WEBVTT - The Shareholder Supremacy 0:00:02.840 --> 0:00:07.000 Zone Media. Hello, and welcome to Better Offline. I'm your 0:00:07.000 --> 0:00:21.799 host ed Zetron. In the next two episodes, I'm going 0:00:21.880 --> 0:00:23.760 to walk you through a theory I have about how 0:00:23.800 --> 0:00:27.600 the tech industry and CATALYSM at large became the playground 0:00:27.600 --> 0:00:31.160 of asshole do nothing management dictators that see human beings 0:00:31.200 --> 0:00:34.280 as assets and the customer as kind of an annoying 0:00:34.360 --> 0:00:38.760 diversion from growth. But before I go any further, please 0:00:38.880 --> 0:00:41.440 check the episode details of this for a URL that 0:00:41.479 --> 0:00:43.320 has sources for everything that I'm talking about in this 0:00:43.440 --> 0:00:46.000 and future episodes. I want you all to be able 0:00:46.000 --> 0:00:48.640 to follow along with everything I'm saying. Don't take my 0:00:48.680 --> 0:00:51.080 word for it, take the many, many links that I've included. 0:00:51.479 --> 0:00:54.360 It's important that you're just as informed as I am here. 0:00:55.200 --> 0:00:57.880 But now to the episode, and I promise you, once 0:00:57.920 --> 0:01:00.920 we're done with this two parter, every thing that's happening 0:01:00.960 --> 0:01:03.880 will make a little bit more sense, even though it 0:01:03.960 --> 0:01:09.080 all feels just chaotic and offensively stupid, disconnected from reality 0:01:10.240 --> 0:01:12.880 in many ways. I've been working on this episode and 0:01:12.959 --> 0:01:16.360 its follow up for years, watching these trends, getting steadily 0:01:16.400 --> 0:01:19.080 more pissed off. As you've probably heard, Unable to see 0:01:19.160 --> 0:01:21.400 the big picture, because I've been picking up things as 0:01:21.440 --> 0:01:24.680 I go, even since twenty twenty, when I started writing 0:01:24.680 --> 0:01:27.280 my newsletter, there was something going on that I just 0:01:27.400 --> 0:01:31.000 couldn't quite get. It's been really hard to understand how 0:01:31.040 --> 0:01:35.080 companies like Meta can run terrible companies with decaying services 0:01:35.280 --> 0:01:39.120 that are also somehow wildly profitable, or how Meta, Microsoft 0:01:39.120 --> 0:01:43.720 and Google keep proliferating this unprofitable, unsustainable generative AI tech 0:01:43.920 --> 0:01:46.240 that takes water from the desert and strains our power 0:01:46.319 --> 0:01:50.560 grids to produce these deeply mediocre outcomes based on incredibly 0:01:50.640 --> 0:01:54.640 vague promises, and then see their stock presses go up 0:01:54.680 --> 0:01:58.960 despite them not making any money. And I've been craving 0:01:59.160 --> 0:02:02.400 this way too expe the whole growth at all cost mindset. 0:02:02.400 --> 0:02:05.480 I've explained what it is so many times, but there 0:02:05.520 --> 0:02:09.520 is an answer, and it's fairly simple. The customer, and 0:02:09.680 --> 0:02:13.680 by extension, the service provided to the customer, isn't really 0:02:13.720 --> 0:02:17.359 the primary concern of many many companies these days. It's 0:02:17.360 --> 0:02:20.320 all about shareholder value. And while this may seem a 0:02:20.320 --> 0:02:23.040 little bit obvious, it requires also a little bit of 0:02:23.040 --> 0:02:26.200 a history lesson to really explain how profoundly damaging what 0:02:26.280 --> 0:02:30.880 I call the shareholder supremacy really is. And I know 0:02:30.919 --> 0:02:34.240 you're probably going to think, well, we all knew the 0:02:34.280 --> 0:02:38.080 increasing shareholder value was what stocks were about, right, I 0:02:38.200 --> 0:02:42.280 really need you to understand what that means. Our journey 0:02:42.320 --> 0:02:44.480 takes us back almost one hundred years, long before the 0:02:44.520 --> 0:02:48.760 creation of the Internet, the iPhone, Facebook, the Better Offline podcast, 0:02:48.800 --> 0:02:51.679 you know, the major things in the tech industry. We're 0:02:51.680 --> 0:02:53.959 going to talk about the figures that predate the villains 0:02:53.960 --> 0:02:57.640 I've covered in the past, the Altman's, the Sun Darpichais, 0:02:57.760 --> 0:03:02.160 the probagar Ragavans of the world. But despite their historical 0:03:02.240 --> 0:03:06.000 distance from this current