Zack Lemire

PSCI 315: Business, Government, and Regulation, M/Th

February 8, 2018
Case Study Analysis Report #1: Jack Welsh at General Electric

Introduction:

This report will be about Jack Welch and feature an analysis of his techniques and

actions during his time as the CEO of General Electric.

Description of the Case:

Jack Welsh was the CEO of General Electric for 20 years, from 1981 to 2001. During the

early 1980s, Welsh began to eliminate any General Electric business that weren’t number one

or two in its industry, which led to the closing of 73 plants, the selling of 232 businesses, and

eliminating 132,000 workers from GE payrolls. Also, Welch made sure all GE businesses fit into

one of three areas; manufacturing, technology, and services. Welch hated the size of the

bureaucracy that GE had so he began laying off thousands of central staff in strategic planning,

personnel, and other areas. Welch then installed the vitality curve into GE practices. Welch’s

goal was to create a “boundary-less” organization so that ideas could be freely exchanged from

employees to their managers, but Welch believed having the right people in management

positions was the most important cause of success. The vitality curve had managers evaluated

and differentiated into three categories, the top 20 percent (A’s), the middle 70 percent (B’s),

and the bottom 10 percent (C’s). Shareholders were ranked above employees under Welch,

which led to them having a bigger say in organization decisions. He created a performance

culture at General Electric that made managers eager to perform, and plants more efficient. He

would then get rid of the bottom 10 percent to keep managers motivated to meet performance
goals. From 1982 to 2000, GE’s earnings per share rose from $0.46 to $1.07, which led to a total

return on GE shares average of 21.5%. The stock rise in 2000 also led to the GE pension having a

surplus of $21 billion.

Analysis:

The chief stakeholders in this case are Jack Welsh, shareholders, managers of General

Electric, retirees and unions, US economy, and the environment.

Jack Welsh is a major stakeholder in this case because of how much success he saw

financially and economically through General Electric by changing their policies and practices.

The year he left General Electric his annual compensation reached $174 million, he held 22

million shares of GE stock which valued $972 million, and during his tenure he created $460

billion worth of equity. Shareholders were also affected in a positive way by GE’s changes of

policies and practices. Welsh gave shareholders power over managers and employees which

allowed them to have a say in important decisions the organization made. This is also why GE

did so well financially, because every decision was made in the interest of making the most

money, not for the better of their employees and managers.

The managers of General Electric were chief stakeholders in this case because of how

they were treated through the vitality curve that was installed by Welsh. The vitality curve got

rid of the bottom 10% of managers which made managers lack a sense of job security but

pushed them to go above and beyond performance goals. The A’s were satisfied because they

received stock options as a reward for placing in the top 20% but the middle 70% felt uncertain

that they would have their job after the next performance review. This took a toll on managers
as they worked long hours and relationships between managers and employees were hurt from

the thought of negative reviews.

After retiring from General Electric, retirees were the next chief stakeholders. In 2001,

there was a $21 billion surplus in General Electric’s pension fund. Retirees and their unions at

the time were requesting increased benefits and cost-of-living increases. General Electric

rejected their requests, by law they did not have to meet more than the original obligations.

Then in 2000 GE agreed to increase pensions from 15 to 35% but since 1965 prices had risen

60% so these retirees were still not making enough to properly support themselves in relation

to prices of items in the U.S.

The U.S. economy is also a chief stakeholder because of how much it was affected after

General Electric changed their policies and practices. When Welch had first become CEO of GE,

he began eliminating GE businesses that didn’t fit his criteria which led to 150,000 jobs going

overseas which gave a major hit to the economy. He also got rid of 132,000 workers from GE’s

payroll which caused the level of unemployment to rise. The environment was also affected by

GE’s practices. For 35 years, General Electric had been dumping PCB’s (polychlorinated

biphenyls) into the Hudson River. During those 35 years, more than 100,000 pounds of PCB’s

had been released into the river which destroyed the fishing industry because fish were unsafe

for pregnant women and children to consume. The chemicals ended up flowing down 200 miles

of the river which led to the ocean.

Conclusion and Recommendations:

 The way Jack Welch conducted business while he was the CEO of General Electric was

not in a socially responsible manner. Although he was very successful in a financial aspect, in

terms of corporate social responsibility he did not do his job. Corporate social responsibility is

defined as “a corporation should act in a way that enhances society and its inhabitants and be

held accountable for any of its actions that affect people, their communities, and their

environment.” Welch eliminated 150,000 jobs from citizens of the United States and went

overseas, this hurts our economy because 150,000 were taken out of the United States and

150,000 more people were then unemployed. For the individuals that were laid off from

General Electric, their lives were not enhanced but had become more difficult from General

Electric’s actions. GE had also dumped 100,000 pounds of PCB’s into the Hudson River over 35

years then when told they were liable Welch objected and didn’t help towards cleaning the

river. They hurt their society by polluting the Hudson river and its inhabitants by destroying the

fishing industry. During Welch’s era, there had also been 39 law violations filed against GE that

varied from deceptive advertising to unfair debt collection practices. These violations affect

people in one way or another but they still weren’t held responsible but were just fined. My

recommendation for how I would’ve handled things differently is first I would have kept jobs in

the United States. Welch eliminated many businesses and positions which is fine because he

was reducing his costs of production from employees but when he moves those jobs overseas is

the problem. He wasn’t socially conscious of the affects that it would have on the economy so I

would have cut jobs but stayed in the U.S. My second recommendation would be to gradually

support retirees and unions by adjusting the pension fund per annual surplus we took in that

year. That way they remained content and there is a constant increase with the prices in the
United States. Another recommendation would be that once they were informed that they had

been polluting the Hudson river, I would recommend setting up a campaign to raise money to

clean it up. This way it looks like an accident and that you are trying your best to fix your

mistake. It also gives General Electric a positive reputation which leads to more people wanting

to shop your products.