Co-written on the eve of his 2001 retirement by the BusinessWeek journalist who wrote a glowing cover story on him in 1999, Jack Welch's autobiography 'Straight From The Gut' is a familiar product. Like many such books it combines bland prose and much back-slapping to self, friends and colleagues.
Despite Welch's PHD, there is little analysis of the issues that plague GE, the legendary producer of light bulbs, jet turbines, medical equipment, power and broadcast services. That is not surprising: Welch was lucky enough to run the company during the biggest bull market in US history. He perfected the art of providing double digit earnings growth quarter by quarter, growing the company's profits from $1.5 billion in 1980 to a staggering $80 billion in 2000, and turning himself into a legend in the process.
Awkward questions about the quality of GE's earnings growth only came during the time of his successor, Jeff Immelt, spurred on by the traumas of 911, the end of the dot com boom and an accelerating recession.
At that point questions started being asked about the non-cash earnings contributions from GE's fabulously rich pension plan (which contributed 16% of earnings in 1999); the convenient accounting treatment of the share options Welch lavished on his best employees (not counted as an expense); his famous acquisition strategy (which some analysts argues provided the real earnings boosts rather than good management in the existing business units ); and the nature of GE Capital, which provides 40% of the company's earnings through its financing business. In the latter case, analysts said GE was funding its acquisitions and earnings though a strong stock price and cheap debt thanks to the parent's rare AAA rating and the excessively short term tenor of its debt - a strategy with some similarities to a pyramid scheme, since every acquisition would boost the stock, help earnings, and reduce the cost of borrowing enabling further acquisitions.
However, Immelt seems to have reversed the slide in stock price and outlook for GE since Welch's departure. In the third quarter this year, the company performed well, announcing earnings across its business units of on average in excess of 10%. The share price is up over 8% this year, outpacing the main stock market indices.
More importantly, Immelt's style if far more in keeping within a new generation of shareholders in no mood to grant undue respect to ego-driven CEOs.
Welch provides a fact-based and simple linear account of his rise 'up the greasy pole'. Starting out as a brash young engineer, the ossified bureaucracy he confronted at every turn helped him understand the kind of company he wanted to create once he eventually got command.
He re-engineered the company with his informal style, ruthless focus on results, quality initiatives such as Six Sigma, a clever re-focussing on high-margin services to drive earnings growth in low margin industrial fields, notably in the stagnant US nuclear industry, and an obsession with human resources.
'Differentiation' is one of the many mantras Welch mentions in his book, by which he means the focusing of rewards on the best and firing the rest.
He did this by inventing the 'vitality curve' which distinguished the top ten per cent, the vital seventy per cent and the 'disposable' bottom ten per cent.
The Six Sigma was another of his initiatives, helping set the example to corporate American of the necessity of keeping pace with formidable competitors such as the Japanese.
Welch built up GE to be one of the biggest and most valuable companies in the world. That success symbolizes the rebirth of the US economy from its low point in the 1970s, when the economy was ravaged by the oil shock, Asian competitors and lousy quality.
But despite its 400-odd pages, the book doesn't really provide any startling insights. The numerous anecdotes fall a bit flat, as most good verbal stories do when put down on paper. The book's triumphalist tone also jars with later revelations concerning Welch's hubristic retirement perks and his messy public divorce.
Anybody seriously interested in GE would probably be better off reading BusinessWeek's generally admirable coverage.