era, these past figures are important 0:03:06.040 --> 0:03:09.359 to know and understand because they fundamentally shaped the culture 0:03:09.560 --> 0:03:13.919 and the psychology of today's managerial elite, and crucially built 0:03:13.919 --> 0:03:18.240 the incentive structures that guide companies into hell. These stories 0:03:18.280 --> 0:03:21.880 explain the often paradoxical motivations of modern capitalism, where those 0:03:21.880 --> 0:03:24.760 who make short term decisions that invariably result in long 0:03:24.840 --> 0:03:28.480 term pain and in many cases decline, see a big reward, 0:03:28.960 --> 0:03:32.760 whereas those who built sustainable businesses that actually innovate and 0:03:32.800 --> 0:03:35.600 don't treat their customers and employees like don't are ignored. 0:03:36.080 --> 0:03:39.280 If not actively maligned for a lack of growth, but 0:03:39.400 --> 0:03:42.440 like I said, it's time for a history lesson. In 0:03:42.520 --> 0:03:46.000 nineteen sixteen, the Ford Motor Company had an idea to 0:03:46.160 --> 0:03:48.960 use its surplus capital to invest in new plants to 0:03:49.000 --> 0:03:52.240 increase productions of Ford's model T car, which the company 0:03:52.240 --> 0:03:55.360 had continually made cheaper, or keeping wages for its workers. 0:03:55.440 --> 0:03:59.080 High Ford, who I should be clear, was a horrible 0:03:59.080 --> 0:04:02.280 piece of shit thankfully burning in hell right now, intended 0:04:02.280 --> 0:04:04.880 to cut dividends to shareholders in favor of investing in 0:04:04.920 --> 0:04:09.360 its employees and infrastructure, which anchored minority shareholders who already 0:04:09.400 --> 0:04:12.640 incensed that Ford had prioritized the company's success and its 0:04:12.680 --> 0:04:16.479 employees happiness over making the stock price go up, leading 0:04:16.520 --> 0:04:19.400 to the famous Dodge versus Ford Motor Company case that 0:04:19.440 --> 0:04:23.960 would define and ultimately doom modern capitalism and in many 0:04:23.960 --> 0:04:27.440 ways birth the growth of all costs rot economy. The 0:04:27.480 --> 0:04:31.400 Michigan Supreme Court found that a business corporation is organized 0:04:31.440 --> 0:04:34.400 and carried on primarily for the profit of the stockholders, 0:04:34.720 --> 0:04:36.520 and that the powers of the directors are to be 0:04:36.560 --> 0:04:40.560 employed for that end, and intimated that cash surpluses should 0:04:40.560 --> 0:04:44.560 not be saved to invest in upcoming projects, but distributed 0:04:44.560 --> 0:04:46.920 to shareholders. Because Ford had shown that it was good 0:04:46.920 --> 0:04:50.880 at making money, Ford was directly forbidden from lowering prices 0:04:50.920 --> 0:04:54.400 and raising employee salaries and forced to issue a dividend 0:04:54.920 --> 0:04:59.280 by a court. That's the free market, baby, That's how 0:04:59.279 --> 0:05:01.120 it used to work, and I guess that's how it 0:05:01.160 --> 0:05:05.880 works nowadays anyway. To be clear, the statement around corporation's 0:05:05.960 --> 0:05:09.960 duty towards shareholders was made a beta dicta. This means 0:05:10.040 --> 0:05:13.560 it was not actually legally binding, despite over one hundred 0:05:13.680 --> 0:05:16.159 years of people acting as if it was, citing it 0:05:16.200 --> 0:05:19.839 in cases, using it as a justification to destroy so 0:05:20.000 --> 0:05:24.720 many lives in favor of growth. This statement not even 0:05:24.760 --> 0:05:28.080 a legal precedent. A statement was the beginning of what 0:05:28.120 --> 0:05:31.680 I called the shareholder supremacy. When companies moved away from 0:05:31.680 --> 0:05:35.799 building lasting, sustainable companies that created things that instead became 0:05:35.920 --> 0:05:39.760 these nasty growth bitches that focused on pleasing shareholders. It 0:05:39.839 --> 0:05:43.800 birthed a short term mindset focused on increasingly abstracting a 0:05:43.880 --> 0:05:46.960 company away from the production of goods or services and 0:05:47.040 --> 0:05:50.520 promoting growth mechanics that increased stock valuations and made for 0:05:50.560 --> 0:05:54.840 better balance sheets. The cult of shareholder supremacy, which some 0:05:54.880 --> 0:05:58.719 people call shareholder primacy is one disconnected from