While it has been more than two decades since Mr. Welch was C.E.O. of G.E., his legacy still affects millions of American households.
Almost immediately after Mr. Welch retired in September 2001 with a $417 million severance package, G.E. went into a tailspin from which it would never recover.
His pupils, though, went on to run dozens of other major companies, including Home Depot, Albertson’s, Chrysler and Boeing. Most of them failed.
His pupils, though, went on to run dozens of other major companies, including Home Depot, Albertson’s, Chrysler and Boeing. Most of them failed.
The transition from running a company well to earn a handsome income, to using a company entirely for self-enrichment. The trend more likely started in the 80s, with honchos working “big deals” that left the companies laboring under a huge debt load, but the CEO rich beyond his dreams.
Let’s not forget Ken Lay and Jeff Skilling at Enron & Bernie Ebbers at WorldCom &Dennis Kozlowski at Tyco or Al “Chainsaw” Dunlap at Sunbeam/Scott Paper. Accounting scandals lay at their demise of Wall Street favorites.
“…the economy had been shaped by Mr. Welch over the previous 40 years, creating a world where manufacturing jobs have evaporated as C.E.O. pay soars, where buybacks and dividends are plentiful as corporate tax rates plunge.”
From the era of “greed is good,” Welch and his like are parasites. They extracted the wealth of corporations for themselves and destroyed the vast legacy of this great country. It’s why we have so many of the problems we have today and such a huge disparity of wealth. We need to claw back that stolen wealth by taxing them at steep progressive rates.
Look, I operate a private equity firm and I understand you have to pay for talent. If you can’t pay your top talent, they’re going to leave and you’ll be stuck trying to run the company with all the bums working in the carcass.
Wow. Quite a motivational speaker, that Jack Welch. Is he really saying that all the people working in giant American corporations who AREN’T pulling in $2 to $10 million in salary are “bums” and if not for the brilliance and wisdom of those that ARE pulling in $2 to $10 million, those companies would be worthless without them? Go back and read his comment. That’s EXACTLY what he said. The rest of us are losers and suckers, lucky to even HAVE a job working in the engine room while the geniuses on the mahogany bridge set a course for the nearest iceberg, loot the company during the clear sailing then commandeer all the lifeboats.
That is what we have been fed since the US went “supply side” and became Shinyland: the deification of CEOs. Except, now, 13 years later, that $2-$10M payday has become $20-$30M, and, in Jamie Dimon’s case, over $80M.
Welch acolyte McNerney timed things perfectly, retired as Boeing CEO July 2015, just shy of turning 66, and retired as Chairman March of 2016. The first Max crashed October 29, 2018, exposing the shoddy work BA had been doing on his watch. Then people started to notice the rot in the balance sheet. But his last payday was $29M, and that is all that matters in Shinyland.
My entire career was in the chemical manufacturing industry, from R&D to sales to product management.
In addition to internal corporate training courses, I studied for an MBA in the early 1980s. Important lessons included “Focus on the Customer” and “6 Sigma Quality.” I took pride in inventing, developing and manufacturing quality products and in customer service. It was clear to me that the goal of a good company was to live a long, profitable life by innovating and selling products that customers needed. I worked alongside dedicated researchers, engineers, manufacturing and quality control people who put enormous effort into producing these goods. My MBA courses explained how a company would take on short and long-term debt for investment into maintainence and expansion of productive plant.
This all made perfect sense to me. I understood that companies have operated this way for hundreds of years in a stable capitalist system. Customers rightly trust the products of companies that are run with the customer’s needs placed first.
In 1999, a friend of mine began to study for her MBA. She showed me in her economics textbook that “The only goal of a company was increasing the value of the company’s stock.” I was shocked because there was no mention of any other goal of the company.
This was a paradigm shift that has led to the destruction of many good companies. Private equity and corporate raiders bought companies with debt they loaded onto the victim company, bled the company and ran it into the ground. Years of dedicated work by the company’s employees were sucked dry as the company was bankrupted and the workers fired.
