Reporter offers scathing reappraisal of ‘laudable’ business titan

Shortly after being introduced by Stanford Graduate School of Business professor Jeffrey Pfeffer, author David Gelles assessed his faculty and student audience and good-naturedly replied, “I feel like I’m in a lion’s den.” Polite laugh.

It’s possible that the author of a book that would come across as a scathing critique of American business would be met with ridicule and opposition from a crowd at an elite business school. As it turned out, however, the case Gelles had come to GSB on – that former GE CEO Jack Welch had ushered in an era of rampant corporate greed largely at the expense of workers – was met with mostly nods and tacit approval.

Gelles’ new book The Man Who Broke Capitalism: How Jack Welch Gutted the Heartland and Destroyed the Soul of America—And How to Undo His Legacy, is unequivocal about who is to blame for decades of middle-class decline and rising income inequality. “Welchism was a virus, and having hatched within GE, it has now spread,” begins a passage. “CEOs of other companies understood that downsizing was an easy way to increase profits, and they eagerly followed Welch’s example. The contagion had begun, and soon the entire American economy would be infected.”

Gelles, whose appearance was sponsored by the Corporations and Society Initiative, was equally candid in his presentation at GSB in October. Welch closed factories and laid off tens of thousands of workers in a determined attempt to prop up GE’s stock price despite the company’s already strong performance, noted Gelles, an economics reporter at the company New York Times. “It wasn’t that there wasn’t money for workers, it wasn’t that there wasn’t enough money to keep these factories running. He laid off workers en masse, in the best of times. And that is so fundamental to the change in the social contract, the relationship between employer and employee, that he changed mainly as CEO.”

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It wasn’t that there wasn’t enough money to keep these factories running. In the best of times, he laid off workers en masse.

As GE shareholders prospered, other companies imitated Welch’s tactics, often in an outrageous way, Gelles said. As the CEO of one of the most successful and respected companies in the world, Welch has had tremendous influence. But is it fair to blame him for the pain caused by putting shareholder value above all else? “The impact at GE was more profound… [and] his way of doing business, as the best way of doing business, essentially enshrined in the public imagination and in the business community,” Gelles asserted. And then, after a pause: “I’ve chosen my villain, and I’m sticking with him.”

Pfeffer, who moderated the event, pointed out that the business press idolized Welch with its flattering reporting and only later reassessed it after much damage had been done. Gelles agreed, acknowledging that his own role in celebrating business leaders had prompted some serious self-reflection. “It’s been part of my evolution as a professional, as a reporter over the past many years, trying to grapple with the question of whose story am I trying to tell?”

Undoing the damage can take a generation, Gelles noted. It starts with organizations thinking differently about their responsibilities. “Some companies have taken steps that I believe are beginning to reverse some of Welch’s legacy and are pretty fundamental,” he said. “Things like making sure that even if your employees are earning minimum wage or what appears to be a competitive wage in this market, they can actually make enough to provide for their families, which isn’t always the case in this country.”

That requires not only a change in practices, but also a change in values, Gelles said. The influence of Milton Friedman’s dictum that the primary responsibility of a company rests with its shareholders still lingers in some circles. “These are difficult questions that I invite executives and directors to ask.”

The cost of Welch’s scorched-earth approach is clear, and its impact remains, Gelles said. “If you can get past the nice bubbles that everyone in this room probably exists in and walk through a mall in Tacoma, Washington — it’s pretty ugly out there.”

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