production, and 0:05:58.760 --> 0:06:02.239 I'd argue humanity it's solf. It's this weird, continual shell 0:06:02.279 --> 0:06:05.160 game where companies do things not to produce, like an 0:06:05.200 --> 0:06:07.400 outcome in real life or a thing that people like 0:06:07.480 --> 0:06:11.200 and pay for, but to manipulate investors in the markets themselves, 0:06:11.200 --> 0:06:14.840 though at this point kind of feels like investors and 0:06:14.920 --> 0:06:18.560 markets are kind of in on the con These tactics 0:06:18.560 --> 0:06:21.400 should be immediately recognizable to anyone who's followed my work 0:06:21.440 --> 0:06:24.240 over the last few years. If a company share price 0:06:24.320 --> 0:06:27.479 to clients and management smells a shareholder revolt, they can 0:06:27.480 --> 0:06:29.960 induce their numbers by laying off a few thousand workers 0:06:30.040 --> 0:06:33.479 or adopting of specious new technology like generative AYI or 0:06:33.480 --> 0:06:36.159 the metaverse and then doing a big media blitz to 0:06:36.160 --> 0:06:40.720 show everyone how cool and growth hungry they are. Or 0:06:40.720 --> 0:06:42.720 they can do the really annoying thing, which is a 0:06:42.760 --> 0:06:46.440 share buyback program where the company just buys its own stock, 0:06:46.560 --> 0:06:50.400 which then bumps the value of the stock. That whole 0:06:50.880 --> 0:06:53.479 situation I really need to look into more because it 0:06:53.520 --> 0:06:56.640 doesn't seem good. And also on top of that, that 0:06:56.760 --> 0:06:59.359 money is being diverted away from research and development. And 0:06:59.360 --> 0:07:04.760 employees sees. And it was this movement, this shareholder supremacy movement, 0:07:05.000 --> 0:07:09.840 that created the nebulous creature known as management. I realize 0:07:09.840 --> 0:07:12.800 there are many definitions of management, but the manager we 0:07:12.880 --> 0:07:15.880 see today is a figurehead that exists at increased company 0:07:15.960 --> 0:07:18.640 value and make speeches rather than have any kind of 0:07:18.640 --> 0:07:21.920 domain expertise or bona fides. They're just a person with 0:07:21.960 --> 0:07:24.239 the ability to move numbers around and point of people 0:07:24.240 --> 0:07:27.600 and say get this done, even if this, in this 0:07:27.760 --> 0:07:31.000 case means makes something worse as a means of cutting 0:07:31.040 --> 0:07:34.440 costs or layoff a few thousand people so that number 0:07:34.520 --> 0:07:39.120 go up in the eyes of the shareholders supremacist. The 0:07:39.160 --> 0:07:41.680 CEO of a tech company isn't someone that builds, or 0:07:41.720 --> 0:07:46.040 invests in or proliferates technology, but a kind of stage 0:07:46.080 --> 0:07:49.679 magician accountant hybrid that uses a combination of sleight of hand, 0:07:49.720 --> 0:07:52.240 and they promises to convince those around them that a 0:07:52.280 --> 0:07:57.440 company is of future, occasionally resulting in the company developing 0:07:57.520 --> 0:08:02.600 something involving technology. Yet it took decades for the damage 0:08:02.840 --> 0:08:06.520 from Ford versus Dodge to really set in when in 0:08:06.640 --> 0:08:11.320 nineteen sixty A horrible little Man, a goblin creature worse 0:08:11.400 --> 0:08:14.480 than hell called Jack Welch would join a company called 0:08:14.520 --> 0:08:18.240 General Electric, one founded co founded i should say, by 0:08:18.280 --> 0:08:21.160 light bulb inventor Thomas Edison, to sell things like light 0:08:21.200 --> 0:08:24.240 bobs and refrigerators, and yes, I know, a bunch of 0:08:24.280 --> 0:08:27.720 military stuff too, but putting that aside for a second. 0:08:28.280 --> 0:08:31.360 Welch originally joined the company as a junior chemical engineer, 0:08:31.880 --> 0:08:34.400 a job he lasted him for roughly one year before 0:08:34.440 --> 0:08:39.520 he was given the power of the manager. I really 0:08:39.559 --> 0:08:44.280 cannot express enough how bad Jack Welch was for the world. 