Walter P.
St. Louis, Missouri

Mark Guerrero
Dallas, TX

Charles Snell
Beverly Hills, CA

Robert Stroz
Reno, NV

StocksAtBottom.Com Book Reviews

Jack: Straight from the Gut
by Jack Welch

Jack's own story - POWERFULLY WRITTEN!!!, February 28, 2007

As corporate biographies go, this one is absolutely terrific. Jack Welch is considered by many to be the finest corporate CEO of his generation. Keep in mind that the same words have been said about each of the last three CEO's of General Electric. Chuck Knight who ran Emerson Electric at age 37, and then produced 27 consecutive years of earnings growth going from $1 billion to $15 billion in sales during that period would also be in the running. Knight's book "Performance without Compromise" is superb and well worth reading.

You do want to read Welch's book because it can act as a template for how to run a vast organization. This book should be required reading at Harvard Business School,or any MBA Program for that matter. What comes through the book, and Welch may not even realize it is that he didn't have to become successful. He didn't have to make it. There's a huge amount of luck involved in who comes through the funnel to be CEO of any cutting edge corporation. There's as much politics involved as skill, maybe more.

Welch talks about the two years immediately preceding becoming Chairman as among the most miserable in his life. There were players in GE that did not want him to make it. This was also true throughout Welch's career with the giant GE. He talks about a human resources man named Johnson standing in his way for years, early on in his career (p77). It wasn't until several years later that another man succeeded Johnson that Welch was able to move up again.

You also get the intimate details of how the new Chairman of General Electric is selected, which is an absolutely compelling section to read. Apparently there are usually 3 men in the running for the slot. Each of them is usually a Vice-Chairman of the Board at the time the race starts. They each know they are in the race for the top slot, and each has their own backers. What's interesting is how the backers try to kill off the other horses in the race. Once again there's a lot of politics involved.

What I never realized, and Jack is a neighbor in my town is that whoever wins, the other players always wind up leaving General Electric fairly quickly. When you think about it, this seems reasonable. However to management professors, they would tell you what a loss of great, well-trained talent to let out the door. GE's feelings are that the people that don't make Chairman could be bitter, (they are), and therefore it is better they leave to pursue other endeavors.

You might have read Larry Bossidy's great bestseller on business called "Execution, The Discipline of Getting Things Done". Before doing an absolutely fantastic job for Allied Signal which was absorbed into Honeywell, Bossidy was a Vice Chairman of GE, and in the running to become GE Chairman. As you know, there can only be one Chairman, and when Bossidy was passed over, he went on to great fame at Honeywell.

More recently, Jeff Immelt became Chairman of GE when Welch retired. One of the horses in that race which Immelt won was Robert Nardelli, who when passed over, was furious with Welch and went on to take $400 million in income from Home Depot before being dismissed by the Board of Directors at the end of 2005. Apparently, the famous GE template for doing business doesn't necessarily transfer into every business. Home Depot being an example of the failure of the GE system.

Outstanding Explanation of Corporate Transformation

Peter Drucker the renowned management guru of the 20th century always wrote about the corporation as a living, breathing organism - very much alive. It requires constant nourishment to keep it from dying a slow death. GE is no different than any other corporation in this realm. What Welch would tell you, which is what he says in lectures, is that each successive GE Chairman must transform the corporation in his own image. This takes a couple of years upon assuming the position, to pull off.

Welch did it with his immediate predecessor Reg Jones, and Welch says that his successor Immelt is doing it as we speak. Divisions are sold off, and new companies are bought. Certain strategies, which were emphasized by one Chairman, are discarded and relegated to the ash heap by the next. This is what a corporation in the constant process of renewal has to do, and Welch spends considerable time going though each of the major business segments of GE, and how he transformed them.

He also went through several marriages, which tells you about the price of corporate success. What isn't clear because Chairman Welch chooses not to make clear is whether the personal costs for his business success were worth it. What is the cost of a failed marriage, and all the time and energy invested in it.

