Jack Welch again… (From My Professor, Fethi Ağalar)


Back in 2001, Jack Welch was what Elon Musk, Mark Zuckerberg, Jeff Bezos are today. The only difference was that he was unrivalled and unique. While he served as the CEO of General Electric between 1981 and 2001, he was a legend who re-defined capitalism, got his company to the top with his own rules and kept it there.

In his new book “The Man Who Broke Capitalism”, David Gelles from New York Times shares views and thoughts about Jack Welch with his readers claiming that what is known and thought to be known about Jack Welch are all wrong.

According to Gelles, Welch put great emphasis on periodic profitability reports disclosed quarterly and this emphasis on quarterly disclosed financial results caused all American companies to replace their long-term profitability strategies with an approach to generate substantial profits in the short run. This fundamental change caused numerous American companies to get into a difficult situation.

Additionally, Gelles claims that, as a result of the “scoring system for managers” introduced and mercilessly put into practice by Welch, poor-performing managers, who correspond to 10% of the managerial staff, were laid off every year and this policy caused division in the company’s management deteriorating the concept of acting and implementing together for the company. After Welch had assumed a role in the company, the policy of developing long-term plans and strategies in companies such as “General Electric” and “I.B.M.” came to an end shattering the dreams of the employees working at the management level of those companies associated with having a lifetime career in their companies they have been working for. This impact of Welch caused these companies to suffer and even perish in ten years after he had left the office.

During his office, Welch laid off not only the managers but also around one hundred thousand General Electric employees as a consequence of shutting down the poorly performing companies and the subject book accuses Welsh that his manufacturing model caused companies to shift their manufacturing operations located in the United States to other countries with lower costs of manufacturing making the country’s industry dependent on other countries’ production capacity.

According to claims unveiled in the book, if Welch had managed the company based on long-term policies and had sums sacrificed from his bonus (as C.E.O) which was a percentage of the annual profit, his company would have not split into three different companies focused on “aviation”, “healthcare” and “power generation”, instead it would have moved on as the largest company of the world.

The habit of managing the company based on profitability targets disclosed quarterly and annually continued like an uncured disease for years and caused the company to undergo a major crisis in 2018 which paved the way for the company to lose its place in “Dow Jones Industrial Average”. Having been unable to overcome the challenges since then, the company had no other choice and had to divide itself into three entities and will continue to operate as three different companies.

While I was reading and trying to summarize this book, I remembered old times and thought about my own country which led me to the conclusion that we had made a big mistake and we really do not care about it, even now. I thought about the “State-Owned Economic Enterprises”, which were established for setting out the industrial policies and industrial development of the country back when the Republic of Turkey was founded. As a result of the privatization, a trend ignited after “Margaret Thatcher” took office in England, these enterprises were sold to private sector companies and the excess workforce employed in these organizations were laid off.

Back then, I was a vigorous advocate of this idea along with the late Yusuf Özal and his team.

Today, when I turn to myself and ask “Was what we did back then the right thing to do?”, I cannot wholeheartedly say “Yes, everything we did was right”. This morning, while having a conversation about the future of England during breakfast a phrase attracted my attention: “For how long can a country having a population of 60-70 million people survive by depending only on upcoming revenues from the services industry and financial services including the ones coming from tourism and real estate?”

I thought about England. In the 1970s, England was the manufacturer and exporter of “middle-class” cars such as Vauxhall and Ford Cortina as well as “top-class” cars like Jaguar and Rolls Royce. After Mrs. Thatcher had left the office, the country stopped manufacturing middle-class cars and the world-famous Jaguar lost its prominent position and its reputation. Once an industrialized country, England has become a country that generates income predominantly from the services sector due to labour costs, energy costs and such. Nobody knows what will happen next; however, the people of the country keep getting poorer and losing the quality of their lives every year and it looks like they will continue to do so despite the country’s incredible political manoeuvres and skills to generate income from crises around the world.

Let’s get back to Turkey. We had shut down the state-owned economic enterprises which allowed many people to work where they were born and lived, or laid off the workers of those enterprises deteriorating the employment composition of the regions where those enterprises were located. Having left many people unemployed, this policy caused a wave of migration to the big cities causing difficulties in the composition of big cities and affecting the lives of both these people who migrated and the people already living in big cities. Half of the inhabitants of the country populated with 80 million people, live in five big cities causing the deterioration of their inner balances. I wish Seydişehir Alüminyum plant still operated with its six thousand employees and Elazığ Ferrokrom plant with its two thousand employees keeping those cities lively. I wish the state-owned sugar factories would operate as they used to do instead of being privatized based on the decisions of the managers of local associations. Just like the Turkish Grain Board would support wheat and grains production such that the farmers and everyone else would stay in their villages, districts and provinces.

I would like to share my thoughts after I read this book about Jack Welsh. Even though the theory we believed was right, what we did was not so right and now we are starting to pay the price of what we did.

In theory, it was the right thing to do, Czechia sold its well-known brand Skoda to Volkswagen. The annual production figure of the company used to be 30 thousand vehicles and, now, the company exports one million cars every year. Skoda is the largest company in the country and it is one of the most prominent brands in the world.

Having the right theory alone may not be enough, it should be adapted to the country’s position, the long-term strategies and expectations of the country and should be implemented accordingly.

We started with “General Electric” and ended up with our country.

The rest and your decision are left to your own devices.

Note: This article is open source and can be cited by mentioning the author. Does not require copyright.