0:08:45.400 --> 0:08:48.720 He is damaged to the world itself, to global economies, 0:08:48.720 --> 0:08:51.760 to the hundreds of thousands of people laid off because 0:08:51.800 --> 0:08:54.800 he taught people how to do this. He is on 0:08:54.920 --> 0:08:58.040 the scale of a war criminal. I'm sure he has 0:08:58.120 --> 0:09:02.720 led to actual deaths, but he's definitely ruined lives. He 0:09:02.960 --> 0:09:07.679 showed corporate America how unprofitable having a soul was. He is, 0:09:07.720 --> 0:09:10.880 to quote Robert Evans on behind the bastards. The reason 0:09:11.000 --> 0:09:14.559 you were laid off, you and every single other person 0:09:14.800 --> 0:09:17.280 who was laid off to make a company more money. 0:09:17.640 --> 0:09:21.079 But I'll get to them. Eight years into his tenure, 0:09:21.400 --> 0:09:23.840 Welsh would become the VP and head of General Electrics 0:09:23.880 --> 0:09:26.719 Plastics division, and to quote David Gallis's The Man who 0:09:26.720 --> 0:09:31.320 Broke Capitalism, believed that business was a Darwinian competition where 0:09:31.360 --> 0:09:34.080 he was better than the rest, which caused him to 0:09:34.160 --> 0:09:38.120 push g to the limits. In practice, this meant that Welch, 0:09:38.400 --> 0:09:40.560 as the manager of a factory trying to develop a 0:09:40.559 --> 0:09:43.680 new kind of plastic in nineteen sixty three, continually pushed 0:09:43.679 --> 0:09:47.840 his team to move faster, run more experiments, whatever it took, 0:09:49.000 --> 0:09:51.880 which led to a massive explosion at the factory thanks 0:09:51.880 --> 0:09:54.800 to Welsh pushing his scientists to use an untested process 0:09:55.040 --> 0:09:59.080 where oxygen moved through a highly volatile solution. If you've 0:09:59.080 --> 0:10:01.640 listened to the Behind the bar Asked episode, don't worry. 0:10:01.760 --> 0:10:03.880 I'm not going to go over all of it, and 0:10:03.920 --> 0:10:07.160 I have my own nasty little take now. Kind of 0:10:07.200 --> 0:10:09.880 like Robert said on Behind the Bastards, one would think 0:10:09.880 --> 0:10:12.600 that you'd get fired for blowing up a factory, especially 0:10:12.600 --> 0:10:15.800 if it was your decision making that led to the explosion, 0:10:16.360 --> 0:10:20.480 But this story instead became a kind of noxious management 0:10:20.520 --> 0:10:24.920 consultant fable about failure and was, to quote David Gellis, 0:10:25.040 --> 0:10:27.920 a point of pride for Welch, one that demonstrated a 0:10:27.960 --> 0:10:32.480 healthy appetite for risk. Welch became g's head of Plastics 0:10:32.600 --> 0:10:35.640 five years later in nineteen sixty eight, and would use 0:10:35.679 --> 0:10:39.200 his aggressive and dangerous tactics to grow Moral, a kind 0:10:39.200 --> 0:10:41.920 of plastic that's well suited for things like electronics, into 0:10:41.960 --> 0:10:46.200 a billion dollar business, and crucially, becoming head of plastics 0:10:46.200 --> 0:10:49.520 gave Welch his very first stock options and potentially his 0:10:49.600 --> 0:10:52.880 first erection, which in turn began his obsession with stock 0:10:52.960 --> 0:10:57.280 valuations and I'm, of course referring to the stock options 0:10:57.280 --> 0:11:01.480 giving him that obsession. In nineteen seventy seven, Welch was 0:11:01.480 --> 0:11:03.800 one of a chosen few in line to take over 0:11:03.840 --> 0:11:07.120 the then CEO, Reg Jones, and was handed a series 0:11:07.160 --> 0:11:09.640 of business units to run as a test to see 0:11:09.640 --> 0:11:12.599 if he had it in him, including G's appliance businesses 0:11:13.120 --> 0:11:16.800 and most important of all, ge Credit, which I'll get 0:11:16.800 --> 0:11:19.440 back to in a minute, because it's extremely bad what 0:11:19.559 --> 0:11:33.120 happens with that. As Gellis recounts, Welch decided that despite 0:11:33.160 --> 0:11:37.559 its profitability and continued growth, Appliances would face competition from 0:11:37.600 --> 0:11:40.480 overseas and that the right move was to start laying 0:11:40.520 --> 0:11:44.440 people off. This was a huge success at the company 0:11:44.640 --> 0:11:47.240 in so far as it boosted profits, and other divisions 0:11:47.240 --> 0:11:50.800 copied his idea gleefully firing thousands of people from a 0:11:50.840 --> 0:11:54.360 company that grew successful by investing in making itself a 0:11:54.400 --> 0:11:57.920 great place to work. It's so good. I love all 0:11:57.960 --> 0:12:00.680 of this. It makes me happy. I don't feel angry 0:12:00.760 --> 0:12:04.720 at all anyway. To quote gallous, Welch dispensed