Despite his checkered legacy, Jack Welch remains a presence in corporate boardrooms

Surprisingly, vestiges of Welchism have stayed strong even in the face of violent criticism. His infamous layoffs, which earned him the sobriquet of Neutron Jack, are still the first thing companies turn to when they need to trim costs.

The reputation of Jack Welch, GE’s formerly highly-rated chief and one-time poster boy of American management, has been under severe scrutiny for years. Long before he passed away in March 2020 his hyper-aggressive leadership style, his focus on results above all else and his general disdain for employees, had been trashed as diabolical and ugly. It didn’t help that GE, the company he built on those principles and which at the turn of the century was the world’s most valuable, didn’t even survive his lifetime. Its sorry fate and eventual disintegration sealed the argument against Welch’s management style.

A new book, The Man Who Broke Capitalism: How Jack Welch Gutted the Heartland and Crushed the Soul of Corporate America, by David Gelles, goes even beyond this damning indictment, by arguing that Welch did more than just build a corporation with dubious values and suspect strategic intent. He put capitalism itself in peril and placed it on the path to decay.

Not having read the book yet, it would be unfair to comment on the validity of Gelles’ contention. But even without a reading, it is safe to accept that Welch’s legacy is troubling.

Despite that, what is surprising is how the vestiges of Welchism have stayed strong even in the face of violent criticism. His infamous layoffs which earned him the sobriquet of Neutron Jack, are still the first thing companies turn to when they need to trim costs to shore up their bottom lines. Look around at how well-funded Indian startups are shedding recently-hired employees or even the alacrity with which many large Indian companies did the same at the onset of the pandemic.

Or consider the other prop of Welch’s business mantra - the quarterly ritual of corporate numbers. It would be a rare and brave CEO who can with hand on heart claim that she isn’t obsessing about them. Indeed, results day with its dreaded analyst calls and press conference still remains one of the most stressful parts of a CEO’s job.

Welch didn’t start this trend. But he was the one who made it the centerpiece of business. So by all means he should be held accountable.

But GE’s successors - and make no mistake, there’s a bit of that in every major global corporation - have chosen to embrace the worst of Welch of their own volition. Through 2020-21 there were enough companies that stuck with their employees, refusing to let go of them in the middle of a catastrophe. Whether they did that with a cynical eye on buying loyalty or they were genuinely invested in their people’s well-being isn’t important. They showed it was possible to survive a once-in-a-century disaster without laying off people. If others chose not to emulate them, it is Jack’s legacy sure, but their own fault.

Then there is the more exclusive club of companies that set their eye firmly on the long run, no matter what analysts make of their stock in the meantime. That lot is so small as to be invisible. But it is there. Unilever, for instance, stopped issuing quarterly reports in 2018. India’s software services market leader TCS doesn’t provide a specific revenue or earnings guidance.

There is now a solid case for scrapping such short-term reporting. When American journal The Accounting Review did a study on the periodicity of financial reporting, it found that shorter reporting intervals "engender managerial myopia which finds expression in a statistically and economically significant decline in investments along with a subsequent decline in operating efficiency and sales growth."

So why do so many companies cling to the Welch way of doing things? The answer may lie in the two decades-long success of GE. At a time when most companies struggle to survive that long, when many startups in India haven’t made their first cent of profits after being in business for well over a decade, the Welch premise that a company is in the business of making profits through sustained market leadership, holds some validity. Judging by that yardstick, many of our entrepreneurial superstars should have packed their bags long ago or at least before they had wiped out shareholder wealth worth billions.

Blaming Jack Welch for many of the evils of capitalism is easy and also fair. But it might be far far more important to figure out why Welch’s way of doing things still remains in currency.