Buffet vs. Jack Welch

“The Man Who Broke Capitalism” is an interesting book about Jack Welch, a cult figure of the 2000s with a management philosophy that, while hugely popular for a long time, worked to destroy a company’s long-term value and has done serious damage to several large American businesses. Welch’s style is in effect the opposite of what Warren looks for in a manger.

It is a good story and well written; however, to my taste, it would have been a better book if it had been written by someone who was not a reporter for the New York Times, as is David Gelles, the author of this book. While the facts presented are accurate, the lessons Gelles draws from those facts are too way woke.

I post this here because of an argument I was involved in with several posts on this board in 2000 or 2001. My contention was that Warren Buffett was a better business manager than Jack Welch. It was an argument that I lost then, as Welch was at the time considered to be the “manager of the century,” And Buffett was supposed to be just a great money manager. Even today, I think that we underrate the importance of his understanding of the best way to manage a business. It has been and still is fundamental to his investment choices.

But I could win this argument today. Gelles does a great job of showing why and detailing what was wrong in Welch.s management Philosophy by examining the results at companies led by Welch’s disciples, such as Boeing, Home Depot, and GE. For example, Boeing was led by Welch’s disciples, Harry Stonecipher, who took over when Boeing Merged with McDonnell Douglas.; Jim McNerney, president and CEO from 2005 to 2015; and Dave Calhoun, who took over after the two 737 crashes.

Nowhere is the impact of Welch’s management philosophy more clearly demonstrated than at Boeing, a company that has run a world-class franchise into a potential disaster. Welch’s emphasis was always on the short term. So it was important to keep quarterly earnings reports showing steady growth. ( keep the stock price up and the shareholders happy).

In contrast, Buffett tells his managers to pick companies with managers who ignore the short-term focus five to ten years down the road and work every day to increase their company’s moat by focusing on product quality and design. Instead, Boeing, in 2012, decided to re-engine a 50-year-old airframe (the 737) because it was the best way to improve the short-term return for shareholders. So how do shareholders feel about that approach today?

A manager with Buffett’s philosophy to sacrifice short-term prospects to build a bigger moat with a better product would not have re-engined a 50-year-old airframe but started with a clean sheet designed for a new single-aisle airplane with a composite airframe and a more efficient wing design. As a result, a decision that would have penalized Boeing’s earnings for several years would have left Boeing today instead of struggling to survive, with strong sales and a product that was vastly superior to its competition.

With the 787, Boeing did come up with a great design, but to keep the cost down. They farmed out the manufacture of many different parts to many companies in many countries. As a result, today, Boeing has not been able to deliver any of these magnificent airplanes for two years because all of the pieces do not quite fit together right.

It would have cost more and penalized short-term profits to keep the manufacturing in-house to control the quality of the product. So which choice do you think a Buffett Manager would have made?


What are the “woke” lessons the author was trying to get across?

I read the other post GE book (Lights Out) and doubt I will read this one.


I couldn’t agree more about Welch and his managers vs Buffett and his. Welch’s focus was completely short term, and not on product quality. GE stock performed well during Welch’s tenure, 1981-2001, but much of that performance came from a strong bull market.

I worked for a company that hired a senior GE manager to be CEO. His approach was to cut costs and package the company for sale. The company posted “non-recurring” losses every quarter as he slashed the workforce and closed plants. Wall Street bought the story.

The right way to run a company, the approach that wins long term and builds a company that you can be proud of, is continually to improve products and service. What a concept.


Welch was a corporate raider, a destroyer, nothing more.


“What are the “woke” lessons the author was trying to get across? ”

:triumph: triggered.


Welch was a corporate raider, a destroyer, nothing more.

Though I am not a particular fan of Mr Welch, it’s very easy to be a dismissive armchair quarterback.
Especially with the 20 years of hindsight that make joining the vilification parade so easy.
He’s an easy fellow to dislike, to be sure, and he left behind a brittle tower.

But “nothing more”?
He did nothing right in all those years? Not a single valuable insight or management decision?
Not one strategic move that was a good wager? That either worked out well, or was a smart bet based on information available at the time?
The market cap got crazy, and they took way too many imprudent risks which unsurprisingly ended badly,
but the business really was much larger and more profitable when he left than when he started, belying the “destroyer” epithet.

Lots of people are destructive failures, but few are total failures.
Though it’s hard to assess, I thought there was both clarity and value in his stance that a
sprawling conglomerate could succeed overall only by being #1 or #2 in all of its individual business areas.
I assume one allows for businesses with a decent chance to be come #1 or #2 soonish, or you’d never build a new product.

Berkshire takes a different stance: as long as a bad unit is profitable on average, just ignore it and don’t let it have any more capital.
This has some merit for sure, but probably also downsides.
The reputation of the group as a whole gets tarnished by the duds, presumably affecting employee dedication and opinions on compensation.
I’m sure there are some star performers at (say) MidAmerican who look askance at the compensation profile at NetJets.



Though I am not a particular fan of Mr Welch, it’s very easy to be a dismissive armchair quarterback. Especially with the 20 years of hindsight that make joining the vilification parade so easy.
He’s an easy fellow to dislike, to be sure, and he left behind a brittle tower.
But “nothing more”?

Not really much that I can see. I say this as a former employee of Westinghouse, which was a huge multinational conglomerate dealing in electricity, nuclear, defense, shipping, consumer products, broadcasting, and finance. If that sounds familiar, then perhaps Mr. Welch could have taken a lesson from our bankruptcy in the 90’s, when the credit division got carried away, the industrial base that made the credit division possible* withered, and at the first sign of smoke the company cratered.

(* Neither GE or Westinghouse Credit Divisions were technically banks so they didn’t have to deal with those icky regulations, and the slow and steady profits from the other divisions meant they could borrow more cheaply and lend more readily than traditional banking. And that’s fine while you’re financing your own products (whether shipbuilding or washing machines), but when you get into lots of really swell financial engineering you might be in trouble.)

During Welch’s term finance went from the sleepy back room to fully half the company’s profits, and in that term R&D fell in half. His vaunted management system seems not to have produced the stellar returns either: Immelt could deal with the crap pile of plugs and decisions Welch made to keep his smooth earnings. Nardelli was a disaster at Home Depot, and McNerney could hardly have been worse at Boeing. Perhaps there were other successes, but Welch bragged that he improved his “people picking ability” from 50% to 80% through the years, and that was (supposedly) his self-described most important job.

He ran the business for the delight of Wall Street, not for customers, nor stakeholders, and the results show. Having been through it at Westinghouse, where our division was producing margins in excess of 40% only to see it all go toes up I have little (OK, none) respect for Welch, who did the same thing, 10 years later, having learned no lessons at all, apparently.


I haven’t read the book, but heard a great interview with the author (perhaps Fresh Air on NPR?)

I definitely heard the elements you write about: financial manipulation to hit numbers; destructive short term thinking leading to going cheap on design and offshoring akin to the Boeing.

I am curious if the woke-ness you write of was the vibe I got from the interview in relation to working conditions, job security, and the like vs the increasing allocation of profits to “Capital.” To oversimplify, the argument seemed to be that the combination of Reaganomics and Welch style management in the 80s really tilted the outcomes favor of shareholders and against employees. End of widespread pensions and expectations of permanent employment in favor of slashing costs, employees, and benefits.

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