with the 0:12:04.760 --> 0:12:07.720 notion that mass layoffs were a measure of last resort 0:12:07.880 --> 0:12:11.960 and labor was a cost, not an asset. Before Welch, 0:12:12.160 --> 0:12:15.079 layoffs were something that happened when the company was collapsing, 0:12:15.200 --> 0:12:18.360 not as a means of boosting one's balance sheet. Thank you, 0:12:18.600 --> 0:12:22.679 Jack Welch, Thank you very fucking much. I'm actually not 0:12:22.800 --> 0:12:26.640 being angry enough here. There is no way to show 0:12:26.960 --> 0:12:30.200 how angry a person should be at Jack Welch for this. 0:12:30.720 --> 0:12:34.840 I hope he burns in goddamn hell with Henry Kissinger, Anna, 0:12:34.920 --> 0:12:38.560 Ronald Reagan and Maggie Thatcher and the rest of these bastards. 0:12:39.080 --> 0:12:41.440 I should do a shirt around the assholes. That does 0:12:41.480 --> 0:12:44.199 sound good, anyway. Forget all that for a second. We 0:12:44.280 --> 0:12:48.080 have a podcast to record, continuing the story about this 0:12:48.240 --> 0:12:51.960 piece of shit. Welch would become CEO in nineteen eighty 0:12:52.000 --> 0:12:54.120 one and in the space of two years, would layoff 0:12:54.120 --> 0:12:58.600 over seventy two thousand people. One tactic he would employee 0:12:58.640 --> 0:13:01.679 with stack ranking, or so known as their vitality curve, 0:13:01.840 --> 0:13:05.760 or as you'll soon understand why, rank and yank, where 0:13:05.840 --> 0:13:09.120 high ranking managers were forced to rank their subordinates and 0:13:09.240 --> 0:13:12.679 fire the bottom ten percent. This tactic later spread to 0:13:12.840 --> 0:13:17.920 and poison countless other companies, including Amazon, Google, Activision, Blizzard, 0:13:18.000 --> 0:13:23.000 and Microsoft, which has since stopped using it. It's worth noting, though, 0:13:23.040 --> 0:13:26.280 that not every implementation of stack ranking usually results in 0:13:26.280 --> 0:13:29.760 immediate payroll carts. Those perceived as low performers may be 0:13:29.840 --> 0:13:32.960 denied bonuses or raises, or issued warnings or put on 0:13:32.960 --> 0:13:37.319 a performance improvement plan, which is almost always a precursor 0:13:37.360 --> 0:13:39.440 to a firing, kind of like taking a break from 0:13:39.440 --> 0:13:43.080 a relationship, or they're just encouraged to leave or bullied 0:13:43.080 --> 0:13:46.360 into doing so. But even in the most benign for 0:13:46.600 --> 0:13:50.239 lack of a better word, form, it's a pretty horrendous 0:13:50.240 --> 0:13:54.479 management tool. If you have a team of ten excellent workers, 0:13:54.880 --> 0:13:57.240 but only eight can get a bonus or a positive ranking, 0:13:57.920 --> 0:14:00.800 you have two left out who were considered inadequate, not 0:14:00.840 --> 0:14:03.160 based on a lipmus of whether they're good at their jobs, 0:14:03.240 --> 0:14:06.000 but whether they're not as good at their jobs as 0:14:06.040 --> 0:14:09.680 other people. You pretty much guaranteed to kill morale and 0:14:09.720 --> 0:14:16.640 team cohesion. But perhaps that was the point. Welch's nasty, 0:14:16.960 --> 0:14:21.480 shitty little philosophies have deeply damaged the concept of management itself, 0:14:21.840 --> 0:14:25.000 turning managers into these tiny little accountants that see labor, 0:14:25.080 --> 0:14:28.080 as Welsch did, as a cost center, and managers as 0:14:28.120 --> 0:14:32.560 this protected class above the fray. They don't do work. 0:14:32.600 --> 0:14:35.160 They tell you to do work. Their job is showing 0:14:35.200 --> 0:14:38.280 your work to someone else and saying it's theirs. They're 0:14:38.320 --> 0:14:40.760 the ones telling you that you must come back to 0:14:40.800 --> 0:14:43.360 the office, despite the fact that you can't tell what 0:14:43.400 --> 0:14:46.520 the hell they're doing all day. They're there all the time, 0:14:46.880 --> 0:14:49.720 but they don't seem to produce anything other than reports. 