October 29, 2001 -- New York.
A Conversation with Jack Welch
with Jack Welch and Ken Auletta.
Jack Welch, the former C.E.O. of General Electric, has been in the news lately as a result of his autobiography, which brought him an advance in excess of seven million dollars. Recently, Welch was interviewed by the New Yorker writer Ken Auletta at a breakfast hosted by the S. I. Newhouse School of Public Communication. A partial transcript of their conversation appears here.
KEN AULETTA: We've been talking a lot in this country, particularly in New York, about contagious diseases. One of the comforting things is that anthrax is not contagious. But at General Electric, Jack Welch was. If you spent any time travelling around that company, you knew that Jack had infected everyone with his spirit, with his drive, with his hard questions. And I thought we'd start today not talking about the new book he has out. Jack tells me that he's on the second day of his book tour now, and he said, "The other side isn't as good as I thought it was. It's tough work." And he's only had two days. It's going to get worse. I thought we'd begin by talking about the events of September 11th. We are at a time when the government is putting out a lot of mixed signals about anthrax, and there are some suggestions that the F.B.I. didn't handle the anthrax at NBC [which is a G.E. company] correctly. Jack, as a take-charge person, if you were in charge now, just focussing on anthrax and chemical warfare, how would you respond, what would you do?
JACK WELCH: I think it's going to take time to see who the leaders who emerge from this will be, but you've got to say that up to now, in every test we've had, from the city to the governor to the President, we've had leaders emerge in this crisis that have demonstrated what leadership is all about. And I think in this area, where we're so unfamiliar, it is going to take some time to see who will emerge as the champion. Whether Tommy Thompson or Governor Ridge will be the person that will take charge of this has yet to be determined. But what you're going to want is just what Rudy Giuliani has brought to New York: You're going to want somebody who's out front, who's telling what they know, who's not afraid to change what they said one day to get the correct facts the next day. He's constantly keeping people aware. I think you've seen demonstrations of leadership here that define what we'll need in the next leader on the anthrax issue.
Let me talk about another leader. We're having a mayoral race in New York in a month. What is the quality or qualities that a C.E.O. like you would look for in the next mayor, coming out of the events of September 11th?
Trying desperately to keep the world's biggest melting pot together is one key issue—I would look for somebody focussed on being able to excite people about the city again. The rebuilding is going to be long and arduous; it's going to be expensive, more than we imagine. In the last three years we haven't been investing in New York, because whenever you see as much construction as you saw in New York in the last three years, you don't want to be in town with your money. And now we've been able to absorb all of this space so quickly, and New York is going to have a tough time. It's going to take a while, and it's going to be years before we get back to where we were. We've got a weak economy. We've got excess space, yet we have to rebuild.
Would you rebuild the World Trade Center?
I'm not the person to ask that. That's for others. Whether you want to defiantly put up the same structure—it's something that I personally wouldn't do, but I'd find some other way to make an expression that represented something there. But I'm not an expert.
You mentioned that, in fact, the economy was in trouble before the attack of September 11th, especially real estate-wise. But what is, in your view, the long-range economic consequence of that attack? Is it a blip, or do you see it as something more profound?
We've got a ten-trillion-dollar-strong economy. We've got real interest rates at two hundred basis points above inflation. So we have the economic tools to deal with the traditional problems. If you had a traditional problem, this would be a layup. You'd put the stimulus packages in, you'd do the things you had to do, and you'd get this economy going sometime, who knows, second quarter, third quarter of next year. But we don't have a normal time. We have an unpredictable time, with not only an economic recession but also a psychological recession. We've never had both, one on top of the other. So for anyone who thinks they can predict the course of this recovery—the tools are there for the strict economic game. If you can lay out a scenario that the government—all of us—can use to bring stability back, that can, in fact, reassure people, so we can get back to business, we'll recover fine. It's the unknown that makes predicting the shape of the recovery so impossible.
