BUSINESSWEEK ONLINE : DECEMBER 11, 2000 ISSUE
COVER STORY

Jack: The Welch Era at General Electric


Photo by Najla Feanny/SABA Now that he has finally told the world who his successor will be, John F. Welch embarks on the final stretch of his remarkable 20-year reign as CEO of General Electric Co. When he leaves GE's headquarters in Fairfield, Conn., for the final time a year from now, he will end one of the longest and most triumphant runs of any CEO in Corporate America. He will also leave behind a legacy of stunning change.

Most remarkable is the way Jack Welch transformed his own image. A brash upstart who was inimical to the staid GE culture, he started his tenure at the top by ruthlessly cutting corporate fat during the 1980s, earning unparalleled infamy among the rank and file. But that downsizing positioned GE for the '90s boom. And now that he has added almost $500 billion in shareholder value, the slasher image has long since been replaced by that of a management savant. Many experts consider Welch one of the 20th century's greatest corporate leaders, ranking with General Motors Corp.'s Alfred P. Sloan.

Indeed, the deftness with which he turned an industrial conglomerate into a high-growth thoroughbred overshadowed many of the company's blemishes, from expensive missteps to outright scandals. Now, Welch's legacy also will depend on how well he grooms his heir, Jeffrey R. Immelt. If he gets it right, the Welch Era will live on long after the man himself departs.

Welch was a sharp contrast to his predecessor, the statesman-CEO Reginald H. Jones, who was almost as admired in his day as Welch is now. Jones risked his reputation by pushing Welch over several other candidates. Indeed, some GE board members considered Welch too impetuous to take the helm. Welch started his reign with a bang, dismantling GE through a series of dramatic restructurings and layoffs. From 1981 to 1985, he cut 100,000 jobs, an act so painful to employees that they began referring to him as ''Neutron Jack,'' after the nuclear bomb that vaporizes people but leaves buildings standing.

Welch proved just as adept at buying and building businesses as he was at slashing jobs. He purchased RCA in 1985, bringing the NBC television network into the GE fold and adding a radically new service business to the industrial mix. He transformed GE Capital Corp. from a sleepy finance company into a powerhouse that now supplies 41% of GE's earnings. And in a dramatic stroke that proved he was a dealmaker to the end, Welch last October seized Honeywell Inc. from rival United Technologies Corp. with a $45 billion bid. It was the largest deal of his career--and to see it through, Welch postponed his retirement by eight months.

The Welch era was not without flaws. GE has suffered major setbacks and scandals, from criminal indictments relating to military contracts to ongoing battles with environmental groups. Until recently, New York's fabled River Cafe would not serve top GE execs because of PCB contamination in the Hudson River that many blame on the company. Indeed, regulators will soon rule on whether GE will have to pay to dredge the river. Even more damaging to GE: the 1994 bond-trading scandal at Kidder, Peabody & Co. that led to huge losses and the dismantling of the investment bank Welch bought in 1986.

A hands-on manager who supplies the massive company's daily shot of adrenaline, Welch sets high standards and can display a fiery temper when they're not met. But Welch's charisma is most apparent when he's pursuing two of his passions: golf and teaching in ''the pit'' at GE's leadership training center in Croton-on-Hudson, N.Y., where he engages GE managers in candid exchanges.



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