0:14:50.200 --> 0:14:55.760 These people are a direct symptom of the poison in 0:14:55.800 --> 0:14:58.800 the veins of capitalism, which I know is far from 0:14:58.800 --> 0:15:00.960 god damn perfect, but it's so much worse than it 0:15:01.040 --> 0:15:05.280 was caused by Jack Welch, who reframed the definition of 0:15:05.320 --> 0:15:08.600 a good company to mean one that grows profits while 0:15:08.600 --> 0:15:12.440 controlling labor costs, and this is how Jack Welch got 0:15:12.480 --> 0:15:16.120 the nickname neutron Jack, referring to the thermonuclear bond that 0:15:16.200 --> 0:15:21.640 kills people but leaves infrastructure intact. But I mentioned GE 0:15:21.640 --> 0:15:26.080 credit earlier for a reason. G credit was where Jack 0:15:26.120 --> 0:15:29.040 Welch would really make his marking get into the guts 0:15:29.120 --> 0:15:34.360 of the business. General Electric was at a time a reliable, profitable, 0:15:34.400 --> 0:15:39.240 and sustainable company, and was able to fairly easily mobilize capital, which, 0:15:39.240 --> 0:15:42.600 of course Jack Welch loved, claiming that compared to the 0:15:42.640 --> 0:15:46.760 industrial operations, I did know this business seemed an easy 0:15:46.760 --> 0:15:49.720 way to make money, and that you didn't have to 0:15:49.800 --> 0:15:52.520 invest heavily in R and D, build factories and bend 0:15:52.560 --> 0:15:56.480 metal to make money off of credit. In the first 0:15:56.560 --> 0:15:59.520 few years of his tenure, Welch would aggressively expand, According 0:15:59.560 --> 0:16:03.040 to David Ellis, is the man who destroyed capitalism, G credit, 0:16:03.080 --> 0:16:06.240 buying up companies that had nothing to do with manufacturing, 0:16:06.480 --> 0:16:09.520 including Kidder Peabody, an investment bank that would eventually turn 0:16:09.520 --> 0:16:12.440 out to have falsified three hundred and fifty million dollars 0:16:12.440 --> 0:16:15.960 in profits, a thing that also didn't get Jack Welsh fired. 0:16:16.880 --> 0:16:20.280 G Capital would expand internationally, ballooning to three hundred and 0:16:20.320 --> 0:16:23.320 seventy billion dollars in assets by the time that Welch 0:16:23.400 --> 0:16:27.440 left the company in two thousand and one. According to Gallison, 0:16:27.640 --> 0:16:31.040 likely referencing a CNN article and including the links a 0:16:31.120 --> 0:16:35.040 one point, G Capital was America's largest equipment leaser, leasing 0:16:35.120 --> 0:16:39.080 hundreds of thousands of vehicles, handling credit operations for companies 0:16:39.080 --> 0:16:43.280 like Kodak, becoming a backbone of America's increasingly debt ridden economy. 0:16:43.880 --> 0:16:46.640 To quote Gallus, by the time that Welch left, G 0:16:46.800 --> 0:16:50.520 Capital was effectively a giant, unregulated bank investing in all 0:16:50.600 --> 0:16:54.920 kinds of risky debt instruments, including insurance products, credit cards. 0:16:54.920 --> 0:16:58.560 I think even like tai auto loans. It's so weird. 0:16:59.720 --> 0:17:03.160 And crucially, Welch's legacy is one where at the time 0:17:03.880 --> 0:17:07.040 he was considered a genius that had taken General Electrics 0:17:07.119 --> 0:17:11.479 market cap, which is just the sum of all available shares, 0:17:11.760 --> 0:17:15.720 from fourteen billion dollars to four hundred billion dollars, all 0:17:15.760 --> 0:17:19.439 through a very specific kind of financial trickery where g 0:17:19.640 --> 0:17:22.640 would move things around, laying people off, buying new companies, 0:17:22.680 --> 0:17:26.280 selling old companies, getting into new industries to match the 0:17:26.520 --> 0:17:32.040 numerical analyst expectations and make earnings targets. In a fawning 0:17:32.119 --> 0:17:35.560 and quite embarrassing piece from nineteen ninety seven, years before 0:17:35.560 --> 0:17:38.920 Welch would leave and G Credit would actually lead to 0:17:38.960 --> 0:17:42.520 its collapse in some levels, reporter John Curran describes how 0:17:42.560 --> 0:17:45.760 G Capital grew by seeing new opportunities and immediately growing 0:17:45.760 --> 0:17:48.320 a new business in any new market it could, taking 0:17:48.359 --> 0:17:51.640 advantage of Capital's low cost of funds. At one point, 0:17:51.760 --> 0:17:55.400 both leasing equipment to companies and buying it back, refurnishing 0:17:55.440 --> 0:17:58.440 it and selling it to other companies, which isn't necessarily 0:17:58.520 --> 0:18:01.200 a bad business, but but at this point, how many 0:18:01.200 --> 0:18:04.000 goddamn businesses can you be in Jack where you can't 0:18:04.040 --> 0:18:06.520 be in any You're burning in hell? What a shame. 