still have to be fired even though everyone did their job. Unsurprisingly, the introduction of this competitive atmosphere where it isn't enough to succeed, one must be better than their peers, results in backstabbing, competition, and a host of issues which eventually weaken a company's competitive edge.

This was only a part of Welch's general treatment of workers as numbers rather than humans. Aggressive cost-cutting, offshoring, etc. were the norm under Welch's regime and he would destroy entire divisions. This again, was great in the short-term but bad in the long term. Welch clearly had a dim view of company culture and believed it to be unimportant.

The other major issue of Welch's was the acquisition of hundreds and hundreds of businesses, as part of Welch's goal of acquiring his way to the top. On the surface, this is what Welch did; on paper, he didn't destroy the main profit makers of GE so much as create new ones, primarily in the form of its financial arm.

The result was that this allowed GE to play with the numbers in a way that allowed him to make sure that GE was always meeting targets set by Wall Street; in order to generate the right earnings, simply buy or sell certain assets, write-off others, etc. and when your company is an acquisition machine, it's not too hard to find the right numbers. This process helped expand GE into a mega-conglomerate but again, ultimately left the company in a weaker than expected state. In particular, on paper the core business of GE became its financial arm, as that was where all the funny business with the numbers was happening (nothing explicitly illegal though). Ignoring the damage the Welch did to GE's profit centers through his horrible business practices, this was a huge part of why GE declined so rapidly in the years following. GE's valuation was based on an inaccurate picture of its profits and value, so when the truth started coming out (especially with the Great Recession collapsing financial services profits), GE was quick to follow.

As for why Welch was able to get away with it all? Well, the answer was because he was delivering. He hit the earnings targets, he made the board and shareholders very happy, by all accounts GE was the paragon of success and everything was going right. What Welch did was unprecedented, and it's hard to really understate that. For all of his faults, he had America tricked into believing that what he could do was unique and that he could avoid the realities of the economy and cyclical markets, that no matter what was going on, GE was special. Welch died a rich, rich man and many, many people profited greatly off of GE during its 20 year bull-run.

Edit: My off-the-cuff writing is always horrible wrt to grammar and structure so I'll probably edit it later haha

The book “Lights Out” is a great review of this period of GE history. I’m reading it now and there were 2 critical external factors to Welch’s success: (a) the general prosperity of American economy from late 80s to 9/11/2001, which allowed Welch to leverage GE’s good standing and reputation as a blue chip manufacturer, using it for large-scale financial plays (ie: GE Capital). In essence, the manufacturing company became an unregulated bank. (b) Lax financial scrutiny from Wall Street and the SEC. What Welch and his CFO, Dennis Dammerman, did with the books during their tenure would be considered illegal after Sarbanes-Oxley came into effect. In fact, GE was slapped with massive fines in 2009 and again in 2020 for misleading investors with their financial reporting practices. But Welch never had that kind of scrutiny and was able to get away with cooking the books to meet/beat quarterly expectations 80 times in a row.

There is another new book about Welch out recently, and while I haven’t read it, the author David Gelles wrote an informative article in NYT that provides a glimpse of why Welch succeeded in the short term but destroyed GE in the long term. He even posted a response to Jeff Immelt’s LinkedIn post “Jack was pretty damn good” (link in that article) which makes for entertaining reading.

Jeff Immelt, Welch’s successor, is also currently peddling his version of events in his memoir “Hot Seat”. I’ve read it and found it unconvincing as a factual history - it’s full of self-aggrandizing and self-forgiving passages that don’t actually explain why Immelt didn’t undo Welch’s mistakes even after it was blindingly obvious that it was the right thing to do. A lot of it may have to do with the public myth of Jack Welch: it is very hard for people to call out BS on a demigod. Here’s a very short summary of the memoir that I found online if you want the tl;dr version.

