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Case Report: The Jack Welch Era at General Electric
During Jack Welch’s two decade tenure as CEO of General Electric that started in 1981, he had many notable accomplishments in GE's history; he fulfilled the company's primary economic responsibilities to society by serving customers worldwide and stimulating the economy. But as such big company, there were opposing views to his social responsibility tactics, many supported him and many did not agree with him. According to the article, I believe GE’s CSR can be analyzed from following aspects.
First of all, GE in the Welch era sustained exceptionally high rate of profitability to its shareholders that boosted economic growth- market actions. “Earnings per share rose from $0.46 in 1981 to $1.07 in 2000, his last full year as CEO, the total return in GE share averaged 21.5 percent”. These high figures turned GE in to a glorious era, and definitely enriched its investors by high rate of dividends.
Secondly, GE in the Welch years also fulfilled its economic responsibility to society by paying huge amount of taxes. As a result of GE’s remarkable success and profitability at the time, they paid out a significant sum of money in the form of taxes which contributed to improving the basic needs of society. The company also pressured government to lower taxes and lower budgets for schools.
Moreover, GE engaged a lot of social activities – voluntary actions that clearly fulfilled its duty. The GE foundation made $40 million in contributions to support universities and established nonprofit groups in the US and worldwide.
Though GE in the aforementioned cases has demonstrated CSR, there are other cases during the Welch era that run counter to CSR.
First of all, as Welch remodeled GE there were massive layoffs occurred. “Within a few years, one of every four employees was gone. When he took over there were 404,000 GE employees; when he left there were only 313,000”. Nearly 150,000 jobs in the US were shrunk due to his policy of outsourcing jobs to foreign countries.
Furthermore, pollution in the Hudson River was another critical environmental issue during the Welch era which failed to fulfill the mandated actions. The GE plants released more than a million pounds of polychlorinated biphenyl PCB’s which can cause cancer and a range of other illness in humans and animals, and let them float down to rivers and oceans.
Based on issues above, though Welch played a good role in pushing the economy and some social activities, but he was also lack of responsibilities to his employees and environment.
He should have trained his employees to be more productive and reassigned them into different departments rather than laying them off and outsourcing their jobs. Welch should have treated his employees as assets as significant layoffs would consequently cause a high rate of turnover and lower employee morale. He should have increased employees’ pension especially for those who worked for the company for all of their life.
Moreover, Welch should have taken the issue of pollution more seriously and taken more responsibility for environmental cleanup. Additionally, he should have installed programs to minimize pollutants in order to maintain GE’s social image as well. I believe GE under Welch does illustrate a narrower view of corporate social responsibility closer to Friedman’s views. According to Friedman’s view, the social responsibility of business is to make profits while obeying the law. Corporation has duties that do more than their basic economic function in a lawful manner because performance of a firm must benefit society. Both Welch and Friedman not only shared the same vision to maximize profit, but also their views on ignorance of social responsibility. Friedman believed in obeying the law while making profits and Welch believed in the financial success of the company. For instance, Welch only focused on his company’s growth; his relentless management and acquisition had destroyed many companies and the lives of many GE’s employees. This resulted in a loss of jobs, increased pollution, and low pension. Since both Welch and Friedman put profitability as first and only priority of a company, I would state GE apparently illustrates a narrower view of corporate social responsibility.
Under Welch’s management, General Electric failed to comply with the General Principles of Corporate Social Responsibility.
The “General Principles of Corporate Social Responsibility” states “Managers must act ethically”. But Welch’s relentless management caused mass layoffs and pollution in the Hudson River demonstrated GE’s failure to respond to the “Managers must act ethically”.
Secondly, after the EPA accused GE of releasing, rather than clean up the mess, GE hired 17 lobbyists to fight against the EPA. These actions do not comply the General Principles as well. This represents GE’s failure of “Corporations have a duty to correct adverse social cause”.
Moreover, GE created a long list of fines and criminal transgressions of “39 law violations, court-ordered remedies, and fines in the 1990’s alone”. Many of these violations include pollution hazards from GE facilities, consumer fraud for deceptive advertising and unfair debt-collection practices, defense contracting fraud for diverting fighter contract funds to other purposes and overcharging. Those actions go against “All firms must follow multiple bodies of law” under General Principles of CSR.
Ranking shareholders over employees and other stakeholders can have both pros and cons. But it is a misconception to see employees as cost of production and GE should have rebalanced its priorities.
Welch believed that having the right people in management positions was imperative for success in a business, so Welch developed the "vitality curve" ranking system. There are some strengths and weaknesses when it comes to ranking shareholders higher than employees and other shareholders. Because shareholders invested their money into the company, they were considered part of the ownership and it was necessary for the company to make as much profit as possible to return to its shareholders. In an effort to maximize shareholder value, Welch laid off lots of workers, and decreased the pensions of employees which consequently lowered employee morale. . Although Welch did achieve his goal of maximizing profit and GE shareholder value, Welch's years as CEO have been marred by controversy and criticism.
In Welch’s system, managers were ranked on a "vitality curve" system that differentiated among As, Bs, and Cs-20/70/10. If you were classified as a C manager; you were viewed as incompetent and were let go. This system hurt team work by pitting people against each other is harmful to the morale of GE's employees but he did not care. He used this system to improve employees’ efficiency. But he should have viewed employees as an asset because they are those who made profit for the shareholders. Employees’ satisfaction will directly affect GE’s productivity. Based on Welch’s talent and GE’s strong financial background; I believe he should have focused on increasing efficiency instead of cutting employee off, such as initiating employee training programs, encouraging team work, implementing reward programs to maintain employee loyalty and morale, and only using layoffs as a last resort.