To many, he was the greatest CEO of the 20th century. Those who invested $1,000 in GE shares when Jack Welch took over in April, 1981, and walked away with $53,450 exactly 20 years later no doubt think so.
Whether through his charisma, management initiatives, great business bets, or the good luck to have led General Electric (GE ) during the longest bull run in history, Welch created a mystique about the company. His conglomerate'S stock traded at a premium to the Standard & Poor's 500, while those of rivals traded at a discount. He was able to convince investors that credit cards and locomotives belonged in bed together at a time when the world was looking for pure-play companies. And, most important, when he delivered double-digit earnings growth quarter after quarter, everyone marveled at the accomplishment rather than question how he did it.
Now, the magic is gone. With its double-digit earnings and that coveted 21-year-old AAA credit rating, Jeff Immelt's GE may look the same. But the world around it is looking very different. Thanks to the Enron bankruptcy and a host of other big-name accounting scandals, investors are no longer willing to take management at its word. They're asking more questions about how companies make money and how sustainable those earnings are.
For GE, the latest blow came in the form of a 9% stock-price drop on Apr. 11 after it reported flat revenues for the first quarter, followed by more scathing media coverage of alleged earnings issues. Suddenly, everyone is sniffing around the foundation to see is the house that Jack built is as strong as it once seemed.
Welch, for one, scoffs at the notion that the company enjoyed a free pass while he was at the helm. The man dubbed "Neutron Jack" (from his penchant for laying off people while leaving buildings intact) argues that he had a rough ride at the start. Faced with the double whammy of Japanese competition and a mediocre domestic economy, "We were scared to death," Welch recalls.
In his view, it's simply the "human condition" to overreact in such situations, as if the world has changed forever. Says Welch, now a high-priced consultant and staple on the speech circuit: "This has to run its course, and you have to stay your course."
NOT SO EXALTED.
To most insiders, Welch's retirement has nothing to do with the current swirl surrounding the company. As GE director Scott McNealy, chairman and CEO of Sun Microsystems, argues: "You don't come in and change GE in a week or a month or a year." He insists that the furor is more about what's "changing in the market and the economy than what has happened at GE."
That's certainly the mantra of Immelt, who explains that his strategy is to simply perform and let investors judge the results. That said, it looks unlikely that Immelt will enjoy the god-like status of his predecessor anytime soon. One reason, of course, is the current climate of pervasive skepticism and distrust. But Immelt himself is also a very different type of leader. Where Welch ruled through intimidation and thrived as something of a cult figure, Immelt opts for the friendly, regular-guy approach. He prefers to tease where Welch would taunt. Immelt likes to cheer his people on rather than chew them out.
That style has given the 46-year-old chief a very different aura within GE. He may not be a demigod, but it's his man-of-the-people nature that draws praise from the top ranks to the factory floor. As John Rice, head of GE Power Systems, explains: "Jeff began as a salesman, driving around in a Ford Taurus, selling plastic pillows." Morris Estes, a senior vice-president for sales at GE Capital Business Credit in Alpharetta, Ga., boasts that "this is a guy who drove around in a Ford Taurus for 20 years." (In fact, Immelt had the now-famous company car for a mere three years in the mid 1980s.)
Outsiders still need to be convinced that the former salesman can deliver. So far, the results suggest that he can -- although people are taking a harder look at acquisitions, pension income, and other boosts to the bottom line. And Immelt is eager to talk about the various initiatives he has already launched to reshape GE for the 21st century. His GE will be a leaner, faster, more tech-driven company with far more global reach and far fewer white guys at the top. "I'm a different generation from Jack," says Immelt. "I'm more comfortable with technology, and I have a different view of the world."
Meanwhile, Welch himself has suffered a blow to his reputation, thanks to a recent high-profile affair with former Harvard Business Review Editor-in-Chief Suzy Wetlaufer, whom he met when she was interviewing him for an article. While Welch was technically just another megarich retiree at that point, he felt a need to alert his friends and senior GE executives that a major newspaper was about to break the story of his affair.
Immelt recalls being surprised by Welch's call the night before the story came out. "His personal life is his personal life," says the new chief. "He said, 'I want to give you a heads up because the company is going to be mentioned.' His angle was primarily about the company."
Welch maintains that his motivation for calling wasn't GE-related. "I called people I grew up with in Salem. I called my friends at GE. It isn't anybody's business, except my friends," he says. "Why would you ever want your friends to read it in the newspaper?"
Public interest in already waning when it comes to his love life, and Welch says the swirl surrounding GE should diminish as well. The only decent part about getting older, he says, is that "you do learn these things come and go." And he thinks his successor is handling the crises perfectly. "The thing that makes me most proud of Jeff is his visibility in tough times," says Welch.
Immelt confirms that "Be visible" in his No. 1 rule. Then again, at a time like this, being visible also makes GE's chairman and CEO a more obvious target.
By Diane Brady in New York
Edited by Patricia O'Connell