In your book, you talk about encouraging your executives to get rid of C performers, and to focus on and retain the A and B performers. If you get rid of all of the C performers, what do you do with all the C's? What does the country do with all the C's?
I think there are all kinds of ball clubs. Business, in my mind, is like sports. It's a game. You build the best team you know how to build. And people go on to do different things after their careers, or they move to different companies, or they move to different teams. But, in the end, for some reason, New York is able to win. As a Red Sox fan, I'm able to bemoan this fact: You're down 2-0 against Oakland and, damn it, you come back and win three games and now you win last night. That's what winning is all about. That's what business is about. It's about building the best team. And, whether it's the Giants or the Jets, people are trying every day to clean out those that aren't good enough and put in players that are better. And that's what business has to do. Now, you can do it in a humane way; this is not about calling somebody in and saying, "Go home tomorrow."
But if everyone in business wants to have the winning team, and you weed out the C's—you want government to hire them?
There are plenty of companies for everybody. There are different leagues that everybody plays in. There is the small local operation that somebody can do very well in, there's the global enterprise in high technology that somebody else can do very well in. There's a place. This is not a place where we're going to have a field where we're going to put a whole crowd of C's, Ken. Don't paint that picture.
Let's say that I'm the son of a C performer who works for you at General Electric.
And I corner you at the breakfast, and I say to you, "Mr. Welch, you laid off my dad, or your company did, and he was a C. He's a good guy, he's better than a C. I don't think you gave him a chance." You say?
That's not going to happen, because—and in the book I say this—I've never laid off anyone in my life that was surprised. Never happened. People go through a couple of cycles of improvement. The whole thing about this game is candor. Tuesday night I was at Northwestern and the University of Chicago, and then last night I was at the University of Michigan. And I asked classes there—they've all worked in companies—how many of you have worked for companies that gave candid appraisals? Ten to fifteen per cent of the kids in the room worked for companies where people looked people in the eye and told them how they were doing. There's this silly, ridiculous false kindness that's laden all over corporate America. Where you come in to your boss and you say what you'd like to do for the career, and the boss says, "Fully qualified," and back into the file it goes. And then you get to be fifty-five years old or so, and some new boss comes along and says, Jesus, you're really a bottom-ten-seed player. You say, "Wait a minute, I've been told for twenty-five years that I'm O.K. I've got all this paperwork here to show you that." That game's been going on as long as business has been played. And until you get a culture where people are required every year to lay out their top twenty, their middle seventy, and their bottom ten, and every employee who joins the company knows that's the rule of the game, that's the way it is, you can't do this.
You can't give somebody a raise, you can't give them a bonus, you can't give them a stock option, without sending it in with the category that they're in, and if they're in the bottom ten, they get zero raises, zero stock options, they don't get a bit of bonus, they get zero. That's the message, that you're in the bottom ten. And so there are no surprises to anyone in this system.
You begin your book by talking about the influence of your mother on your management precepts. And you go through those precepts and you say that you don't get them from the Harvard Business School, that many of them derive from being an only child of a very forceful woman. And, in fact, when you go through the points you make about management, many of them are the soft stuff of management, the human stuff. Could you explain what you mean and why the soft stuff became much more important to you than business plans and strategic retreats, etc.?
It's back again to fielding the best team. It's back to constantly trying to get the layers of bureaucracy out of a company, the things that just sit on people—the nonsensical meetings, the massive reports—and trying to get into the soul of every person. It's trying to take the human spirit and raise it to another level. So you do everything possible to do that. Now, you don't succeed all the time, and bureaucrats still exist, and people still have nonsense sessions, budgets. The whole idea of the budget review is that the boss sits there with his assistant and demands that you show up and deliver four, and you come into the meeting with twenty-five charts showing the ad market's terrible, economy's terrible, this is terrible, and the most you can deliver is two, and then you sit there in this dull presentation and battle all day, and you wind up with this terrific meeting, and three is the answer. And you all go home happy. The boss has ratcheted you up from two to three, and the employees go back high-fiving, we didn't have to give the son of a bitch four. I mean, it's nuts. It's madness.
