Pod Insights Freakonomics Radio 326. Extra: Jack Welch Full Interview About this episode Stephen Dubner's conversation with the former longtime C. E. O. of General Electric, recorded for the Freakonomics Radio series “The Secret Life of a C. E. O.”
Transcript Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
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2:35 Stephen J. Dubner? Hey, this is Stephen Dubner. You are about to hear a conversation with Jack Welch, the legendary former CEO of General Electric. It was recorded in September for our recent six-part series, The Secret Life of a CEO, which you can find at Freakonomics.com/CEOs. And now we are releasing some of the full CEO interviews as special episodes, like this one. Hope you enjoy.
3:02 Stephen J. Dubner? This is Stephen Dubner. Is that Jack Welch?
3:04 Speaker 01 Yeah, hi, Stephen. How are you?
3:06 Stephen J. Dubner? I'm great. Thank you so much for making the time.
3:08 Speaker 01 No, it's great. I'm an admirer of your book.
3:12 Stephen J. Dubner? I'm told you have roughly an hour. Is that true?
3:14 Speaker 01 I got as long as you have, up to an hour.
3:19 Stephen J. Dubner? Fantastic. Okay, let's go then. If you would, just say your name and what you do.
3:24 Speaker 01 Hi, I'm Jack Welch. I'm the Executive Chairman of the Jack Welch Management Institute, an MBA program, online, fully online, fully accredited, to change people's lives from working adults.
3:41 Stephen J. Dubner? Excellent. You're most famous as an author, wrote a couple of books that were very widely read and well received, and of course, as longtime CEO of General Electric. But let me ask you this. Your background, Jack, is in chemical engineering, including a PhD, not management or finance or anything like that. Now, obviously, chemical engineering was useful for a company like GE, especially back when you joined it. But can you talk for a minute about engineering as a background generally for leading a company?
4:12 Speaker 01 Well, I think a critical thinking is always important and an engineering degree leads you to critical thinking. So my view of a PhD is you're always going down blind alleys to get a solution to a thesis and it was the most helpful thing I ever had. You're not doing rote homework assignments where the teacher feeds you and you feed it back. You're working on unknown paths to try and find a solution. And that thinking is very helpful in management.
4:56 Stephen J. Dubner? As you became a manager, were you biased toward other engineers in promoting them?
5:02 Speaker 01 No, I don't think so. I don't think so. I always looked for the brightest, most aggressive, self-confident people I could find. And the third one was important because they speak back to you. When you have a crappy idea, they tell you that.
5:24 Stephen J. Dubner? Now, what do you do if someone's got all the smarts and talent in the world but doesn't have either the aggression or the self-confidence? You know, there are a lot of timid people out there with great ideas. Do you, how do you not waste, how do you not waste their talents?
5:43 Speaker 01 Well, you've got to, you don't think about them for promotions. You think about for them, them in terms of what they bring to the party. They're very valuable. They provoke thought, but they're not a counterbalance to your personality generally.
6:04 Stephen J. Dubner? Yeah, yeah, gotcha. Now, you were pretty much a GE lifer, although you thought about leaving at least once. Talk to me about your rise through the ranks and why you wound up staying.
6:16 Speaker 01 Well, initially, I worked at GE for a year and a half and I got my first raise.
6:25 Speaker 01 It was, I was making ten thousand four hundred dollars, I remember to the day, and I got a thousand dollar raise. And I was happy with my thousand dollar raise. I was in a bullpen of about six engineers, until I came back from my raise and found out that they all got a thousand dollars. And I thought I was a hell of a lot better than them, and so I quit. Moved my wife to Chicago, and we were planning on starting another life in another company,
7:02 Speaker 01 and my boss's boss came up and persuaded me to stay the night of the going away party. And I stayed. And the company called the other company and paid all their expenses of recruiting me, and I stayed there. Look, that differentiation is part of my whole belief in management. And treating everybody the same is ludicrous. And I don't buy it. I don't buy what people write about it. I don't, it's not cruel and Darwinian and things like that, that people like to call it.
7:46 Speaker 01 You, a baseball team publishes every day the batting averages, and you don't see the 180 hitter getting all the money of all the raises. Now, that's the purest form, athletics is the purest form of differentiation, because it's public, everybody understands it, the fans understand it, the people understand it. Business is more subtle, and it's more qualitative. So the precision isn't there to differentiate. So judgment's important. But you don't win with a gang of mediocre players in business or in baseball.
8:32 Stephen J. Dubner? Let me ask you this. I know that when you were ultimately appointed CEO by Reg Jones, you write about that. It's a really interesting story. He was, you were very different from him. He was kind of buttoned down, formal, classically trained in a way in British and you were more scrappy, Boston area, said what you thought, didn't necessarily care that much how people received it. It was a fascinating handoff from him to you and it's amazing that he saw in you, you know, what others may not have seen. I'm curious, you were there a long time before that day. I wonder how much you were motivated to stay and rise by your desire to change the way the company was run because you and he both acknowledged that at the time you took
9:17 Stephen J. Dubner? over GE needed a lot of change.
9:20 Speaker 01 Yeah, I had an enormous thirst to get my hands on it. And so obviously I was on the sidelines
9:31 Speaker 01 thinking what I would do if I got it. And when I got it, I did it.
9:39 Stephen J. Dubner? You make it sound pretty easy.
