Jack: Straight from the Gut

by John F. Welch, Jr., 2001, Warner Books, hardback, 479 pages, ISBN 0-446-52838-2.

If you like business, you will love this book.

Jack Welch has created more shareholder value than anyone. During his 20 years as CEO of General Electric, market capitalization increased $450 billion. In this autobiography, written in collaboration with John Byrne, Welch describes his career and lessons learned. It is a story of one executive's maturation and GE's transformation into a truly global company. Among the many testimonials:

"Jack Welch, the brilliant business magician, has finally disclosed his mysteries of management. Now we must accept the generosity of his challenge and try to match or exceed him." — Nobuyuki Idei, Chairman and CEO, Sony Corporation.

GE has long been recognized as an incubator of great management talent. I remember in the 1970s, before Jack Welch's reign as CEO, having worked for GE was a great credential for professionals in corporate planning.

Most conglomerates underperform. So what makes GE work so well? People is their core competency (p. 156). Under Dr. Welch:

GE trimmed businesses that didn't fit. "Fix, sell or close" was the motto. Businesses had to be number one or two in their industry, or the potential to get there. Later, this was enlarged to get businesses thinking globally.
Bureaucracy was the enemy. Welch fostered candor, idea generation, and extensive dialogue.
The culture differentiated continually. He maintains that it is essential to constantly rank your employees and outplace those in the bottom 10% (p. 162, 387).
Getting the right people in the right jobs comes before strategy (a key point discovered by Jim Collins' team in Good to Great).
In hiring people, he was most interested in candidates "filled with passion and a desire to get things done."
Numbers are important, but managing is about the businesses and not earnings (p. 114). Follow the cash flow. (In the Enron wake, GE is accused of "managing" earnings by some analysts; the company insists that it does not.)
Stock options were used extensively to reward performers. "Stock ownership changes behavior." Employees are the largest group owning GE's stock.

There are great stories about the mega-corporation. There were deals and negotiations that worked or failed: RCA (worked well), Honeywell (killed by the European Commission), and Kidder, Peabody (incompatible cultures). Culture was perhaps the number one criterion in GE's merger, acquisition and divestiture decisions.

Welch describes in detail both his selection as CEO and about his selection of a successor (his most important decision ever). GE CEO's have a practice of using "airplane" questions to elicit peer assessments and to understand their compatibilities. "Jack, you and I are flying in one of the company planes, and the plane crashes," said Reg Jones. "Who should be the next chairman of General Electric?" (p. 78). In choosing a successor, Welch and board members put together a list of eight objectives for the process. Number one was "Pick the strongest leader." Most of the others dealt with having a smooth transition.

The book offers little about quantitative analysis, though GE has a reputation for thoroughness. There is lots of discussion about shareholders and stakeholders. In pitching himself for the top job, Welch wrote "What we have to sell as an enterprise to the equity investor is consistent, above-average earnings growth throughout the economic cycle (p. 84)." In order to do well for shareholders, he recognizes "that only healthy, growing, vibrant companies can carry out their responsibilities to people and their communities (p. 126, 381)."

This is a superbly-crafted book, the product of thousands of hours of Welch and his "collaborator" author, and a great many others.

—John Schuyler, February 2002.