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Killing Capitalism with Neutron Jack

The New York Times reporter and the Corner Office columnist, David Gelles, has spent the last several years interviewing hundreds of top CEOs. It's become clear to Gelles that the best leaders share a common set of attributes — characteristics like emotional intelligence, the ability to think long term, and a commitment to serve multiple stakeholders at once.


In his just published book, The Man Who Broke Capitalism: How Jack Welch Gutted the Heartland and Crushed the Soul of Corporate America — and How to Undo His Legacy (May 2022, Simon & Schuster), Gelles engagingly explores the ethics and traits that harm America’s version of capitalism. He does this by taking clear-eyed lenses to the leadership style of Jack Welch and his 20-year reign (1981-2001) at General Electric (GE). Through lessons drawn from the Welch reign and legacy, Gelles explains what Welch got wrong and offers insights and encouragement for today’s leaders who are in the pursuit of a better capitalism.


Image Credit Simon & Schuster


As we read our copy of The Man Who Broke Capitalism, we encourage you to purchase a copy. While you wait for delivery of your copy, we offer here summaries of insights we find most intriguing, so far.


Leading with fear

Welch was infamous for his explosive temper. He bullied his way from one decision to the next, terrorized subordinates with shouting matches, and made even his allies cower in fear. When discussing an employee he didn’t like he would say, "Shoot them," and "They ought to be shot." Beyond its abject cruelty, that mercenary approach eroded morale inside GE, fostering a cutthroat culture that pitted colleagues against one another.


That competitive culture was made policy by Welch with the advent of "stack ranking," a process by which he made managers sort their workers into A, B and C players. The bottom 10 percent were systematically let go each year. Stack ranking — or "rank and yank" — amounted to a heartless edict, ensuring that no matter how well GE might be doing, tens of thousands of its employees would be shown the door, year after year. It left everyday workers afraid for their jobs, colleagues in competition with one another, and teams out of sync.


The campaign against loyalty

Welch unleashed mass layoffs and factory closures that destabilized the American working class. Hundreds of thousands lost their jobs as Welch sought to make GE a leaner company, believing that a smaller headcount was a desirable end in its own right, and that lower labor costs would lead to higher profits. After Welch laid off more than 100,000 people in his first years as CEO, he rightly earned the nickname "Neutron Jack," a reference to the neutron bomb, which purportedly kills people while leaving buildings standing. When Welch couldn't fire people outright, he turned to outsourcing and offshoring. Altogether, it was known by GE workers as "the campaign against loyalty."


Shareholder primacy

More than anything else, however, Welch's was motivated by an unrelenting desire to drive GE's share price ever higher. While Milton Friedman had asserted that the only social responsibility of business was to increase its profits, as we’ve previous discussed, Friedman didn’t run a company and could only light the match. Welch, an early adapter of that ideology, was the gasoline to Friedman’s match.


Welch drove share price with deal making, and the biggest of these took GE far from its industrial roots, expanding the company into media and finance. He also did it by embracing financialization. GE was an industrial company when he took over. By the time he retired, the company derived much of its profit from GE Capital, which was essentially a giant unregulated bank. Welch called it 'the blob' — it was an amorphous, ever-changing collection of financial assets, capable of delivering whatever adjustments were most advantageous to the parent company at a moment’s notice.


The finance division became GE's center of gravity, ultimately accounting for 40 percent of its revenue and 60 percent of its profit. Welch pursued his quest to inflate GE's valuation with a gusher of share buybacks and dividends that fundamentally altered expectations about who is entitled to the riches of this land. After previous decades when corporations proudly talked about how much they were spending on payrolls, research and development, and even taxes, Welch made it clear that if companies want to succeed on Wall Street, they need to bow to Wall Street demands.


Welch's legacy

Today, more than two decades since Welch was CEO, his influence looms large over corporate America. As Gelles rightly notes, too many executives still lead with fear, terrorizing their subordinates, fostering toxic workplaces, and pitting colleagues against one another. Practices like stack ranking endure to this day. The campaign against loyalty also continues unabated. Amazon is among the major employers that fosters a highly transactional relationship with its frontline workers and big companies use offshoring and outsourcing as much as ever.


Welch's greatest legacy, however, is the degree to which he made it permissible for CEOs to pursue short-term profits at any cost. It is routine for major corporations to undertake a round of layoffs to improve profitability, and for profits to be redirected away from workers and into share buybacks in a bid to jack up the share price. Welch discipled many pupils who have gone on to run dozens of other major companies. Most of them failed. "A lot of GE leaders were thought to be business geniuses," said Bill George, the HBS professor and former CEO of Medtronic. "But they were just cost cutters. And you can’t cost cut your way to prosperity."


As Gelles rightly argues, instead of repeating the mistakes of Welch and his disciples, it's past time we fully transform and embrace a new model of exemplary executive leadership. Rather than lead with fear, CEOs today need to lead with compassion and kindness. Rather than wage a campaign against loyalty, CEOs today should place worker wellbeing at the center of their strategies. And rather than worship at the altar of shareholder primacy, CEOs today must balance the needs of a variety of stakeholders — including employees, suppliers, communities, the environment, and investors. This kind of executive leadership ethic, which rejects the Welch model and embraces an ethic of mutuality (self-interest and other-interest) creates a virtuous cycle toward a better capitalism.


We look forward to The Man Who Broke Capitalism being widely read and appreciated, especially regarding the ethics that threw capitalism off its track. We’d also love to hear what you think after you’ve read your copy.


What about you? Share your story, question, comment, idea, disagreement -- yes, we welcome disagreement for the sake of mutual benefit! -- with us at blog@PartnershipEconomics.com. We will give a thoughtful response, with prioritized attention to emails from our subscribers. Subscribe here >>


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