Winning with Jack Welch

Jack Welch. FILE PHOTO | SHUTTERSTOCK

In my last column, I wrote about the rise and fall of Rudy Giuliani, as a result of reading his 2002 book, Leadership.

And today my subject is Jack Welch, having just read his 2001 book, Winning, about which Warren Buffett said at the time of its publication “No other management book will ever be needed.”

Welch was with GE for 40 years, climbing up the ranks until he became chairman and CEO in 1981. Under his leadership, it grew its profits massively and became globally dominant in its sectors, to the delight of its shareholders.

His style was bold and competitive, as he pushed the company to become lean and agile – less “comfortable” – laying off more than 100,000 employees within his first seven years at the top.

To achieve this, in the 1980s he launched a 360-degree review process in which every employee’s manager, peers and subordinates would grade them on aspects that included team spirit, collaboration, focus, vision and adaptability.

Employees were then ranked, separated into the top 20 percent, the stars; the bottom 10 percent, the under-performers and disrupters; and the middle 70 percent in between.

The bottom 10 percent were dealt with appropriately, and many were fired. The process, which resulted in significant unhealthy competition, became known as “rank and yank”, but other big corporates, including Amazon, Microsoft and Google, soon emulated GE.

Another aspect of the unhealthy competition that Welch generated emerged when he retired in 2001 and Jeffrey Immelt was promoted to CEO.

After decades of grooming several internal leaders for the position, the decision triggered an exodus of bitter executives.

However, despite all this – which earned him the nickname Neutron Jack – Welch greatly valued the role of HR, believing the head of that function should be the second-most important person in any organisation, and at least equal to the head of finance.

The HR people should be, as he put it, “a combination of pastors and parents”.

He was a promoter of robust evaluation systems, ones that went way beyond the all-too-common mere paper-pushing.

And he believed in motivating and retaining the people with money, recognition and training; in confronting the difficult people issues – those arising from trouble-makers and big-headed stars, with candour and action; in spending half your time evaluating and coaching the middle 70 percent; and in having as flat an organisation chart as possible, as the more layers there is the more mischief some will indulge in.

Read: ELDON: Giuliani and leadership

The section I found most helpful was the one on firing and laying off people, where his advice was first that nobody should be surprised when they are let go.

Employees should be informed enough about the nature of their business that they understood who might be laid off in an economic downturn or a change in the industry.

If they weren’t performing well, they should be made aware of this through regular formal and informal reviews. If they couldn’t improve, they should know they would have to move on.

You should move neither too fast nor too slow in removing them, and again you must be candid. Then, you should minimise the humiliation, and encourage those on their way out that there’s a better job out there for them, more matched to their skills and attitudes.

The task of the ones informing staff members that they have been laid off or fired is incredibly difficult, admits Welch.

They feel guilt and anxiety before, during and after. Surprisingly, he comments, he isn’t aware of any programmes that help people develop the skills needed to conduct such meetings.

He had to fire many people over the years, he writes and never got used to it.

So his legacy is a mix of ongoing admiration and second thoughts about him and his management style. In the two decades since he left GE, many of his approaches have fallen out of favour, including within GE itself.

Read: ELDON: Write your autobiography

Today, he is often criticised as a symbol of corporate greed and economic inequality, with undue emphasis on quarterly results.

The competition he generated among leaders came at a considerable human cost, and he was considered the father of the “shareholder value” emphasis, which has since been migrating to delivering broader stakeholder value.

Much food for thought about how to define responsible leadership then and now, and within this about how to build sustainability.

How will today’s corporate leaders be viewed two decades from now? How will you be?

Mike Eldon is chairman of management consultancy The DEPOT, co-founder of the Institute for Responsible Leadership and member of the KEPSA Advisory Council. [email protected]

www.mike-eldon.com