So just share with the audience, if you would, what your mother taught you.
My mother taught me how to win and lose. That you could do both and do them right. She told me every day, That's the way it is, that's the way it is. You better recognize it, see it that way, and deal with it. And she constantly knew how to hug, and she knew how to kick. And the combination of hugging and kicking is an important part of managing. It's an important part of leadership.
At one point in the book you describe the New York Post as your favorite newspaper. Not the New York Times, the Financial Times, the Wall Street Journal.
Just to take the New York intelligentsia and let 'em suck on that one.
Well, let's suck on it a little bit. Why do you have the need to say that?
Because I actually like the New York Post. I actually think the stories on business in the Post are more fun—they treat business as a game, which it is. Of course I read the Journal, of course I read those other things. But I get a bigger kick out of the Tale of the Tape in the Post, I get a kick out of the way they tell the story. I wanted CNBC to adopt a more sporting-event mentality, if you will. "Squawk Box" is the pregame show. I used to clip papers out of the Wall Street Journal on a story and then clip the paper out of the Post and send it over to Bill Bolster, at CNBC, and say, Which one would you rather show on television? There's just no question.
So, Jack, you're responsible for the hyperventilation on CNBC?
I don't find it hyperventilating.
But if, in fact, you cover business as sport, as you say, then aren't you kind of whipping it up a little too much and creating too much excitement and volatility in the market?
No, I think investors listen to that with one eye and have the other eye on the market. Serious investors are absolutely in the game. That's not an impact, just makes it more entertaining.
Over the years that you ran General Electric and after you acquired NBC, NBC moved up in prominence, despite what some people wrote in books, as you know. NBC did fairly well in the ratings and moved up in its news ratings. At the same time, there were some dramatic cuts in news costs. Overseas bureaus closed and, in fact, foreign news, not just at NBC but at all the networks, declined in importance. And here we are with the events of September 11th, it's come back into prominence. Looking back, do you feel the need for a mild mea culpa on that?
Not in any way, shape, or form. I thought there were excesses in the business. I thought there were atrocious wastes. I thought that we could do a better job more effectively. And the fact that NBC is clearly No. 1 in news, and has been for some time now, would attest to the fact that you get guys like Andy Lack and Neal Shapiro in there, and you give them their head but don't let them go crazy on numbers, and you can get winning news activities.
Some people believe that a company like NBC is too small to compete in the world of giants like AOL Time Warner and NewsCorp, Viacom, etc. Do you feel that? Do you worry that NBC is vulnerable—because it doesn't own a studio, like the others do, for instance?
No, I don't. I don't think owning a studio is the make-or-break of a television network. In our view, we have more independence to look at—we give every show out there a look. And I think running a studio is a tough way to make a buck.
Looking at your book, some critics have said that you were insufficiently introspective. Guilty?
I thought that the comment that I spent two paragraphs on my divorce and a whole chapter on my succession showed a lack of introspection. That wasn't the book I wanted to write. I was writing a book about how to run a succession process. Not how to get divorced. I wrote the book I wanted to write. I may not have written the book that they wanted me to write. I feel very good about it, very comfortable about it, and it is fun to go out in the field and see kids love it.
O.K. Let's talk about Honeywell. You had hoped to go out by pulling off the Honeywell acquisition. And it was stymied by the European Union.
What would you say to someone who said to you that maybe the virtue of Jack Welch isn't patience or drive, that in this case he was too impatient and too driven, and he didn't do the due diligence in terms of lobbying the European Union, for instance.