A company that puts paying the managers as a higher goal than serving the customers will inevitably produce poor-quality goods and services and eventually be run into the ground.
Jack Welch and his corporate disciples, together with the private equity raiders, have done immense harm to America.
In 1999, a friend of mine began to study for her MBA. She showed me in her economics textbook that “The only goal of a company was increasing the value of the company’s stock.” I was shocked because there was no mention of any other goal of the company.
I got my (company paid) MBA from Syracuse in 1981. They were already starting to preach the “Greed is good” gospel back then. By the mid-1980’s shareholders reigned supreme over other stakeholders (i.e., workers, customers, and the community the corporation does business in) By the late 1980’s, it was all about steadily increasing Executive Compensation and “F” everything else – and it’s been that way ever since.
This slur has nothing whatsoever to do with anything in that piece. It seems to have appeared from nowhere as part of a nonsensical title. Just click bait.
Elon Musk is, if anything, exactly the opposite of Jack Welch and his acolytes. The immediate proof of that is that his pay packages at Tesla have been structured in such a way that he would be paid nothing unless the company and shareholders were enormously successful, in every way. Only by achieving goals both unprecedented and regarded by pretty much everybody as wildly impossible has he become wealthy.
What Jack Welch has to do with Musk’s generally execrable conduct on Twitter I have no idea. Musk, quite obviously, dances to tunes only he can hear.
In 1999, a friend of mine began to study for her MBA. She showed me in her economics textbook that “The only goal of a company was increasing the value of the company’s stock.” I was shocked because there was no mention of any other goal of the company.
This was a paradigm shift that has led to the destruction of many good companies.
Sounds more like it was just a terrible textbook. Most companies exist for reasons other than to increase the value of that companies stock, and that’s just as true today as it would have been in 1999 (or earlier). Very few companies have shares that are traded at all - the liquid, publically traded corporation that we see in the major stock exchanges are a very tiny fraction of companies.
My practice involves real estate development - nearly all of my clients do business using a corporate form, and virtually every single one has been formed for purposes that have nothing to do with increasing the value of that company’s stock. A single real estate holding company, even for a single project, can be comprised of dozens and dozens of companies which exist for a variety of goals - to insulate against judgment, to provide tax benefits, to serve as a ‘waterfall’ to allocate returns from the project to specific equity participants in specific amounts at specific times, to allocate risk of default, to provide vehicles for conveying partial ownership interests in indivisible assets, etc.
Any textbook that says the only goal of a company is increasing the value of a company’s stock isn’t worth the paper it’s printed on.
My practice involves real estate development - nearly all of my clients do business using a corporate form, and virtually every single one has been formed for purposes that have nothing to do with increasing the value of that company’s stock. A single real estate holding company, even for a single project, can be comprised of dozens and dozens of companies which exist for a variety of goals - to insulate against judgment, to provide tax benefits, to serve as a ‘waterfall’ to allocate returns from the project to specific equity participants in specific amounts at specific times, to allocate risk of default, to provide vehicles for conveying partial ownership interests in indivisible assets, etc.
Any textbook that says the only goal of a company is increasing the value of a company’s stock isn’t worth the paper it’s printed on.
That’s different. We’re talking about how Fortune 500 employee executives manage the business. It’s all about the Executive Compensation today.
“The only goal of a company was increasing the value of the company’s stock.”
And what does management think of those stockholders?
Increasingly, management is going to the SEC demanding to be allowed to not even include a properly presented shareholder proposal in the proxy.
Shareholder’s vote on executive pay are merely “advisory”. I doubt Dimon’s pay for 21 will be dinged a single nickle, in spite of it’s overwhelming rejection by shareholders.
Shareholder proposals for management to disclose who they are bribing, how big the bribes are, and for what purpose, are dismissed by management as none of the shareholder’s business.
Most companies the CEO is also the Chairman of the Board, defeating the purpose of the Board as the shareholder’s watchdog on management.
