The world of business is full of larger than life businessmen or CEOs who are credited with the entire success of the company. In some cases, it is well justified, especially in a company’s early stage of development where the idea, the passion and perseverance of one individual drives the company’s fortunes almost entirely. However, often, we tend to put the individual on a pedestal and overestimate their ability, sort of a Halo effect, which as this piece highlights can work against wider stakeholder interest. One such case study is that of Jack Welch, the former CEO of GE. This is an interview with David Gelles, the author of the new book – Jack Welch, The Man Who Broke Capitalism, which talks about how Welch’s sole focus on maximising shareholder value at the cost of other stakeholders, might have led to the current state of capitalism with its attendant problems around socio-economic inequality.
The interview begins with wondering why Americans revere their CEOs so much?
“To get at the root of why this society seems to put our bosses up on pedestals, look back well over 100 years to the way we celebrated some of the early industrialists who rose to such great heights. We have the same veneration for modern-day technologists and entrepreneurs who are able to create amazing new breakthroughs and products.
In a big, diverse country that never had a monarchy or a unified religion, and is increasingly polarized and fractured, we look to our business leaders as some of the most important and perhaps some of the last sort of cultural touchstones who can be relevant to society at large. This helps explain some of the reasons we have some of the problems we do today.
I argue in the book that Jack Welch was a celebrity CEO. He was trying to marry this American reverence of CEOs with the modern media ecosystem, and he used it to disastrous effect. It was only through our collective veneration of Welch that he was able to be so influential over such a long period.”
He connects Welch’s excessive shareholder focus to the crashes of Boeing 737 Max.
“Starting in 1997, three successive CEOs who studied at Jack’s knee at GE, took over Boeing. They deliberately, explicitly tried to make Boeing more like GE. And in doing so, they transformed one of the great American manufacturers, a company that for nearly 100 years had been focused on aeronautical engineering, into one that was motivated by financial engineering.
Records from congressional inquiries revealed messages between mid-level Boeing employees. These records showed that engineers and test pilots were thinking about the stock price when making decisions about safety. The awareness of the company’s stock price percolated all the way down to the level of people who should be focused on the quality and safety of the plane, not Wall Street.”
Gelles says this maximising shareholder value was incentivised through excessive executive compensation which in turn led to the current state of inequality:
“Welch’s own enormous executive compensation was immense. He was on the Forbes list of the 400 richest Americans simply for being a people manager. He didn’t invent anything. He didn’t own the company. He was hired help. And yet, he became something close to a billionaire. By doing so, he set a precedent for hundreds of other managers over the past several years to do the exact same thing. Now we don’t even blink when a CEO is rewarded with a $20- or $50 million-a-year pay package.
As all that is happening, what’s happening to his workers? They’re getting laid off en masse. He’s outsourcing them to contractors who don’t pay nearly as good of wages as GE once did. He’s sending jobs overseas in search of low wages and taxes. At the same time, look at what’s happened to the American minimum wage: It’s stuck at $7.25 an hour. If it had just kept pace with inflation over the last 20 years, it would be closer to $25. But we live in this world that was shaped by Jack Welch’s priorities. And we’re still trying to dig out of that hole.”
Gelles says his book provides a way out too – stakeholder capitalism can be a beginning and will likely take a generation to undo this damage:
“The book covers 80 years—from the moments right after World War II and the way companies were behaving back then. This was the “golden age of capitalism” all the way to the highly unequal society we live in today. So, I recognize that shareholder capitalism has been a generational project. Jack Welch instituted the priorities of Milton Friedman and Friedrich Hayek—a relentless prioritization of shareholder value above everything else.
And in the same way, it’s going to be a generational project to rebalance things. We’re seeing the start of that as stakeholder capitalism and ESG [environmental, social and governance] are becoming a part of the mainstream conversation. Maybe we’re at that moment in a pendulum’s arc where it pauses and starts to begin its trajectory back in the other direction. I hope we’re there because we need to reset.
I include some practical suggestions at the end of the book. We need to take better care of our workers. We need to give them better wages and better benefits. We need to offer them equity. The distribution of corporate profits over the last 50 years has gotten wildly out of whack. There’s no law that says that shareholders and executives are entitled to this enormous slice of the pie. These are choices that people—mostly older white men—make about how wealth in this society is allocated. And we have the opportunity to change that.”

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