When Welch divorced his second wife here in Fairfield County he offered the lady a million dollar settlement at a time when he was worth some $900 million. This is after she made a 20-year investment in time to the legendary CEO. The question becomes one of what kind of logic was he using in the decision making process in this instance. This is especially true for someone of his vast intellect, and legal resources. The storm of embarrassment, and furor that ensued was totally expected, public, and preventable.

It is also amazing to consider that this man was able to create a 1 handicap at golf for himself while running General Electric. The amount of effort and time that is necessary to achieve such a ranking is considerable, and yet Welch pulled it off. This is a very special man.

There was one business segment that General Electric completely failed at, and the Chairman is remarkably candid in discussing it. This was General Electric's acquisition, and subsequent divestiture of Kidder Peabody the Wall Street investment banking firm. Welch saw great value in the acquisition, and indeed there was.

The failure was in the understanding of RISK. To a businessman, risk is risk. It doesn't matter what kind of risk it happens to be. It is always quantifiable, and controllable - SURE. This certainly is not true in the case of a Wall Street firm, but as Welch puts it, GE had to learn that lesson by LIVING IT. General Electric approaches risk the way bankers approach risk. It is reasonable, and logical.

In the case of a Wall Street firm, that is not how risk works. This is why with very rare exceptions, no bank or insurance company or industrial concern for that matter is able to acquire, and successfully run a Wall Street brokerage firm. Prudential Insurance certainly failed with Bache, which subsequently was divested. Ross Perot lost a hundred million (over a billion dollars in today's purchasing power) trying to save Francis DuPont and Company in the early 1970's.

Now there was GE's attempt to integrate Kidder Peabody into the GE template for doing business. Welch wound up pulling what little hair he had out of his head. As he puts it, your assets ride up the elevator in the morning, and ride down at night, namely the employees in a brokerage firm.

What's more if you have a good year, they get bonuses so lavish you would never pay that much in an industrial concern. What's even worse, if you have a bad year, they still want bonuses to keep them from walking out the door, and working somewhere else. The GE experiment in Wall Street lasted about a year, and then Kidder Peabody was jettisoned.

GE Capital was Another Story

GE Capital under Jack Welch became the crown jewel of GE, and also Welch's major legacy to the corporation. These guys are among the smartest people on the planet. Everybody complains about what a lousy business the airplane business is. GE Capital doesn't complain. They probably make more money leasing planes, and other aviation related goods, than the entire airline industry put together makes. This is no joke, that's how smart these guys are.

They lend money to companies that potentially are going bankrupt, yet the indentures they draft allow GE to come away whole, even if there's a bankruptcy. GE Capital is the ultimate money machine. Just to give you an idea, in my 35 years of money management, the most profitable business I have ever seen is modular office units for construction sites.

Have you ever gone onto a construction site, you will always see these trailer like rectangular facilities where the foreman, architects, and assorted other individuals might be working when they are not out on the construction site. These facilities cost a thousand or two to make, and they get rented out for 400, 500, 600 a month. The enclosures pay for themselves in a couple of months, and then its pure gravy for years.

Years ago, GE Capital figured out the business, and now dominates it for themselves. These fellows are on top of every major profitable business on the planet. There was a used car leasing deal in Asia that was fabulously profitable, and available. GE Capital found that one too, bought it right up, and dominates the industry today. This division is so big and so profitable, that one could argue that GE is no longer a manufacturing concern. They are a capital employment firm, and GE Capital is the driving force of the corporation. As the years go by, this is becoming more and more true.

Read this book. You will love it. It is written in Jack's voice, although he has a ghostwriter working with him named John Byrne. Anything this man has to say is worthwhile. It's almost 450 pages of pure business joy waiting to be discovered, and explored. I recommend this book to anyone who has an interest in business and how to manage the modern industrial corporation.