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The interesting demise of the legend of Jack Welch

Date: 22 Sep 2002

In the very first issue of this newsletter, I wrote a piece pondering the fact that - although we remain convinced that social responsibility is a symbol of true leadership - the two consistently "most highly respected" business leaders in the US were Bill Gates and Jack Welch. Neither had established much of a reputation for caring about their wider impact on society, and yet their reputations seemed iron clad.

It was all about hitting the numbers, of course. You simply can't argue with success. Jack Welch - with his combination of ruthless focus and contradictory commitment to staff involvement - had delivered the growth figures that could only be dreamed of by lesser companies. Bill Gates had turned Microsoft into the world's most powerful monopoly as a consequence of its highly competitive approach.

The companies continued their distinctive path throughout all the debate around business practices. GE was sued for polluting the Hudson River. Microsoft was pursued for anti-competitive behaviour. But the companies still survived and thrived in spite of these occasional problems, and in their gleaming corporate edifice the admirers saw a business model that reaffirmed the 40 year old Friedmanite contention that the business of business is business.

Who would have thought we could end up here? Just as Welch has retired with the expectation of a legacy of unbroken success to his name, so that legacy has been called into question apparently over the disagreeably large pension package he had been granted. And the interesting this is that this isn't over the issue of how he ran the company per se - it isn't the rise of socially responsible business practice that has caught up with GE. Rather it is the issue of the personal integrity of CEOs and other business leaders.

This was why Enron - which had all the policies and programmes - became the first domino to topple. You can have all the best processes in the world, but the personal integrity of the individuals in the business is key as well.

But it is absolutely fascinating that this is happening now in America. Out of all the countries in the world committed to the free market, America has always been the least apologetically meritocratic in believing that people should be paid what the market thinks they're worth - and that successful people are to be admired not despised or pulled down. So it has never been much of a surprise that American CEOs have consistently been better paid than most of their counterparts in other countries.

The UK, which most closely shares the US view of private enterprise, has been witnessing for years the rash of "fat cat" sensationalist stories - deriding the greed of top executives and comparing them to the low paid people who work for them - or the badly served customers who often have no choice but to buy from them. But it never seemed that such stories could happen in America.

Now, Enron has brought about a real cultural shift. Jack Welch is finding his name associated with the Enrons and the Worldcons in a way that he must find hurtful and bewildering. After all, he was hugely successful for GE. The company thrived as it had never before under his stewardship. It has always been the American way that with great achievements come great rewards. Who rewrote the rules?

Gratifyingly, the Welch legend had started to crumble well before the details of his pension package was made public in a very messy divorce process. Post Enron, the questions had begun to be asked whether a company that hit the numbers every year without fail wasn't perhaps doing a little too well for comfort - and whether this talented man who demonstrated little regard for ethics in how his company dealt with environmental issues, might not bring the same disregard to how the company's reporting could be manipulated.

General Electric was one of the companies included in the "Built to Last" book as one of the enduringly successful American companies. Critics of Jack Welch have suggested that although his mode of operation delivered the figures year on year while he was there, this was achieved only by demolishing some of the elements of corporate culture and integrity that had been cornerstones of making the company enduringly successful in the past. The suspicion is that now he has gone, GE will begin its fall. Time will tell.

Jack Welch no doubt deserves a long and happy retirement. He took the world as he found it, followed the basic rules, broke a few and in those terms performed to his utmost. The majority of managers will probably continue to admire him regardless of the change in mood.

But those like me who are attracted to the "Built to Last" / "Good to Great" books with their contention that the best led companies come with leaders who build the strong team, focus on the purpose and on the culture, and who plan for sustainable success to endure beyond their personal tenure - will probably celebrate the questioning of the ultimate charismatic CEO who stood as the biggest symbolic challenge to the link between corporate social responsibility and successful business.

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