Former Home Depot CEO denies characterization of Jack Welch in his book

Former Home Depot CEO denies characterization of Jack Welch in his book

The late Jack Welch led the transformation of General Electric into a multinational that eventually became the world’s most valuable company – earning him the reputation of “Manager of the Century”.

But a recent book raises questions about that legacy. In The Man Who Broke Capitalism, reporter David Gelles argues that Welch popularized a management approach focused on shareholder value at the expense of workers and ultimately the company he ran.

One of Welch’s former mentees disagrees with this characterization.

“I just have a lot of respect for Jack Welch,” former Home Depot CEO Bob Nardelli said in a recent interview with Yahoo Finance editor-in-chief for Influencers with Andy Serwer.

Nardelli began his career in 1971 as an entry-level manufacturing engineer at General Electric. He worked his way up the ranks, eventually becoming President and CEO of GE Power Systems in 1995. Along the way, he met Welch, who became his mentor and role model. In fact, Nardelli soon became known as “Little Jack.”

He still remembers how Welch pushed him to perform at his best.

“He was the person who could be very strict and give constructive feedback. But he would still put his arm around you and make you feel extremely important,” said Nardelli, who also served as Chrysler’s CEO. “He had the magic of being able to challenge you … while making sure you were looked up to and respected.”

General Electric CEO John

Jack Welch, in this October 23, 2000 file photo, speaks at a news conference in New York where he discussed General Electric’s proposed acquisition of Honeywell for $45 billion in stock. Image: Portal

Welch was chairman and CEO of GE for approximately two decades. During this time he massively expanded and diversified the company. He expanded it to include businesses such as financial services, real estate, and jet engines, among others.

He even ventured into conversation. In 1986, GE acquired RCA (Radio Corporation of America), which owned NBC.

“He was a real special race to run a conglomerate,” Nardelli said. “Many can’t”

As GE grew, Welch adopted a management style that emphasized a hands-on approach to business and radical accountability. For example, he was known to identify and fire the bottom 10% of GE’s workforce annually to keep the company competitive.

The story goes on

“He set expectations that encouraged you to achieve and stretch goals that you might not otherwise have achieved and held you accountable,” Nardelli said.

Under Welch’s leadership, GE has been remarkably successful. The company’s market value increased from $14 billion in 1981 to $410 billion in 2001. Fortune magazine named Welch “Manager of the Century” in 1999, and other executives began to emulate his approach to business.

“It’s heartbreaking to see what happened to GE”

But Welch’s critics claim that his management approach, while profitable in the short run, was ultimately unsustainable.

Since Welch retired in 2001, GE has experienced a precipitous decline, particularly during the 2008 financial crisis. GE also made several unfortunate acquisitions. For example, it took over French company Alstom SA’s gas turbine operations in 2015 just because demand for gas turbines plummeted. The failed deal resulted in a $23 billion write-down.

In an article for Fortune, Yale School of Management professor Jeffrey Sonnenfeld attributed many of GE’s failures to Welch’s erroneous belief that his management philosophy could make him successful across industries rather than industry-specific knowledge.

Baden, Switzerland.  2 November 2015: Lighting tests during the installation of the new General Electric logo at Alstom's former CHP plant.

Baden, Switzerland. 2 November 2015: Lighting tests during the installation of the new General Electric logo at Alstom’s former CHP plant.

“This notion of interchangeable management skills, like interchangeable parts on an assembly line, contributed to massive strategic stumbles under Welch,” Sonnenfeld said.

The company was delisted from the Dow in 2018, and three years later the once-dominant conglomerate announced that it planned to split its operations into three public companies, each focused on aviation, energy and healthcare. Its market cap is now $81 billion — about 20% of what it was under Welch’s leadership.

“It is heartbreaking to see what has happened to GE. I’ve put more than 30 years of my life into it,” Nardelli said. “To have something that was at the top, the best performing vendor with the highest market cap, and now to see that it’s barely a fraction of what it was is heartbreaking.”

In The Man Who Broke Capitalism, David Gelles argues that the spread of Welch’s management philosophy had a corrosive effect effect on society. He even links Welch’s influence to two Boeing plane crashes that happened in 2018 and 2019. He explains that three consecutive Boeing CEOs had previously worked under Welch at GE and internalized his focus on financial success. As a result, they prioritized high shareholder value over strong aeronautical engineering in their leadership Boeing, according to Gelles.

“If you look at Boeing’s history over the past 25 years, you see very clearly the imprint of its leadership, its priorities as conveyed by its students,” Gelles said in a recent interview with Yahoo Finance. “There was a larger cultural issue within Boeing. And that cultural issue ultimately leads back to Jack Welch.”

Despite saying he respects Gelles’ right to an opinion, Bob Nardelli remains steadfast in defending his former mentor, who died in 2020 at the age of 84.

“I don’t think it’s appropriate to go after someone who has died who is unable to defend themselves,” Nardelli said. “So that’s just my perspective. I mean I know some people applauded this book. I’m not one of them.”

Dylan Croll is a reporter and researcher at Yahoo Finance. Follow him on Twitter at @CrollonPatrol.

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