Well, I'd say, first of all, that we sure as hell had the patience in doing the deal. We had looked at Honeywell before the deal, we knew the numbers cold. So making the deal was a no-brainer. It was a winner. It fit perfectly. Now, the process of getting it approved: I thought we had great relationships with the commission. In Europe you're running into a very interesting phenomenon, and many people haven't thought it through. We have bureaucratic French governments, bureaucratic German governments, bureaucratic governments all over Europe, and now we have added on to it another bureaucracy. We have the youngest country in the world being formed: the European Union. Roughly eight years old—it's the newest institution in government in the Old World. We're now a more mature government, by a few hundred years, than the E.U. is. I had dinner with Romano Prodi, who is the president of the European Commission, during the course of this event. And Romano, who is an old friend, said, "Jack, you just can't believe how much fun my job is." I said, "What do you mean?" He said, "It's the best job in the world." He said, "I get up every morning"—and his hands are going like this, in his Italian way—and he says, "We make the rules up every single day. We're creating a new currency—imagine, creating a new currency! When's the last time a new currency was formed?" And he's doing this and I'm thinking, Jesus, he's making up the rules and I got a deal going on. [Audience laughter.] And, literally, that's how they are thinking.
You mentioned the Red Sox before. You've also been mentioned as a possible buyer of the Red Sox. Is that a possibility?
No. It would take the romance out of it.
You wouldn't buy the Red Sox?
Bob Tisch can give a talk on owning sports teams.
You haven't answered the question.
I think you've got to be a lot richer than I am to do those sorts of things.
But you can be part of a group, right?
O.K. On to China. You've said that China is a huge story, and obviously you've spent a fair amount of time and capital in China. There are pressures from the business community on the Bush Administration to not place as much emphasis on human-rights issues in China, but that is with the presumption that if you get in there, and you economically democratize them, the human-rights issue will take care of itself. Is that your advice? Downplay human rights?
No. I think, though, that China is a place where, when U.S. companies go there, they operate exactly as they do in any other country. You may have some outlying human-rights violation by some company that you can cite, but General Electric practices there in training and education are the same as they are here. People are treated with dignity, voice, it's a wide-open game, it's the same rules of the road. So I think corporations do, in fact, enhance the society. I mean, let's take a look at the former Iron Curtain, and at life today in Prague and Budapest and Warsaw. Things are pretty damn good. Because great companies from Europe and great companies from America have come there and changed the game. So over time, I think, globalization ends up playing a role in the democratization of a country. Not overnight.
My theory about China—the missing link on China in my view—is that we see it all as a billion-person and a zillion-dollar market. Well, I think as you look at the next century, the threat that governments are going to have to deal with is the vast power of China as a market competitor coming at you—not you participating in their market but them having great companies coming this way. China is going to be an enormous force that will make the Japanese threats of the seventies and eighties look like a water pistol.
You were late to become conversant with the P.C., but when you recognized that the Internet was a transforming technology you jumped right in, unlike a lot of other old-line companies. Today, after the dot-com bust, do you see the Internet as a transforming medium or just another change?
Totally transformational. I think it's the biggest thing that ever occurred in business in my lifetime. And the digitization of corporations, real corporations with real products and real business models—and I've said this for some time now—it was made for us. I like to make the argument that our bubble—the U.S. bubble which was created by the Internet—left us with something better than what the Japanese got with their bubble. The Japanese bubble in the eighties left them with steel mills, shipbuilding, highways, things that didn't do much for their competitiveness. We got left with the technology that really is transforming corporations. Costs are coming out of corporations at a rate unseen in years, in terms of global sourcing, in terms of digitizing all backroom processing, in terms of truly having paperless businesses. It's happening.
Let me ask a last question before we go out to the audience for questions. Imagine that you were at the S. I. Newhouse School of Public Communications, at Syracuse, and a student says, "Mr. Welch, in 'The Graduate' Benjamin is told that plastics is the thing. I'm thinking of a career now. What's the next thing that I should be focussed on?"