9:40 Speaker 01 Well, frankly, it's a lot easier to come up in a company and see its foibles from the bottom through the middle than be brought in as a hero at the top and know nothing of the infrastructure or the vibes of the place.
9:58 Stephen J. Dubner? That's interesting you say that. We recently spoke with Satya Nadella, the relatively new CEO of Microsoft. And that was a case where almost everybody wanted an outsider because they felt there'd been stagnation internally. But you're saying, at least from your perspective of being the insider who was made CEO, you had all that institutional knowledge and leverage. You think that was a big advantage for you? Yeah?
10:22 Speaker 01 I think Nadella.
10:25 Speaker 01 Has some of the same characteristics that I had in that regard. Maybe he's more subtle than I was.
10:33 Stephen J. Dubner? Mm hmm.
10:34 Speaker 01 But, but he has a lot of the same characteristics of sitting there frustrated by the bureaucracy at Microsoft and, and wanting to get at it, participate in the cloud more aggressively. And he's done a very impressive job. But, but he, he had the benefit of being there.
10:56 Stephen J. Dubner? Mm hmm. Yeah. When you first became CEO of GE 1981, uh, what were the biggest adjustments? Um, feel free to take your time on this answer because the, you know, GE already was a very large company. And from what I, from what I've read, from what you've written, there were a lot of issues on a lot of different dimensions that you felt needed addressing.
11:21 Speaker 01 Well, the biggest thing I thought, the biggest thing that summarizes it all, Reg Jones in his departure, and he was a hell of a guy and, and he had the courage to pick me. And, uh, he, uh, was a statesman in Washington and he spent a lot of time in Washington trying to help the country with tax policy and other things. Uh, but it is valedictory, if you will, if you will. He said, remember we're the Queen Mary in a storm.
11:59 Stephen J. Dubner? Yeah.
12:00 Speaker 01 And I, in my opening remarks, uh, we had a, a speedboat in the harbor trying to move like hell around this place. And that was, that in a nutshell covers it all. We moved too slowly. We, we carried businesses that we could afford to. Some businesses had lost money for 10 years, 15 years, but we could afford it.
12:29 Speaker 01 And so we carry, but we couldn't afford it any longer. The Japanese were coming, they were eating our lunch. The Japanese in the eighties were the Chinese of the nineties. And IBM didn't move, a lot of companies didn't move. The auto companies didn't move. And you had to move quickly. And don't forget, it's not the problem of the people that were there. Because they were living in a world of the seventies. When the world of the seventies was nothing but competing against Japan, which is on the ground, flattened, Germany flattened. The war had taken everybody out of the game.
13:14 Speaker 01 So they were living in a totally closed society to an American world. And they were doing fine. But that all changed with globalization. It started in the mid seventies with televisions. And it moved to autos and all these other things. And then the Chinese came with all their innovations and copies, if you will.
13:44 Stephen J. Dubner? Now, in retrospect, we could say, I don't know if this is accurate or not, but in retrospect, it'd be easy to say that you, Jack Welch, were one of the relatively few who recognized this or who saw it as it was happening and therefore sought to adapt pretty fast. Did you feel that way at the time? Did you feel like you were peering a little bit into the future, at least reading the present well and making moves that you had to make?
14:08 Speaker 01 Well, that's how I became neutron Jack.
14:10 Stephen J. Dubner? Yeah.
14:11 Speaker 01 Because the press, my moves were ahead of the times. It wasn't a burning bridge. G looked okay.
14:20 Stephen J. Dubner? Yeah.
14:22 Speaker 01 The best way to think about that was, we were doing $26 billion in sales with $1.4 billion of profit.
14:37 Speaker 01 Twenty years later, we were doing $150 billion in sales. And we had, with that load, we had 420,000 employees. Okay, with that first one. That was the early 1980s. And at the end of the century, we weren't doing $25 billion. We were doing $150 billion, plus or minus. And we were making $15 billion. And we had, instead of one, and we had 300,000 employees instead of 420 or 450.
15:16 Stephen J. Dubner? So you'd roughly doubled your profit margin.
15:19 Speaker 01 Before, we needed to move, or something's different.
15:24 Stephen J. Dubner? So let's talk about the moves you made that resulted in the nickname Neutron Jack, along with all your other nicknames. Let's talk about when it comes to pure management, and here I mean not so much strategic thinking, but managing your personnel, managing your divisions. Talk about some of the biggest changes you made and which you felt were most and least successful.
15:46 Speaker 01 Well, the most, you got to understand that fundamentally, I had a set of values and behaviors. First of all, I think a CEO must set a mission, a direction, work with a strong team with the characteristics I talked about, to put them together. And candor carries the day. In the end, the successful business develops an atmosphere of truth and trust. And unless you get truth, out there you can't act fast. You don't, people don't know where they stand. It's a sin if people come to work not knowing where they stand.
16:31 Speaker 01 Everybody who works for you must know where they stand, what their boss thinks about them, what the company thinks about them. This idea of false kindness is pure nonsense. Pure nonsense. We had appraisal books that said everybody was promotable.
16:53 Speaker 01 Everybody, no one said what they thought of people and their performance. I don't know if you've seen the new book by Ray Dalio.
17:02 Stephen J. Dubner? Sure have, yeah.
17:03 Speaker 01 I think it's a hell of a book. Now, he may, he may be an extreme, but we're, we're both asking for truth.