Edit to add: you asked one more question around “why didn’t anyone realize he was creating a disaster?” While there’s no one clear answer, a passage from Lights Out highlights the culture that Welch’s GE had created that might lead to such outcomes. Its protagonist: a young and rising star at GE: Jeff Immelt. When Immelt first took over the GE Plastics Americas division (his first shot at the big leagues), he discovered some of the same shoddy accounting practices that would eventually ruin GE. The division’s accountants, under pressure from their previous leaders (who in turn were under pressure from Welch) had systematically been reporting their numbers by working backwards from a “desired” profit target, rather than just reporting the truth. When Immelt realized this (3-4 months into his tenure), he had the choice of reporting this up to leadership at HQ; but the consequences to his own career would be catastrophic. In Welch’s GE, “not making your numbers” was a death sentence to your long term ambitions. Immelt chose to swallow the problem. He decided he’d increase sales enough to not just make up the gaps in the previously-fudged numbers, but also enough to meet his own targets. It took him a couple of quarters… that first year was especially bad. In the annual leadership retreat at Boca Raton, Immelt tried everything to hide from Welch, but Welch cornered him on the last night and told him: “Jeff, I’m your biggest fan, but you just had the worst year in the company. Just the worst year. I love you, and I know you can do better. But I’m going to take you out if you can’t get it fixed.” Can you imagine the kind of culture that numbers-obsessed, any-failure-is-bad attitude creates in the company? Bad news wasn’t openly discussed, instead people everywhere fudged the numbers to make their projections “work”.

That was the culture that Welch created at GE. And while he retired early enough that the structure hadn’t started collapsing, he did live long enough to see the effects of his hollowing-out-from-the-inside on a once great company. But like many other megalomaniac CEOs, he pinned the blame for those failures on Immelt and others. Welch himself became a caricature of success in later years: divorced his wife for a much younger one, started a leadership training “MBA” program and wrote a book called “Winning: the Answers”. He became a rabid supporter of DJT and far-right wing ideology. In the end, his own life became as hollow as his company was.

Hi. This is David Gelles. I'm the author of the new book The Man Who Broke Capitalism, which is all about how Welch screwed up the economy.

I'll try to reply briefly here, and feel free to ask me questions and I'll do my best to keep an eye on this thread and respond.

The short answer to the question of what he did that was so damaging is: Welch single-handedly ushered in a new era of cutthroat capitalism, wrenching corporate America from the postwar years - when there was a real focus on multiple stakeholders including employees and communities - into an age where shareholders and investors came first.

In the book, I identify three main ways in which he did this: downsizing, dealmaking and financialization. I won't dive into the details here, but am happy to reply to specific questions about any of them.

As for the question of whether he was cooking the books or doing anything illegal: he was never charged with a crime, and GE was never dinged for accounting fraud during his tenure. But he was operating in an era before Sarbanes Oxley, when there was dramatically less transparency, much looser accounting rules, and a willingness by Wall Street to accept unnaturally smooth earnings that would raise eyebrows today. Not long after Welch retired, his successor settled sweeping accounting fraud charges that pointed to decades of potential impropriety.

Some people realized what Welch was doing at the time. He was dubbed "Neutron Jack" early in his career for the mass layoffs, and had his critics along the way. "At Any Cost" was a good book on his misdeeds that came out more than 20 years ago, and Bill Gross called him out for financial shenanigans shortly after he retired.

But on balance, GE stock kept going up during his 20 year run, and investors, analysts and society at large seemed to accept that while his tactics were ruthless and his business strategies transformed GE from an industrial company to a financial one, it all seemed to be making the stock price go up, and that was what they wanted to see above all else.

It's only with a bit of perspective that we can see the true damage done. Welch's playbook became standard operating procedure for corporate America. His disciples went on to mess up other big companies like Home Depot, Albertson's and Boeing. His outsourcing and offshoring were widely imitated. His obsession with finance permeated the whole of the economy. And even today, we're living in Jack Welch's world.

I could go on. Ask me anything and please check out the book.

David