Well, I'm not sure about a Newhouse graduate, but I would say, if I were looking for a career over the next twenty years, I think the biggest breakthroughs are going to come in the combination of microelectronics and medicine. And I think biotechnology, imaging, definition of genomes, etc., are going to be the explosive game for young people to play in. And it's going to take all kinds of different forms. It'll take all the inventions of fast chips and high-speed computers, but you'll be able to define so much of the human body in so many ways, and cure so many ills from this, that great people will chase this arena. And this will be, in my opinion, the great new frontier.
Why don't we take questions.
Audience Member #1: There's been a fair amount of criticism heaped on Paul O'Neill, the Treasury Secretary. Can the qualities that a corporate leader has be translated into a position where you truly are overseeing the markets? And, as a second part of the question, if the job were to become available, would you be interested?
The answer to the second one is, absolutely not. And the answer to the first one, I think it depends on the person.
K. A.: Could you go back to the second part, why absolutely not?
Because I have no desire to be in the political arena.
K. A.: Because?
I don't like it.
K. A.: Because?
There's not much about it that's attractive.
K. A.: This is hopeless. You had said once, Jack, that months before many people were aware that the economy was sluggish you were aware of it. What is the indicator you had at G.E.? It had something to do with light bulbs, didn't it?
Light bulbs are one thing. Facts are that light-bulb sales have been a great indicator; with all the sophistication that's out there, light-bulb sales, for years, for fifty years, have been an indicator at G.E.
K. A.: Why?
Because when people are affluent, they go to the store and they buy what's called pantry inventory. They'll buy six, a pack of six or a pack of eight, and they'll throw 'em in and wait for the lights to go out. When times are tough, a light burns out, they go buy one. And they buy one to replace the one that went out. And there are probably a thousand better indicators, but that one's never been wrong. You had, on top of a normal recession—a typical cyclical recession—a technology collapse. And with the stimulus we'll be O.K. But we decelerated, we didn't come back from vacation in the summer of 2000.
Audience Member #2: You mentioned China as an economic force that was going to come at the United States, or at the world market. Are there any particular companies right now, or are there any particular segments, where you see the demonstration of strength already?
Yes. Right now they are making many of the internals for the Cisco-type products, for the high-tech products. All they have to do is put a box and a brand around that, and, before you know it, they'll be products. The electronics area is filled. Village after village—let me give you one little boo-boo that I had that describes how enormous the force is. We were going to go into China with appliances and lighting. And I made the brilliant decision to say we won't go in with appliances, there's not enough technology, it's not sophisticated enough, there'll be too many people making appliances. Lighting, though, really has only G.E., Siemens, and Matsushita and Philips around the world. It's high-tech, it's a lot of sophistication. That's a place we ought to be investing. So we kill the appliance deal, and true enough there were zillions of them, and I looked smart, it was nice. Now, the four lighting companies that are in there now are going to win, right? Not true. There are now two thousand seven hundred light-bulb manufacturers in light. Two thousand seven hundred companies making light bulbs. Every mayor in every city put a light-bulb factory in to employ his citizens. He bought the equipment in the West, hooked it up, and away he went. We're talking about every other country in the world has four. There are twenty-seven hundred. So that's the scale and the quickness. You go through Southeast Asia, who owns Southeast Asia? The Chinese do. Every country, Indonesia, it's all Indonesian-Chinese. So the facts are you've got the smartest crowd—the genie is out of the bottle in terms of capitalism—and you're going to have enormous forces. You can go from province to province and find—in these little, tiny cities, of seven million or nine million people, that you've never heard of—the factories going up to make all these electronic components. You can't believe it. You can't believe this, you leave the coast—most Americans go the route, Hong Kong, Shanghai, Beijing, home. Just been to China. Haven't seen China. Don't know anything about China. Until you go out to the west, until you see more and more of these factories, and more and more of these bright people, you haven't seen China. But the best way to leave it with you, in terms of the force and might of the place, is think of the fact of four light-bulb manufacturers in every single developed country, and twenty-seven hundred in China. Starting with zero. Starting with zero.