When Jack Welch retired from General Electric in 2001 after 20 years as CEO, he had been celebrated as a business demigod for years. Under Welch, who died yesterday at age 84, GE shares returned 5,200%—double that of the S&P 500—and he turned a slumbering industrial conglomerate into the most valuable company in the world. He did it, in part, through a ruthless focus on excellence, by embracing Six Sigma, a management technique borrowed from operational engineers, and by regularly purging the lowest-performing employees from the company. No wonder he was dubbed the “manager of the century” by Fortune and “the CEO of CEOs” by Forbes.
Now, 19 years later, Welch’s legacy looks quite a bit different. GE’s breathtaking growth under Welch was fueled in large part by its transformation into a financial services superpower. By 2000, nearly half of the company’s revenue—$96 billion—came from GE Capital, its lending and insurance arm, and it dwarfed all of GE’s other units. As Joe Nocera noted for Bloomberg, the profits generated by GE Capital allowed the company to consistently beat analysts earnings estimates, thrilling its investors. “The profit GE Capital generated was only one of the reasons Welch valued it so much. The other reason was that it was GE’s black box,” Nocera wrote. “It gave him the means to dispense those quarterly miracles.”
GE’s exposure to finance proved to be an enormous vulnerability after the terrorist attacks of Sept. 11, 2001, and particularly during the financial crisis of 2008. While Welch’s successor, Jeff Immelt, tried to diminish GE’s reliance on finance, his efforts came too late. Subsequent attempts to diversify GE by moving into green technologies and the purchase of French power company Alstom left the company deep in debt. GE is now a shadow of its former self.
Similarly, in a world where employee pressure can dictate corporate strategy, Welch’s brutal management practices have fallen out of favor, including Six Sigma, which has since slipped into obscurity, even at GE.
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In the years following his retirement, Welch burnished his reputation through books, a BusinessWeek column he co-wrote with his wife, and the Jack Welch Management Institute, a degree program run by Strayer, a for-profit education company. He’ll be remembered today as a titan of business, even if longtime GE shareholders may not feel as charitable.