0:18:07.640 --> 0:18:09.880 In the space of a few decades, Welch had taken 0:18:09.960 --> 0:18:12.320 General Electric from a company that made light bulbs and 0:18:12.320 --> 0:18:15.119 refrigerators and plastics to one that continually played with the 0:18:15.200 --> 0:18:18.080 numbers as a means of boosting its stock price, including 0:18:18.119 --> 0:18:21.040 a ten billion dollar stock buy back in nineteen ninety 0:18:21.640 --> 0:18:24.040 and The New York Times as John Hallushah noted that 0:18:24.080 --> 0:18:26.440 g was only investing two point four percent of its 0:18:26.480 --> 0:18:30.200 revenues in research and development, nearly a full percentage point 0:18:30.200 --> 0:18:35.119 below in the national average at the time. At this point, 0:18:35.840 --> 0:18:37.560 I really want to take a step back and just 0:18:37.720 --> 0:18:42.000 point at that, which is this was the first company 0:18:42.000 --> 0:18:44.720 that really just fucked with capitalism. And there's a whole 0:18:44.760 --> 0:18:47.280 separate episode if I wanted to win. The economist Milton Freeman, 0:18:47.320 --> 0:18:49.639 who is also a scumbag boy also Hope is burning 0:18:49.640 --> 0:18:53.520 in hell rant side note, what ge went from, what 0:18:53.640 --> 0:18:56.320 G became. G was able to raise these funds. They 0:18:56.359 --> 0:18:58.600 were able to grow so big and do all this 0:18:58.680 --> 0:19:02.240 stuff because they come He was so reliable, They didn't 0:19:02.280 --> 0:19:05.640 have terrible turnover, They had happy employees, they had sustainable products, 0:19:05.680 --> 0:19:09.639 they had their own products, their own patents, they owned, 0:19:09.680 --> 0:19:13.040 they had scientists that worked there for decades. And then 0:19:13.119 --> 0:19:17.240 Jack Welch came along and destroyed all of that while 0:19:17.280 --> 0:19:22.960 making it quote a better company, what a worse company. 0:19:23.560 --> 0:19:27.040 This is the man who taught the market how to 0:19:27.080 --> 0:19:29.840 eat shit and love it. I am sorry, that's gross, 0:19:30.040 --> 0:19:33.200 but that's really what we're looking at here. To be clear, 0:19:33.840 --> 0:19:36.520 at this point, General Electric was an absolute dog of 0:19:36.560 --> 0:19:39.919 a company. As David Gellis noted in a Reddit thread, 0:19:40.080 --> 0:19:43.480 Welch operated at a time before Sarbines Oxley a sweeping 0:19:43.520 --> 0:19:46.919 series of financial reforms instituted after the Enron scandal that 0:19:47.000 --> 0:19:50.359 required companies to do these annoying little things like disclose 0:19:50.480 --> 0:19:54.439 off balance sheet financial arrangements. So you know a series 0:19:54.440 --> 0:19:56.560 of loans or credit agreements you made with someone that 0:19:56.600 --> 0:19:59.320 are not on your balance sheet. I have no idea 0:19:59.359 --> 0:20:03.719 how that was e and many other financial disclosures were 0:20:03.760 --> 0:20:06.960 also required that would have likely made what Jack Welch 0:20:07.080 --> 0:20:09.920 was doing before this a lot harder to play, which 0:20:09.960 --> 0:20:13.359 Welsh claimed in two thousand and two would suck risk 0:20:13.440 --> 0:20:15.560 out of the system and cause people to not go 0:20:15.680 --> 0:20:20.720 for their dream gross way of pertinent Jack, but also wrong. 0:20:21.840 --> 0:20:24.719 These things only made people get a little bit clever. 0:20:26.080 --> 0:20:29.159 But Welch's tenure was one that destroyed General Electric's ability 0:20:29.200 --> 0:20:31.160 to innovate while turning it into one of the most 0:20:31.200 --> 0:20:35.200 wildly profitable companies in the world, all through this nihilistic 0:20:35.280 --> 0:20:38.199 form of capitalism where growth is really all that matters, 0:20:38.280 --> 0:20:41.679 even if it means making worse products, constantly entering and 0:20:41.720 --> 0:20:45.679 exiting industries, reducing spending in research and development for the 0:20:45.760 --> 0:20:49.480 products that made your company's name, outsourcing multiple parts of 0:20:49.480 --> 0:20:52.560 the company to avoid paying benefits and higher American wages 0:20:52.800 --> 0:20:58.000 and generally treating human beings like an inanimate asset. And yeah, 0:20:58.040 --> 