It is clear that Board members serve at the pleasure of the CEO/Chairman. When Tandy Board member Jessie Upchurch started objecting to John Roach’s stewardship of the company, Upchurch was informed he would not be nominated for reelection to the Board.
Today’s CEO is a power unto himself, unaccountable to shareholders, unaccountable to the Board, apparently unaccountable to the law, writing his own paycheck.
Supply side econ was only necessary for most of the first 8 years of it to recapitalize US corporations.
Since then, 1981 to 2020, it has been an American nightmare.
There are people here sold on low taxes for the wealthy means GDP growth. That can not be further from the truth.
There are lottery ticket wannabees here who think they need low taxes when they strike it rich. That actually is even further from the truth. Those folks mostly have me on ignore. I totally get it. Disturbing the dream hurts.
ZJack Welch and his corporate disciples, together with the private equity raiders, have done immense harm to America.
I would say egregiously unethical bright greedy Jack and disciples were bit players who got their share of the loot. The movers and shakers are still mostly anonymous donors to a range of entities from the Federalist Society at the respectable end to uhm, I will not list but you all can figure them out, at the disreputable end.
The “Servant of the People” Political Party as well as top of the Ukrainian charts TV show
For all the talk of companies’ goals, objectives, strategic direction, etc., I think the only thing which really counts is what’s in your senior manager’s contract.
That’s different. We’re talking about how Fortune 500 employee executives manage the business.
Not in the post I was responding to. Wendy was citing an excerpt from an economics textbook from 1999. Her recollection of what it said referred to companies generally, not the very tiny subset of companies that make up the Fortune 500. Any decent economics textbook - much less one used for an advanced degree like an MBA - would talk about companies generally, without limiting itself (either explicitly or implicitly) to Fortune 500 companies.
There are almost as many not-for-profit corporations as there are for-profit “S” corporations in the U.S. And many of them can be quite enormous. An institution like Harvard University - and any of a dozen or more of the most financially significant universities with sizable endowments - would easily be in the Fortune 500 with a market cap of well over $25 billion if it were a publicly traded company. An economics textbook elucidating a theory of the firm that ignores such companies is a shoddy one indeed.
She showed me in her economics textbook that “The only goal of a company was increasing the value of the company’s stock.” I was shocked because there was no mention of any other goal of the company.
Wasn’t it the gospel according to Milton Friedman that the only purpose of a corporation is to increase shareholder value? Welch and his minions were just implementing the dictates of Friedman.
Any textbook that says the only goal of a company is increasing the value of a company’s stock isn’t worth the paper it’s printed on.
That was the commonly accepted textbook goal of public corporations (“maximize shareholder value” - aka increase the value of company stock) at least during the 80s and 90s when I studied such.
Shareholder value https://en.wikipedia.org/wiki/Shareholder_value#:~:text=Shar….
Shareholder value is a business term, sometimes phrased as shareholder value maximization or as the shareholder value model, which implies that the ultimate measure of a company’s success is the extent to which it enriches shareholders. It became prominent during the 1980s and 1990s along with the management principle value-based management or “managing for value”.
The hubbub concerns today’s declaration by the Business Round Table (BRT) that profits for shareholder are no longer the only purpose of a corporation. This is a big deal since for the last two decades this group of some 200 powerful CEOs has stuck to the mantra, “maximize shareholder value”, and its members have for the most part faithfully implemented it.
That was the commonly accepted textbook goal of public corporations (“maximize shareholder value” - aka increase the value of company stock) at least during the 80s and 90s when I studied such.
Hmmm…when I was studying economics in college, and later doing my corporations work in law school (Reagan-Bush I era, the heart of this time period), we covered a lot more than just large for-profit public corporations when talking about these matters. There was a significant amount of discussion of the different goals you could use different corporate forms to achieve. Granted, in law school you’re spending more time talking about non-corporation entities (partnerships, trusts, limited liability companies, and the like) than perhaps in business school. That might account for my different perspective on what a good textbook should have.