17:11 Stephen J. Dubner? Right.
17:11 Speaker 01 You want to get truth and, and you got to bust your butt and come at it in 90 ways to get truth in a bureaucracy. It doesn't live there.
17:23 Stephen J. Dubner? Yeah. So you were famous for speaking your mind, being yourself. Now the phrase is called radical candor. It wasn't called that then. It was, you know, they just called you names like neutron Jack then.
17:36 Speaker 01 Right, right.
17:37 Stephen J. Dubner? But I'm, I'm curious, when you look around now, the world generally and the business world specifically have changed a lot. I mean, just take one relatively small thing like social media. That really changes the vulnerability, let's say of a, of a firm to, to public response. So do you, what you're saying now, I know you believe it. I know it worked for you. Do you think if you were a CEO today though, you could be yourself?
18:04 Speaker 01 Absolutely. I mean, I, all I would be, I wouldn't operate any other way. I mean, whether it's political, I might be a more, more careful politically because I don't want to wade into that game.
18:19 Stephen J. Dubner? Yeah, yeah.
18:21 Speaker 01 It's fun now because I'm a free citizen, so I can take a wing at everything. But I, I'd probably stay out of politics like I did then and keep my opinions to myself.
18:34 Stephen J. Dubner? But you think you could have as much radical candor today as you did back then and you wouldn't end up all over Twitter and being protested and shouted down?
18:44 Speaker 01 No, because the missing link in this whole thing is people understand radical candor is not cruel. It's the kindest thing you can do to somebody.
18:58 Speaker 01 Tell them where they stand early in their career so they know they can adjust. And they can change if they, or they can move on. They can be somewhere where they fit. One of the luxuries I had, which has not been told. My predecessor left me a hell of a balance sheet. So I was able to put in all kinds of things for soft landings for people. We put in benefits that no one ever had in terms of reductions in workforce. And, look, I feel when we have to lay somebody off, it's the manager's responsibility in many
19:43 Speaker 01 ways, not the person. They hired them, or they're responsible for developing them. And all of a sudden, I have a phrase, "Love them on the way out." I teach this to my school. "Love them on the way out the way you loved them on the way in." And I'll tell you, and another one. A severance dollar is the cheapest dollar you'll ever spend. Those two things, if you practice that religiously, you'll stay out of trouble, you'll be perceived as fair. Maybe not loved initially, but people will come to respect it. That's why I have an army of friends.
20:25 Speaker 01 Many people who I let go are some of my closest friends.
20:29 Stephen J. Dubner? That's really interesting. It's interesting, at the same time as you are obviously increasing revenues a lot, you're also cutting payroll a lot, and therefore, obviously, cutting employees along with payroll. But you're boosting severance. I know at the same time, you're also boosting stock options for people who were staying there. You were broadening the category of people who are eligible for that. But let me ask you this. Even though you came in with a strong cash reserve, was your board at all reluctant when you said you wanted to give such generous severance?
21:01 Speaker 01 You know, my board was a thousand percent behind me. And that is another point. You don't ever want to work in a place as CEO without a board making you feel, and I'm probably 5'5" and bald as a beagle. And if you, I always thought I was 6'4" with hair. And the job of my board was to make me 6'4" with hair.
21:27 Stephen J. Dubner? I know you had hair once. You were a good-looking guy younger. Was that a, was that a trauma for you, losing the hair? It sounds like you haven't quite recovered from it.
21:37 Speaker 01 No, no one likes losing hair. And there was a study last week, I don't know if you saw Larry David's comments the other day. There was a study, professors at Princeton came up with the fact that bald men are more attractive to women, and he said, "Bleep." And they asked Larry David what he thought of it, and that's what he said. And I would say the same thing.
22:06 Stephen J. Dubner? Let me ask you this. For years and years, people were talking about the US presidency as a CEO position, how it should be run as if it were a CEO position. Now, we finally got an actual CEO as president. Before we get into the specifics of Mr. Trump, because I know you've, you've interacted with him a good bit, what do you think are the pros and cons of electing someone to the presidency who's literally a CEO coming at it from outside politics?
22:34 Speaker 01 It's a hard game. I mean, it's a real hard game. As CEO, you can do a lot more and get a lot more done in a quicker time than a politician can. That's just the way it is.
22:55 Speaker 01 I'm not saying that's good or bad, but that's the way it is.
22:58 Stephen J. Dubner? Are there any characteristics, though, of corporate life that you can port over to political life that a politician might not naturally be able to do or might not think of doing?
23:10 Speaker 01 Get great people. Set the values that you want for your talent. Look, this whole thing, whether politically or anywhere else, is get a team of smart, winning people. Get on the same page. Work together as a family. We used to call ourselves the greatest little grocery store in the world. The grocery store is the perfect model. You know how to treat your customer because you know them. You know when the lady's son is going to college for the first time, and you know how to deal with them. You know how to take things... Your customer satisfaction is overwhelming.
23:55 Speaker 01 You treat your employees well. The game is all about... Now, think about this politically. If you get customer satisfaction right, and you get employee engagement right, and you get... From that will come cash flow.
24:17 Speaker 01 And a politician, if you get customer satisfaction right, if you get engagement out of the bureaucracy right, you'll get elected again.
24:27 Stephen J. Dubner? Mm-hmm.
