Commentary: Jack Welch: The Fall of an Icon
By Anthony Bianco
Like old soldiers, ex-CEOs used to just fade away. Reginald H. Jones, who retired as CEO of General Electric Co. (GE ) in 1981, is still going strong at age 84, but you wouldn't know that from reading the newspapers. By contrast, Jack Welch, Jones's successor, has descended from America's loftiest executive perch directly into tabloid hell. A headlong extramarital affair led to a messy divorce battle, which exposed the details of the lavish retirement perks that GE had awarded Welch under a 1996 contract. On Sept. 7, the one-year anniversary of Welch's retirement, the front page of the New York Daily News featured his smiling mug under the headline: "Greed!"
Welsh, 66, hasn't exactly covered himself in glory of late, it's true. But the growing backlash says as much about how radically the business world has changed as it does about the man's personal peccadilloes. After a year of unrelenting corporate scandal, tolerance of CEO self-aggrandizement is so low that even Welch, once crowned the "Manager of the Century," has become a target of resentment and revisionism.
In the end, Welch might well decide that he can get by without the $80,000-a-month Manhattan apartment GE provides him, complete with food, wine, flowers, and toiletries. He might buy his own tickets to the U.S. Open and ballgames at Yankee Stadium and Fenway Park. He might even reimburse his ex-employer for continued use of its fleet of jets. But his response to the flap over the perks was, in essence: I deserve them. "During my full tenure," he noted, "GE's market capitalization increased by $400 billion, with shareowners--including myself--our employees, retirees, and the like benefitting greatly." Of course, he was first in line on payday, retiring with $880 million in GE shares.
Not long ago, the invocation of a capital gain of such magnitude would have silenced all but the most critical corporate governance advocates; during the boom years, investors largely ignored CEO excess as long as they got theirs, too. But those days are gone. Welch's rationale fell flat even with many of his peers. "I've been getting a lot of calls from CEOs who admired Welch but are really confused and disappointed right now," says Jeffrey A. Sonnenfeld, who runs the Chief Executive Leadership Institute at the Yale School of Management. The consensus view, Sonnenfeld adds, is that "Welch's performance [as CEO] was great, but he was well and fully rewarded on the job."
During the 1980s and 1990s, business and the press collaborated in the creation of a mythical creature--the Superstar CEO, epitomized by Welch. Superstar CEOs were deemed capable of singlehandedly revolutionizing companies with tens or even hundreds of thousands of employees. Boards were so eager to reward their star executives that they agreed to let them continue feeding at the corporate trough even after they retired, for life in some cases. "The level of perks given CEOs should not come as a surprise," says Rakesh Khurama, Harvard Business School professor and author of Searching for a Corporate Savior. "The CEO as charismatic leader is required to have all these things to prove his god-like powers, just like shamans had their masks and amulets and the like."
That may be a bit of a stretch, but after seven years of research, Khurama seems justified in concluding that the Superstar CEO is more a curse than a blessing. "You may get a temporary burst of performance under a charismatic CEO, but they tend not to do a company any good in the long run." Welch is generally presumed to be an exception to this rule, but his legacy has been called into question over the past year by criticism of GE's accounting and its reliance on acquisitions to spur growth. Welch's name is conspicuously absent from the list of the 10 greatest CEOs of the 20th Century compiled by Jim Collins, the author of Good to Great. "Jack Welch did not make GE great. GE was already great," Collins says.
Collins says that Welch still could make his list if GE excels under his successor, Jeffrey R. Immelt. "Welch's report card does not come in until Immelt exceeds him," Collins contends. In the meantime, the ex-CEO could only help himself by renouncing all those perks he can clearly pay for. He should also ask his old mentor, Reg Jones, for advice on lowering his post-retirement profile.
Senior Writer Bianco covers Corporate America from New York.