Words Worth: Profit & performance: 12th November 2023 Financial Express (book review)

 

The story of former GE CEO Jack Welch is a grim reminder for many corporates taking a similar direction today

The video clip of the now infamous Zoom meeting where the boss abuses his team for not meeting targets is now a template used to show how capitalism has degenerated and become toxic in terms of work culture. What matters most is profit and nothing else. The end, which is seeing the company price going up, is important and the means not really that relevant.

The genesis of this behaviour goes back decades back in the 1980s when Jack Welch, then chairman and CEO of General Electric, became an icon for a different work style. What was important was shareholder value which could be driven up by making higher profits at any cost. Welch understood this and was quite unabashed about this goal; and the means used to attain it were not relevant. This is the core of the book written by David Gelles, titled The Man Who Broke Capitalism.

Welch was the most revered corporate head who knew ‘how to kick’ to get the desired results. There was no case of emotion coming in the way and it was only performance that mattered. The Friedman theory of markets was embraced by the government; and presidents like Ronald Regan were a true believer in this ethic.

There was a three-point formula assiduously pursued which not just won plaudits to begin with but also became examples for others to follow. He had become a role model. The first was downsizing; and he brought into American capitalism the concept of retrenchment in the name of fostering efficiency. This held not just for GE, which was an electrical company that provided products for the households, but the several other companies that he acquired through takeovers or mergers. The starting point of such ventures was large-scale ruthless layoffs. The shareholders did not mind as profits rose as did the share prices.

The justification was that if profits had to increase, costs had to be curtailed along with growing sales; and this meant cutting down on the labour force. The concept of outsourcing caught on where jobs hitherto done in the company were given to outsiders. This fell in well with the tenets of capitalism where there had to be creative destruction along the way. This model may sound familiar in India even today where several companies think nothing amiss about terminating services of labour based on the efficiency argument. Welch became a hero and for those who worked in the Eighties, Nineties and first decade of the 21st century. Almost every CEO loved to display his book, Straight from the Gut, on their shelves.

His behaviour was outright abusive and one had to fall in line to survive in the company. Employees were too scared to walk close to him as they expected him to be nasty. Whenever he lost his temper at anyone he would say: shoot him, which meant getting the sack. He had become such an icon that the media loved him and with all the interviews on TV channels and columns in magazines, he became a role model for success. In fact, buying a company that ran the NBC channel helped in this image building. This was American capitalism at its macho best.

The second was deal making, which was part of the package. The number of deals of buyouts and sales reckoned in this two decades of rule was amazing and each deal spelt trouble for the staff as the Welch paradigm was adopted. Once deals were done they would be headed by anyone he liked.

The third was financialisation, which meant making profit at any cost. This did not preclude braking laws and fudging numbers. It did not matter as long as it was not found out as every quarter mattered when it came to convincing shareholders that things were just too good. And as he delivered returns exponentially, everything worked in his favour.

The book goes into details of how companies were run under his aegis and the absolute power wielded by him. The unions were made non-existent and cultural centres turned into fancy clubs meant for elite groups. The performance-driven culture meant that those who did very well prospered and the infamous Bell curve which meant sacking employees every year took shape under his regime. Corporate America just loved it as it spoke a tough language of success. His close colleagues, including Immelt who took over the reins after Welch moved out, continued on the same path to maintain continuity. Fortune wrote that when any company was looking for a CEO they would poach on the stalwarts of GE.

Gelles does lament this extreme state of capitalism not just because of the human factor but also the use of immoral techniques to keep the accounts looking very good. He also points out that nothing much has changed as seen even in recent times when Microsoft and Meta have laid off a large number of workers. Elon Musk has now earned the title of Neutron Mush which was first given to Welch, as he resorted to sacking 50% of Twitter staff after taking over the company.

The reader would have to take a call on whether she admires this kind of culture or not. To the normal person this sounds repugnant, but such a model has made many shareholders richer and happy. He changed the way in which companies are run. It is no longer a case of preserving family values, but working as a team all the time. Companies are now moving away from such extremism, but as seen in India, too, the culture of Welch has already gotten ingrained and one needs to look through the windows to smell this.