24:28 Speaker 01 I mean, it's that simple. But you've got to measure it. You've got to deal with it where it isn't working. You've got to know which parts of the place, the bureaucracy, is not working. But you measure those things and measure... I measure my score. My score's growing 35% a year.
24:47 Stephen J. Dubner? Right.
24:48 Speaker 01 And we've got eight net promoter score. You know what net promoter score is?
24:54 Stephen J. Dubner? Yeah.
24:55 Speaker 01 82. It's higher than Costco. It's higher than Apple. It's higher than Amazon. And we only measure customers. The customer is our student. It's not the damn faculty.
25:06 Stephen J. Dubner? Right, right.
25:08 Speaker 01 And most universities, and you know this better than I, most universities, the customer is the faculty. The students are detail who pays bills.
25:19 Stephen J. Dubner? But on the other hand, let's go back to GE and you, you have to care to some degree about the employees, obviously, you don't want them to be miserable.
25:29 Speaker 01 No, what I just told you, the number one thing is customer employee engagement.
25:34 Stephen J. Dubner? Yeah.
25:35 Speaker 01 Employee engagement, you've got to, we, when I took over, about forty-two percent of the, not about, forty-two percent of the employees bought into the program. When I retired, ninety-four percent would bet their life on the company. That's what you want, you want engagement, you want them involved, you want them feeling part of a mission with a purpose, that's what this thing is all about.
26:03 Stephen J. Dubner? Yeah, I'm curious, I know you played sports as a kid, you were pretty good. Sports teams, it turns out, along with the military, are some of the few units in our society that are really good at creating bonds across all boundaries, race, you name it.
26:22 Speaker 01 I agree, I agree totally.
26:24 Stephen J. Dubner? And I'm curious whether you used that kind of thinking, I'm curious whether, you know, look, a lot of kids are into sports, but I'm curious whether any of your experiences as a kid in sport, you imported into the way you thought about managing and building a team, because, you know, look, we know it's a cliche now to say it's a team, teamwork, et cetera, et cetera, et cetera, but a sports team is a real thing and it operates differently than most hierarchies, and I'm curious to know how much of that you brought in.
26:55 Speaker 01 Well, let's start with differentiation. I learned differentiation when I was eleven years old in a playground. They throw the bat up, you put your hand one over the other, and the person that tops the bat has the first pick. And I was eleven and the other guys were fifteen and sixteen. And I was playing in the playground, in a modest area, to say the least, and what happens to the worst player? He picks last, and he goes to right field.
27:30 Stephen J. Dubner? Yep.
27:31 Speaker 01 That's differentiation, I mean, that hasn't changed in my mind from the day, the first day I went to the playground.
27:38 Stephen J. Dubner? Right.
27:40 Speaker 01 And what happens when you win as a team? Do you want to be in the loser's locker room or the winner's locker room? What's more fun? Where do you celebrate? Businesses don't celebrate enough. I fought that battle for 40 years. Celebrate more. Now I have a school where they celebrate like hell.
28:02 Stephen J. Dubner? Mm-hmm. How do you celebrate?
28:05 Speaker 01 How? Go out, pizza, have cakes of beer. Now I get it. And gee, we had, when the big contract, we'd open the bar at 5 o'clock.
28:18 Stephen J. Dubner? Let me ask you, you know, it strikes me now, hearing you talk, and let's not forget the name of your second book was Winning. It strikes me that you might feel that some pieces of society, particular American society, have kind of gotten sheepish about winning and that we pay too much attention to the disadvantaged, however you want to define that. Do you think that's a mistake? Am I characterizing your view correctly?
28:48 Speaker 01 No, you're right. Everybody gets a prize. Everybody gets a trophy. I couldn't be more against that than anybody alive.
28:57 Stephen J. Dubner? But on the other hand, everybody can't win. So what do you do to make the people who don't win at least not unfairly treated? How do you balance that out?
29:06 Speaker 01 No, no, no. You want to make everybody feel better than the day they walked in.
29:11 Stephen J. Dubner? Yeah.
29:12 Speaker 01 So everybody's got to feel a participant. And you find ways to include everybody in the party in some way. Some get rewarded more than others. But we had 65,000 people getting stock options at the end. We started with 150. We had more people playing in the pot, more people making a million bucks. All that, that's all good stuff.
29:43 Stephen J. Dubner? Right, right.
29:44 Speaker 01 It may sound crude, talking about money, but I think it works pretty well.
29:49 Stephen J. Dubner? And it's pretty important.
29:52 Speaker 01 I think so.
29:53 Stephen J. Dubner? Yeah.
29:54 Speaker 01 It's better than a plaque.
29:59 Stephen J. Dubner? Coming up after the break, Welch revisits an event he thought would get him fired from GE.
30:05 Speaker 01 I blew up a factory early on.
30:08 Stephen J. Dubner? And what'd he learn from that incident?
30:10 Speaker 01 Never kick anybody when they're down. Kick them when they start to swell instead of grow. And whack them when that happens, but don't kick somebody when they're down.
30:23 Stephen J. Dubner? We'll be right back after this.
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32:32 Stephen J. Dubner? Back now to our conversation with Jack Welch, who was CEO of General Electric for 20 years. We spoke in September of 2017. So you've been serving on the President's Strategic and Policy Forum. What's your assessment so far of President Trump's leadership style?
