The emperor of business dons new clothes -- and stands naked for all to see
October 21, 2012 8:00 AM
By Tom O'Boyle Pittsburgh Post-Gazette
Probably no business publication in the world did more to create, magnify and outright concoct the legend of former General Electric CEO Jack Welch than Fortune magazine. So when this once cozy relationship dissolved recently amid angry recriminations, I was reminded of the old fable about the scorpion who asked a frog to carry him across a river.
The frog fears the scorpion will sting him and they'll perish. That's what happens. Before they drown, the perplexed frog asks his lethal companion, "Why did you do such a stupid thing?" To which the scorpion replies: "It's my nature."
Anyone who has followed Mr. Welch for as long as I have knows it's his nature to seek maximum exposure for his minimal ideas. So it came as no surprise that when he took to Twitter this month to accuse the Obama administration of cooking the latest unemployment numbers, despite having zero evidence, there was more at work than a 76-year-old man not understanding the nuances of social media.
Our modern-day fable is about greed, connections and what the system allows. It is a timely tale about a retired but still publicity-hungry chief executive of one of the most powerful corporations on the planet. It's about a man whose expedient strategies brought his former empire to near ruin, and with it the economy, who now has the chutzpah to accuse others of deceit, when he should be thanking taxpayers (and government) for bailing out his fortune and legacy.
Although Jack Welch was the epitome of the modern celebrity CEO, his greatest genius wasn't in reading a balance sheet or executing a business strategy, but rather in his preternatural understanding of raw power. He knew how to ingratiate as well as intimidate the media -- to squelch, kill or chill unflattering portrayals of him. That meant rewarding allies and punishing potential adversaries.
During the six years I researched and wrote a book about Mr. Welch back in the 1990s, his high-powered legal team threatened to sue me and my publisher (Alfred Knopf) no less than a dozen times, though they never did. My offense: having the audacity to question the well-spun Welch myth, which publications like Fortune, Business Week and even my own Wall Street Journal were all too willing to convey.
At the same time, Mr. Welch courted allies with great zeal, among them Fortune. Little wonder then that when the magazine gave out its millennial awards back in 2000, none other than Jack Welch was declared "Manager of the Century." No, not men like Henry Ford or either of the Watsons of IBM fame, who would have been obvious and logical choices.
Back then, when times were heady, people didn't care what CEOs like Mr. Welch did to make himself and his shareholders wealthy (funny how it takes a near depression to reorient our moral bearings). All they knew was that GE was king of the mountain. The total value of its shares exceeded $500 billion when Mr. Welch retired in 2001. GE was the Apple of its day, but, as we now know, it was an empire built mostly on precarious financial instruments rather than on the type of innovation that has propelled Apple shares to new heights.
Few questions were asked by the business press about the house that Jack built. To this day, he likes to point out that during the two decades he ran GE, its revenue increased five-fold and its profit 10-fold. True enough.
What he doesn't mention is that there also was a five-fold increase in GE's reliance on financial services -- and not even that was his invention. It was an old formula, one Westinghouse Electric had deployed earlier, with disastrous results: De-emphasize manufacturing, grow financial services, outsource American jobs, jettison research. Same old, same old. And in Mr. Welch's case, pocket a billion while you're at it.
Then came the reckoning. In the pummeling meted out to GE shares four years ago, not only was the stock eviscerated, so too was the last shred of plausibility to the Welch myth. Because GE was largely a bank rather than a manufacturing concern -- financial services accounted for half of its earnings and 80 percent of its acquisitions during the Welch era -- GE shares plummeted to $7 from its high of $42 in 2007 amid investor distrust of financial institutions. Although the company has recovered a bit since then, its market cap still remains more than $300 billion below the Welch highs of a decade ago.
This huge bet on financial services suddenly didn't look so smart, but the crash happened on someone else's watch, so from Mr. Welch's perspective, his legend could live on. No matter that he left GE on the precipice of colossal failure.
I recall a Drue Heinz lecture a few years ago by Andrew Ross Sorkin, the respected New York Times financial columnist and author of "Too Big To Fail," which describes the dizzying collapse of the financial sector that commenced in that horrible autumn of 2008. Mr. Sorkin began by saying that if it hadn't been for the government rescue engineered under the Troubled Asset Relief Program, none other than General Electric would have gone bankrupt.
Nevertheless, Mr. Welch revels in self-promotion and in dissing politicians and government bureaucrats when he should be thanking them -- both for his reputation and presumably his financial health (assuming some of his wealth remains held in GE shares). Of course, you won't hear him expressing his gratitude on CNBC, where he is a frequent guest thanks to the fact that the NBC network is part of his former GE empire.
Given this circumstance, a normal person might not have proclaimed, as Mr. Welch did shortly after the first presidential debate, that the Obama administration had fabricated the September unemployment figure, which fell below 8 percent for the first time since the economy cratered. His inane tweet said, "Unbelievable job numbers ... these Chicago guys will do anything ... can't debate so change numbers."
Why would he do this? Why would he expose himself to ridicule by expressing a viewpoint so blatantly untrue? Both Chris Matthews and Anderson Cooper interviewed him on their cable TV shows, which demonstrated irrefutably that he had no evidence whatsoever to support his claim. The Bureau of Labor Statistics, which compiles the monthly unemployment reports, is an independent, professional agency bound by law to fend off political interference.
True to form, Jack Welch has refused to back down. The best admission Mr. Cooper could manage was that the tweet should have carried a question mark.
Having observed Mr. Welch as I have, I can think of three reasons he would say something so egregiously false. First, we live in a world that increasingly views truth as hopelessly quaint. Second, false or not, the tweet got him what he wanted, which is attention. And third, Mr. Welch thinks he's made of Teflon and is not accustomed to being called on to justify what he says, least of all by his old buddies at Fortune and NBC (and its affiliates).
A few days following his tweet, Fortune ran a report on its CNN/Money website under the headline: "Obama Trounces Welch's Job Record." It explained what every informed observer of Mr. Welch's actual record knows to be true: that during his tenure at GE, he was a job destroyer, not creator -- on the order of a net loss of at least 100,000 jobs and perhaps many more. This nevertheless still evades many in the media, such as Piers Morgan, who had Mr. Welch on his CNN program in May to offer the president advice on, of all things, job creation!
Fortune's questioning of Mr. Welch must have been the last straw, as the scorpion and the frog bid each other adieu shortly thereafter. Mr. Welch quit his writing gig for Fortune (and for Reuters), saying he'd get more "traction" elsewhere.
A day later, under the headline "I Was Right About that Strange Jobs Report," The Wall Street Journal lent him space on its august op-ed page, which I generally admire, so he could defend himself.
That's just what the world needs more of: yet more space allocated to the defense of poor Jack Welch.
Tom O'Boyle, a former Wall Street Journal reporter and Post-Gazette business editor, is the PG's senior manager of audience (firstname.lastname@example.org). His book, "At Any Cost: Jack Welch, General Electric and the Pursuit of Profit," was published in 1998. First Published October 21, 2012 4:00 AM