0:21:00.320 if you're thinking this sounds like every company, this is 0:21:00.359 --> 0:21:03.240 why this is the guy. As a result of all 0:21:03.280 --> 0:21:06.800 of this, when Welch left General Electric, it entered a 0:21:06.800 --> 0:21:09.600 prolonged period of the client as it became obvious that 0:21:09.640 --> 0:21:12.240 it had become, as Gellis had called it, a giant 0:21:12.400 --> 0:21:15.960 previously at least unregulated bank one operating in too many 0:21:15.960 --> 0:21:19.040 industries in a new regulatory environment that worked against them. 0:21:19.320 --> 0:21:23.240 General Electric, in its bloated messi asset portfolio, were central 0:21:23.280 --> 0:21:25.800 to the two thousand and eight financial crisis, with G 0:21:26.200 --> 0:21:30.160 capital overexposed to the crisis while also invested in subprime 0:21:30.240 --> 0:21:33.399 mortgages that would eventually see the company find one and 0:21:33.440 --> 0:21:36.920 a half billion dollars by the SEC. Though g would 0:21:36.920 --> 0:21:39.360 still make nearly half of its profits from its financial 0:21:39.440 --> 0:21:42.359 arm in twenty thirteen, it would also sell off most 0:21:42.400 --> 0:21:44.800 of it for twenty six and a half billion dollars 0:21:44.840 --> 0:21:48.040 starting in twenty fifteen. And while one might say wow, 0:21:48.880 --> 0:21:51.600 this was a great moment where the company moved away 0:21:51.680 --> 0:21:55.399 from Jack Welch's legacy, the company would then proudly announce 0:21:55.480 --> 0:21:58.240 that this would allow them to return ninety billion dollars 0:21:58.240 --> 0:22:01.000 to investors in the form of stockby and dividends by 0:22:01.000 --> 0:22:04.520 twenty eighteen, promise I'm not actually sure it ever kept, 0:22:04.560 --> 0:22:08.040 though it recently announced it planned a fifteen billion dollar 0:22:08.119 --> 0:22:11.879 buyback in May. Ah nah, Well, this just kind of 0:22:11.920 --> 0:22:24.000 seems like a con. I realized that this was an 0:22:24.000 --> 0:22:27.840 extremely long and arduous history lesson, but it's necessary to 0:22:27.920 --> 0:22:32.080 express the incredible evil and darkness that was Jack Welch 0:22:32.200 --> 0:22:37.320 and his horrifying legacy is poisonous philosophy, that everything must grow, 0:22:37.359 --> 0:22:39.720 that the value of the company is only that which 0:22:39.720 --> 0:22:42.080 it returns to the shareholders, and that human beings are 0:22:42.080 --> 0:22:44.919 a cost to be moderated. These are all things that 0:22:44.960 --> 0:22:48.719 have been inherited by companies you know today, not just 0:22:48.800 --> 0:22:50.879 in tech as well, but I mean, look at Meta, 0:22:51.040 --> 0:22:56.359 look at Google, look at Microsoft. Microsoft. I think this 0:22:56.440 --> 0:22:59.800 week laid off over one thousand people and they posted 0:23:00.160 --> 0:23:02.880 I think over over ten billion dollars a profit, maybe 0:23:02.880 --> 0:23:07.119 more than that. It's all Jack Welch. It's all MBAs 0:23:07.440 --> 0:23:12.240 following Jack Welch. During Jack Welch's tenure, by the way, 0:23:12.440 --> 0:23:16.160 he ran something that I found really gross on top 0:23:16.200 --> 0:23:18.560 of all the other stuff that was gross, and it 0:23:18.640 --> 0:23:21.320 was something that David Gallis referred to as a campaign 0:23:21.400 --> 0:23:25.840 against loyalty, claiming that the psychological contract has to change 0:23:26.119 --> 0:23:29.000 and that loyalty, to Jack Welch was not giving time 0:23:29.040 --> 0:23:31.840 to some corporate entity in return for shielding and protection 0:23:31.880 --> 0:23:34.639 from the outside world. You know, some kind of value 0:23:34.680 --> 0:23:37.639 exchange where your labor is traded and they keep you 0:23:37.640 --> 0:23:38.920 because you're good at the job and you want the 0:23:38.960 --> 0:23:41.919 job done well. No, no, no. What Jack Welch believed 0:23:41.960 --> 0:23:44.440 loyalty was was an infinity among people who want to 0:23:44.440 --> 0:23:47.560 grapple with the outside world and win, I assume by 0:23:47.600 --> 0:23:52.760 blowing up factories and acquiring fraudulent investment banks, you know, 0:23:53.680 --> 0:23:59.360 moving fast and breaking things, the meritocracy, making the numbers 0:23:59.400 --> 0:24:03.760