32:50 Speaker 01 Well, you know, that ended. The Policy Committee ended. All of them ended. All of Charlottesville. Everyone got nervous and they ran. And I didn't feel that way. I felt you're better off inside the tent, staying on the commission, seeing them, making your position known than being outside.
33:16 Stephen J. Dubner? Yeah.
33:16 Speaker 01 So I was one of the two or three that disagreed. But I wasn't an... There were 16 of us on the commission. I wasn't an active CEO, so I didn't bang the... I was the only retiree on there. So I didn't bang the table. But I thought it was a bad decision to express your frustration. But I understand if you've got a lot of employees and they're rebelling over it, you might want to get out of town.
33:47 Stephen J. Dubner? Well, tell me why you didn't think it was a good idea to shut it down? And relatedly, you know, what you think of his leadership abilities and style thus far?
33:57 Speaker 01 Well, I give him... I did this on television, so... I mean, I did this on television, and The Washington Post ran it, so I can say it again. I give him a D minus on management practices, and I give him an A plus on policies. Now, The Washington Post only ran that I gave him a D minus.
34:21 Stephen J. Dubner? You think you could run him through your management institute and get that D minus up to a B or something within a couple of years?
34:28 Speaker 01 This is a guy that ran his own company. An independent guy with a family running, helping him run it. So he does things like, I didn't disagree with removing James Comey. I disagree with the way he did it. So he doesn't have what you'd call, I disagree with the fact that he's calling Tom Price out for flying private planes when other administrations and generals fly planes all the time. And Price got approval, but he abandons soldiers in his army very quickly.
35:13 Speaker 01 I don't, leaders of a corporation wouldn't do that.
35:17 Stephen J. Dubner? So you think it's a function of him being in a family corporation where everybody around him is a little bit too obedient perhaps?
35:23 Speaker 01 Yeah, that's causing him problems.
35:27 Stephen J. Dubner? Yeah, yeah. So if you could tell him directly, in words that you think he could hear, because that's important, because we know that he's not the most receptive person to criticism, how would you suggest that he go about amending that part of his management?
35:45 Speaker 01 I assume that he truly picked the people and they weren't selected by, and I don't know this one way or the other, by politicians taking care of other politicians, et cetera. And they weren't stuffed jobs.
36:04 Stephen J. Dubner? Yeah.
36:05 Speaker 01 So he picked them. He looked them in the eye and said, this is the person I want for this job.
36:11 Stephen J. Dubner? Right.
36:12 Speaker 01 He owes them the loyalty, the respect, the decency.
36:17 Speaker 01 Yeah, his responsibility.
36:19 Stephen J. Dubner? Do you think someone, do you think someone like him of his age, experience and position now with everybody watching every move, do you think it's possible for someone like that to change as fundamentally as you're suggesting he change?
36:32 Speaker 01 We'll see.
36:33 Stephen J. Dubner? Yeah.
36:34 Speaker 01 I think he's changed.
36:37 Speaker 01 I think he's changed for the better in many ways in some speeches he gives, but the consistency isn't there by any means. I mean, he gives a UN speech that was remarkably effective, first class. Forget whether liberals will give him the credit for that, but he, in my mind, he gave a great speech.
37:00 Speaker 01 And by the weekend, he was having a fight with the NFL. And what was the talk? You didn't hear another day of the UN speech.
37:10 Speaker 01 So, I mean, he'll learn from that, I think, I hope.
37:14 Stephen J. Dubner? When you look back at your tenure at GE, you had, you know, look, it's a big company with many tentacles and you were there for many years. So there were an awful lot of different issues, controversies, occasional crises. You had financial, you had environmental, you had some involving personnel. Walk me through what felt at the time like the worst one and how you addressed it.
37:40 Speaker 01 The worst one, I think, that I can think of offhand, well, I had a number of experiences in my life and while I was running it that were uncomfortable. I blew up a factory.
37:55 Stephen J. Dubner? Yeah, that was early on, right?
37:57 Speaker 01 Early on.
37:58 Stephen J. Dubner? And tell the story about how your boss or maybe it wasn't your immediate boss.
38:03 Speaker 01 My immediate boss didn't know me.
38:05 Stephen J. Dubner? Uh huh, yeah.
38:07 Speaker 01 He made sure he got away from me. And I blew the roof off the factory, fortunately no one was killed. And I was called out to New York to explain what happened by my boss's boss's boss. So I met this guy really for the first time.
38:24 Stephen J. Dubner? This guy named Charlie Reed, I believe?
38:26 Speaker 01 Yeah, yeah, good, good for you. You did some homework.
38:31 Stephen J. Dubner? Little bit. All right, and Charlie, Charlie, you're expecting what from Charlie now?
38:38 Speaker 01 I didn't know him, so I didn't know what to expect, but I expected I might get fired. I drove down to my Volkswagen from Pittsfield.
38:48 Speaker 01 I met Charlie and all he did. It turns out he was a PhD chemical engineer from MIT.
38:56 Speaker 01 So he took me through the Socratic method. Do you know why it happened? What would you do differently? Why did you do that? Why didn't you do this? And he was coaching me and he was, couldn't be nicer. And I learned from that and never kick anybody when they're down. Kick them when they start to swell instead of grow. And whack them when that happens, but don't kick somebody when they're down. And Charlie did a hell of a job of coaching me through the error I made in blowing, blowing benzene, oxygen through benzene without enough grounding. So, I mean,
39:39 Speaker 01 it's a fairly remarkable fortune. Forbes just had a, they picked the 400, the 100 best minds according to them, you know, those silly lists. And they had, and they asked me to write the story that impacted me most, and that was the story.
