The late Jack Welch led the transformation of General Electric into a multinational corporation that, at one point, became the world’s most valuable company — earning him a reputation as “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 an approach to management that focused on shareholder value at the expense of workers and, ultimately, the company he ran.
One of Welch’s former mentees disagrees with that characterization.
“I have only the highest regard for Jack Welch,” said former Home Depot CEO Bob Nardelli in a recent interview with Yahoo Finance’s editor-in-chief 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 the ranks, eventually becoming president and CEO of GE Power Systems in 1995. Along the way, he got to know Welch, who became his mentor and role model. In fact, Nardelli soon became known as “Little Jack.”
He still remembers how Welch pushed him to be his best.
“He was the individual that could be very stern and give constructive feedback. But he would still put his arm around you and, you know, make you feel extremely important,” says Nardelli, who also served as CEO of Chrysler. “He had the magic of being able to, you know, challenge you … And at the same time, make sure that you were highly regarded and respected.”
Welch served as chairman and CEO of GE for roughly two decades. During that time, he massively grew and diversified the company. He expanded it into businesses including computers, credit card processing, and internet servicing, among many other areas.
He even ventured into entertainment. In 1986, GE acquired RCA (Radio Corporation of America), which owned NBC.
“He was a real special breed that could run a conglomerate,” Nardelli said. “Many 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 accountability. For instance, he famously identified and fired the bottom 10% of GE’s workforce annually to keep the company competitive.
“He set expectations that encouraged you to reach and stretch to reach goals you otherwise may not have achieved, and hold you accountable,” said Nardelli.
Under Welch’s leadership, GE enjoyed striking success. The company’s market value leaped from $14 billion in 1981 to $410 billion in 2001. Fortune magazine heralded Welch as the “Manager of the Century,” in 1999 and other executives began emulating his approach to business.
‘It’s heartbreaking to see what happened to GE’
But Welch’s critics contend that his approach to management, though 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 French company Alstom SA’s gas turbine operations only for gas turbine demand to collapse. The failed deal resulted in a $23 billion write-down.
In an article for Fortune, Yale School of Management Professor Jeffrey Sonnenfeld attributed many of GE’s failings to Welch’s mistaken belief that he could succeed across industries with his management philosophy rather than with industry-specific knowledge.
“That notion of interchangeable management expertise, like interchangeable parts in an assembly line, contributed to massive strategic stumbles under Welch,” Sonnenfeld said.
The company was dropped from the Dow in 2018, and three years later, the once-dominant conglomerate revealed that it planned to split its businesses into three public companies focused on aviation, energy, and health care. Its market cap is now $81 billion — roughly 20% of what it was under Welch’s leadership.
“It’s heartbreaking to see what happened to GE. I put 30 plus years of my life in it,” Nardelli said. “To have some something that was at the top, the highest performer highest market capitalization, to now see that it’s barely a fraction of what it was, is, heartbreaking.”
In “The Man Who Broke Capitalism,” David Gelles argues that the spread of Welch’s management philosophy had a corrosive effect on society. He even draws a connection between Welch’s influence and two Boeing airplane crashes that occurred in 2018 and 2019. He explains three successive Boeing CEOs had previously worked at GE under Welch and internalized his focus on financial success. Consequently, they prioritized high shareholder value over strong aeronautical engineering as they led Boeing, according to Gelles.
“If you look at the history of Boeing over the past 25 years, you see very clearly the imprint of his leadership, his priorities as delivered through his disciples,” Gelles said in a recent interview with Yahoo Finance. “There was a bigger cultural problem inside Boeing. And that cultural problem ultimately leads back to Jack Welch.”
Though he said he respected Gelles’ right to an opinion, Bob Nardelli remains steadfast in defending his former mentor, who died in 2020 at the age of 84.
“I don’t think it’s appropriate to go after someone that’s passed away, that 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’m not one of them.”
Dylan Croll is a reporter and researcher at Yahoo Finance. Follow him on Twitter at @CrollonPatrol.