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You Don't Know Jack

By       Message Richard Eskow     Permalink
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That won't wash. "Do anything." "Can't debate so change numbers." The tweet speaks for itself.

I'm not saying Welch isn't smart or talented. Sure he is -- at some things, not all of which are negative. I had some interactions with some of GE's operating units in the 1990s and they were among the best-run groups of their kind I've ever seen. That's the upside of a management style like Welch's. (We'll get to the downside in a moment.)

Minimizing Values

Like any executive at a publicly traded company, Welch had a fiduciary responsibility to maximize profits. So I don't fault him for being tough on his executives, or even for firing lots of people. His behavior reflected a system of incentives and obligations which our society tolerates and even encourages in its business leaders. That system is a topic for national debate, not personal censure.

But I do fault him for glorifying the act of firing people, which became a key part his an lavishly promoted self-image. (I wouldn't be surprised if his own publicists came up with the nickname "Neutron Jack.") And I blame the media, especially the business press, for becoming his flacks rather than reporting on his methods.

Welch was a prime example of the kind of CEO who forces as many gains as possible into each quarter, maximizing short-term profits (and his own income) without much regard for the company's long-term health or stability. We've written before about the ways that mind-set places enormous pressure on managers -- pressures that can lead to unethical and illegal behavior. At GE, it did.

In the Kidder Peabody scandal of the early 1990, a trader responded to parent company GE's corporate pressure -- and its rewards -- by manipulating the Kidder Peabody IT system to misstate his earnings. That led to the biggest trading loss in history, as of its occurrence in 1994. Did his managers know what he was doing? That's not clear -- but they certainly had reasons not to look too closely. Did Welch know? There's absolutely no reason to think he did.

But did Welch learn from this disaster? Did he change his management style after discovering that his overly aggressive, short-term-oriented punishment and reward system was morally and financially corrosive?

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Unfortunately, there's no evidence that he did. Welch wrote afterward that he regretted not checking on the situation personally. But he stuck with his aggressive, carrot-and-stick approach to managers' incentives. And the scandals continued.

Black Arts

FAIR has  the run-down on some of GE's corporate convictions:

A 1990 conviction for "defrauding the Defense Department by overcharging the Army for a battlefield computer system," according to Fortune magazine, leading to $20 million in fines.

A guilty plea on charges of "fraud, money laundering and corrupt business practices in connection with its sale of military jet engines to Israel."

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And, as FAIR notes, "A February 1994 report of the Project on Government Oversight found that GE had 16 instances of fraudulent activity against the government since 1990."

The rap sheet's gotten even longer under Welch's hand-picked successor (who he later disavowed -- for financial, not moral, reasons). But we don't need him. The list of convictions during Welch's tenure is long enough.

And questions have long lingered about Welch's use of GE Capital, which he acquired, to practice what The Economist described in early 2002 as the "black art" of earnings manipulation.

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Host of 'The Breakdown,' Writer, and Senior Fellow, Campaign for America's Future

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