39:58 Stephen J. Dubner? And you think that changed the way that you managed going forward? That was, that was a long, I mean, that was 1963, I believe. So that was, you know, almost 20 years before you took over. Do you think you were really?
40:09 Speaker 01 It changed my life forever.
40:11 Stephen J. Dubner? Is that right?
40:12 Speaker 01 Yeah. I mean, because I had an Irish temper and that wasn't always good. And it was, it was one of probably the most impactful societal thing on me. But I, but I had other disasters. I, we had a guy cheat in Kiddepebity.
40:34 Stephen J. Dubner? Right, yeah.
40:34 Speaker 01 And I, I was going out the door on a Friday night. And the guy running Kiddepebity called me and said, Jack, we've got $400 million missing. I got sick to my stomach. I went to the bathroom. I was torn up. And then I went down to Kiddepebity for the weekend.
40:59 Speaker 01 To find out where the $400 million went. And I went through a bunch of, I had all the management in, we spent there. Saturday, Sunday, Sunday night, we had to come out with a press release on Monday that our earnings were $400 million short.
41:17 Speaker 01 I couldn't have been in a worse position. I went to the urinal that night, I was standing next to a guy. And he turned to me, a kid of Peabody guy, he turned to me, he said, "Jack, this won't affect our bonus, will it?" And all the GE people were with me for three nights. Down there, Friday, Saturday, Sunday night, and this guy. And I learned that there, I never had a stark example about how much culture counts.
41:51 Speaker 01 Investment banking is all about bonuses. How much money I make, it isn't even, it isn't even an absolute number, it's relative. If Joe makes more than Bill, no matter what happens, Bill's bad.
42:07 Stephen J. Dubner? Yeah. Now, this is compounded, I'm guessing, by the fact that you wanted, you pushed for GE to buy Kidder Peabody in 1986. Some board members disagreed, but you went ahead. Was that, did that make this problem even worse?
42:22 Speaker 01 I supported my team that wanted to do it. And a couple of board members were smart enough to challenge it. And they, and they were right. We didn't belong in a business where we were talking about sharing ideas, being a team, being a family, to a bunch of low rangers on horseback who would try to make more money than the next guy. So culture counts.
42:52 Stephen J. Dubner? Now, there are some people who would say that the astronomical growth at GE under Jack Welch was due in part to coinciding with a huge boom in financial services. And obviously, you acquired a lot. Financial services became a huge part of General Electric. Forty percent, you said? Yep. So a huge part during that period. We should also note that that was the category that's been most aggressively cut in the last several years. I'm just curious, from telling me the Kidder story, did you regret that you had to take on so much of financial services to drive profit?
43:34 Speaker 01 No.
43:34 Stephen J. Dubner? You didn't?
43:35 Speaker 01 No, I thought we had tons of leverage there. We had a great balance sheet. We had a talent in financial services. We had our own homegrown financial management program where we could put people. We built great businesses. And I would still be in it if I was running it.
43:57 Stephen J. Dubner? But it had... Oh, really? That's interesting. So you wouldn't have divested all...
44:01 Speaker 01 Well, Spargo was doing beautifully with the assets they bought.
44:04 Stephen J. Dubner? Yeah, well, it helps when you're making up a fake million accounts here and there, right?
44:08 Speaker 01 Well, that's not the businesses they bought.
44:13 Stephen J. Dubner? Yeah. So you're saying that you would not have divested the financial services stuff if you were still...
44:18 Speaker 01 No, I'm not saying that. I'm saying that I might not have gotten in the trouble that they got in by exploding in real estate. But that's second guessing. You can't second guess a CEO. That happened eight years after I left. That's the normal tenure for two CEOs.
44:40 Stephen J. Dubner? Yeah, that's right.
44:42 Speaker 01 Okay, so to talk about what I would have done or what somebody else would have done when I was there is unfair. I mean, I inherited...
44:53 Speaker 01 A lot of nuclear liabilities. I inherited a Japanese assault. Jeff Immelt, when I left on September 7th, on September 11th, he had his world blown up.
45:12 Stephen J. Dubner? Sure.
45:13 Speaker 01 So, you know, everybody sees a different environment. So comparing one CEO to their environment, another, how did you handle your environment? That's the only question. Not how somebody else would say, yes, somebody who did something.
45:32 Stephen J. Dubner? Let me ask you this. In 1999, not long before you retired from GE, you said that your ultimate success would be determined by how well your successor grows the company over the next 20 years. When you said that GE's market cap was up north of 450 billion. Now, it's almost 20 years later, it's just north of 200 billion. So, talk to me about that. I know that you were very...
45:55 Speaker 01 I don't talk about that.
45:57 Stephen J. Dubner? You don't? Why not? I mean, it's public record. I mean, we know that...
46:00 Speaker 01 And you can comment on it any way where you want, but I haven't commented on my successor once in the 20 years. And I don't intend to comment now. You can judge me any way you want, on whether I picked the right guy or not. You gave numbers, and one from those numbers would question how well I did. But I'm not commenting. And if you want to give me a black mark, give me a black mark. I did the best I could. I picked the guy.
46:37 Stephen J. Dubner? I'm curious whether you carry over this tradition from the US presidential tradition, where it's a kind of standard for the former president to stay out of things? Or did you come up with this on your own?
46:48 Speaker 01 My predecessor came up with it. He never commented on me. And I radically changed everything he did. And he and he and he he sat quietly and was a friend. He outs sold a lot of stuff. Now, the first eight years he was there, he didn't sell anything. Now, eight years is a long time.
47:12 Stephen J. Dubner? And as you said, the beginning of his tenure was marked by, you know, a huge tragedy.
47:18 Speaker 01 9/11.
47:19 Stephen J. Dubner? Right, sure.
47:20 Speaker 01 So he had his challenges there. So and how he handled them and how would how I would have handled them? That's pure speculation.
47:32 Stephen J. Dubner? All right, let me ask you this. Let's pretend you had stayed on another 10 or 20 years. I'd love to hear you talk about what industries you never got included in the GE portfolio that you might have liked to.
47:48 Speaker 01 Well, all I want is a private equity with Clayton Dubalier. And we and we have had 75 companies bought over 15 years. And they range in size from 2 billion to 30 billion. And 74 of them have been big successes. We blew one in the last year. If you talked to me a year ago, I would have bragged about them all being good.
48:26 Stephen J. Dubner? What was the one that failed?
48:27 Speaker 01 The oil patch. We bought a helicopter company serving the deep wells in Mexico and elsewhere out to sea to bring the crews out.
48:39 Stephen J. Dubner? Yeah, yeah.
48:40 Speaker 01 And the deep drilling evaporated with fracking.
48:46 Stephen J. Dubner? Yeah, yeah, yeah, right.
48:48 Speaker 01 And and we are eating the helicopters.
48:50 Stephen J. Dubner? Yeah. But let me ask you, I know that pharma, for instance, was one big sector that GE never got into. Is that something that if you had longer or maybe a different set of circumstances, you would have liked to include?
49:02 Speaker 01 No, I like pharma. And I always liked it. And we expanded medical dramatically when I was there.
49:09 Stephen J. Dubner? Right.
49:10 Speaker 01 And we never had.
49:14 Speaker 01 The multiple or the guts to buy pharma.
49:19 Stephen J. Dubner? Seeing what the economy has done since then and what the economics of pharma has been since then, do you think of that as a mistake? Or do you think that you made the right decision considering the circumstances at the time?
49:29 Speaker 01 I don't know. I don't know what we would have done with pharma. Would we have got small entrepreneurial that have done so well over this period? Or we got a Pfizer, a big, fat, slow-moving company? I don't know. Would we have adapted Pfizer to the changing world? Or would we let Pfizer sit there? And there's been all kinds of consolidations and opportunities in that sector, you know?
50:08 Stephen J. Dubner? You write really nicely in your books about you ascending to the CEO position and how grateful you were and then handing off to Jeff Immelt and how happy for him you were, how happy he was. You were, you know, you'd been there a while and you were getting on in years. But you, I'm guessing, if you'd really wanted to, you could have powered through some more years. How do you know as a CEO that it's time to go?
50:36 Speaker 01 Well, I think it's different from one to the other. I would say the reason I left was not that I was tired. I've worked for 15 years. I've given thousands of speeches around the world. I've taught at MIT for six years. I started my own school. So, energy was not the problem. The problem was you have expectations in a bureaucracy. And the expectations of these talented, wonderful people, whether it be Jim McNerney or Boeing or Nadelli at Home Depot or 65 other CEOs that have come out of our place. They expect movement.
51:18 Stephen J. Dubner? Yeah, yeah.
51:19 Speaker 01 And the bureaucracy, and I would have expected it when I was there, that there's a certain rhythm. And 65 was the rhythm in GE. Maybe it'll go to 70 or 75 in the future as the 70 is the new 50 and all that stuff. I don't know. But I didn't do it because I was tired or bored. I loved it. I did it because it was the right thing to do for the rest of the people. Because all kinds of movement takes place when the top goes. Because I told the two guys that weren't gonna get it. I told all three, six months before. All three of you are gonna have new jobs. One of you is gonna be running GE.
52:04 Speaker 01 And two of you are gonna be CEOs elsewhere.
52:07 Stephen J. Dubner? Right, so that was McNerney who went to Boeing and Nardelli who went to Home Depot.
52:10 Speaker 01 No, no, McNerney went to 3M.
52:12 Stephen J. Dubner? Oh, 3M, sorry, yep.
52:13 Speaker 01 Yeah, and, and, and Imel had the 3M job too.
52:17 Stephen J. Dubner? Uh huh, oh, I see, yeah, yeah.
52:19 Speaker 01 3M was hedging their bets.
52:22 Stephen J. Dubner? It strikes me that CEOs in the media
52:27 Stephen J. Dubner? are generally portrayed as people who fly private, play a lot of golf, and make a lot of money, and have some meetings once in a while, right? And the public doesn't seem to really understand the role that well. I'm curious if there are one or two things that, if you could tell the public who has that view of what CEOs do, a little bit more what it's really like.
52:48 Speaker 01 Well, I don't wanna make it sound anything other than great, so. I think it's the greatest thing in the world. You've, you've got a chance to change lives. I mean, rarely do you have such an opportunity and a job to totally change lives, make people rich, get second homes, send their kids to college, get vacation homes. The idea, I had plenty of money in the first three years I was CEO. The next 17 were spent making other people rich. I mean, it's a turn on. I used to call, call guys in my office and give them a million bucks. Do you realize how good that feels? You know, I mean, hand them, I tell them they're in the club.
53:33 Speaker 01 We had a club, a partnership. And I'd bring them in, and so in the crowd, some of them would cry. I mean, it's an amazing emotion. You're in the club now, here's a million dollars, stock. That's power, it makes you feel good. They go home thrilled, thinking of the party they're having in their house that night.
53:56 Stephen J. Dubner? Yeah. Is it lonely at the top?
53:59 Speaker 01 No, no, but, no, it's not lonely at all. That's the biggest myth in the world. You got your friends there, you're all in the well together. You're all sharing everything you have.
54:12 Speaker 01 All that crap about lonely at the top. Nonsense. Pure nonsense. You've got your best friends you're working with.
54:21 Stephen J. Dubner? Yeah, yeah. One more question for you. I don't know if you're familiar with the phenomenon or the phrase known as the glass cliff. You know, it's hard to hold all the numbers constant to measure, but it does seem there are a lot of instances where, obviously, there are a lot more men than women CEOs, but it does seem that often when women are appointed, it's a company that's really in trouble and it's a way of kind of hedging the bet if, you know, she's a scapegoat. What do you think of that notion and what do you think of the notion of, you know, female CEO leadership generally and what should, if anything, be done to provide more opportunities?
54:57 Speaker 01 Well, I'll give you my thoughts. I was pleasantly surprised, if you will, by the data that the researcher has done on the glass cliff, if you will. Mostly in politicians, I thought. I thought that was fascinating and interesting research. My own feeling is that you don't think gender when you think of solving a problem. You think, how do I put the best person to solve that problem? And you don't think gender.
55:38 Speaker 01 And I, but she brought up some interesting points, but I, I think, I would think you'd find data on males that have failed because they went into tough situations being pretty high. I think you could make the argument, either way, I haven't seen enough data. I thought it's an interesting question and it's one, my own view.
56:09 Speaker 01 We had, by the time I retired, 27% of GE's earnings were coming from women CEOs. And that was 17 years ago. I had 33% of my board, females all the time.
56:24 Stephen J. Dubner? That was the kind of floor you set?
56:26 Speaker 01 Way ahead of the times. So I don't, I've been married a couple of times, and I always find strong women, for whatever reason. And I love strong women.
56:37 Stephen J. Dubner? Let me ask you, though, going back to what we talked about earlier, about if you're a candidate for management or for leadership, you said, you know, you've got to have smarts, but you also have to be aggressive if you want to be around the leadership, and you have to have a lot of self-confidence. You know, men and women are fundamentally different in some ways. It can be uncomfortable for people, some people, to talk about it, but there are many dimensions on which there are a lot of obvious and demonstrably empirically proven differences. Do you, do you think that corporate culture, even now, 20 years removed from when you were running the firm, 15-plus years removed from when you were running the firm, do you
57:16 Stephen J. Dubner? think that even now, corporate culture still conspires against, even unknowingly, subconsciously, against female leadership?
57:25 Speaker 01 I think it's a lot better than it was, but there's a long way to go. We no longer have women coming to the meetings dressed as men, with those little ribbons, the bows, and, you know, and the suits. We don't have that today. We have women more or less being women, and the strengths of women, the sensitivities of women, all those things. So we're much further along. Of course, it's not all the way there. It's better. We always had the odd woman down at the table, and so we got more of them there. They were quieter.
58:04 Stephen J. Dubner? Right, right.
58:05 Speaker 01 It's real.
58:07 Stephen J. Dubner? Right, but then, when they're not the only, whatever it is at the table, woman or anyone else, then you get a little more confidence, yeah?
58:15 Speaker 01 Right.
58:16 Stephen J. Dubner? Well, Jack Welch, what a pleasure to speak with you.
58:20 Speaker 01 Stephen, I love talking to you.
58:33 Stephen J. Dubner? In next week's special episode, you'll hear my full conversation with Carol Barts, former CEO of Yahoo and Autodesk.
58:40 Speaker 02 I think there has to be one place where the buck stops, not to be too corny. But there has to be a team. If the CEO believes that they dictate all the shots, then that's a really bad model.
58:59 Stephen J. Dubner? Also, please keep your ears out for our regular Freakonomics Radio episodes, which hit your podcast stream promptly at 11:00 PM Eastern Time on Wednesdays. Thanks for listening. Freakonomics Radio is produced by WNYC Studios and Dubner Productions. Our staff includes Alison Hockenberry, Greg Rosalsky, Stephanie Tam, Max Miller, Merritt Jacob, Harry Huggins, and Brian Gutierrez. The music you hear throughout our episodes was composed by Luis Guerra. You can subscribe to Freakonomics Radio on Apple Podcasts or any number of podcast portals. You should also check out our archive at Freakonomics.com, where you can stream or download every episode we've ever made. You can also read the transcripts and find links to the underlying research.
59:42 Stephen J. Dubner? Our show can also be heard on NPR stations across the country. Check your local station for the schedule. And we can be heard on Sirius XM, Spotify, even your better airlines. We can also be found on Twitter, Facebook, or via email at [email protected] . Thanks for listening.
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