WEBVTT - David Gelles 0:00:08.560 --> 0:00:12.400 Welcome, Welcome, Welcome back to the Bob Left Steps podcast. 0:00:13.000 --> 0:00:16.800 My guest today is David Gillis, author of the new 0:00:16.840 --> 0:00:20.439 book The Man Who Broke Capitalism, all about Jack Welch 0:00:20.520 --> 0:00:25.360 and how he ruined the economy and more so. David, 0:00:25.360 --> 0:00:28.120 good to have you on the podcast. Why did you 0:00:28.200 --> 0:00:31.520 decide to write the book. I've been a business reporter 0:00:31.640 --> 0:00:35.280 for more than ten years now, and I'm always looking 0:00:35.360 --> 0:00:38.160 for those big stories that can sort of help explain 0:00:38.280 --> 0:00:42.519 and synthesize how we got here in the world we 0:00:42.600 --> 0:00:45.360 live in. And I'll tell you the details of how 0:00:45.400 --> 0:00:48.519 I arrived on Jack as a subject. But when I 0:00:48.680 --> 0:00:51.000 arrived there, when I really realized, when it sort of 0:00:51.040 --> 0:00:53.880 clicked for me about two years ago, that this was 0:00:53.960 --> 0:00:57.280 an individual. This was a story that was one of 0:00:57.280 --> 0:01:02.120 those meta narratives that Christopher iised some of these big 0:01:02.160 --> 0:01:06.000 transformative forces at work in the economy. It was sort 0:01:06.040 --> 0:01:07.880 of a lay up for me to go after it 0:01:07.920 --> 0:01:13.000 as a real target for the book. Okay, how come 0:01:13.080 --> 0:01:16.240 the rest of the business press missed this for decades? 0:01:17.200 --> 0:01:20.480 Oh man, that's one of the big questions, and I 0:01:20.520 --> 0:01:22.840 tried to address some of that in the book. I 0:01:22.880 --> 0:01:25.560 think it's important to remember that at first, they didn't 0:01:25.600 --> 0:01:29.000 necessarily miss it. In those first couple of years after 0:01:29.160 --> 0:01:32.119 Welch took over in the early nineteen eighties we're now 0:01:32.160 --> 0:01:37.039 talking about, he was dubbed neutron Jack. People saw the 0:01:37.160 --> 0:01:41.800 mass layoffs, people saw the factory closures, and they realized 0:01:41.840 --> 0:01:47.319 that this was a man who was unleashing a destabilizing 0:01:47.400 --> 0:01:50.400 force on the American economy, and they called him out 0:01:50.400 --> 0:01:53.760 for it rightly, and he got very unflattering press on 0:01:53.880 --> 0:01:58.200 sixty Minutes Newsweek dubbed him neutron Jack, and it was 0:01:58.240 --> 0:02:01.400 a pretty rough news cycle for him, if you will. 0:02:01.960 --> 0:02:04.840 But then here's what happened, and we got to acknowledge 0:02:04.880 --> 0:02:08.560 this because it's part of the complex and difficult conversation. 0:02:09.120 --> 0:02:11.600 All of the stuff he did started to work, and 0:02:11.680 --> 0:02:18.440 it all worked in delivering g E record short term profits, 0:02:19.080 --> 0:02:23.200 record short relatively short term and we should have a 0:02:23.200 --> 0:02:27.880 discussion about how we measure time horizons here. But for 0:02:27.919 --> 0:02:30.679 most of his twenty years as CEO of g E, 0:02:31.040 --> 0:02:33.520 the stock kept going up, and as long as the 0:02:33.600 --> 0:02:37.160 stock kept going up, sort of irregardless of the human 0:02:37.240 --> 0:02:41.000 cost on the ground, people were cheering along because that 0:02:41.080 --> 0:02:44.440 was the world that we all had decided, more or less, 0:02:44.480 --> 0:02:46.799 we wanted to live in one in which we were 0:02:46.840 --> 0:02:50.119 going to measure success and the health of the American 0:02:50.160 --> 0:02:56.080 economy by the market capitalization of America's biggest companies. And 0:02:56.120 --> 0:02:59.639 what he did was find a formula towards keep g 0:03:00.080 --> 0:03:04.520 IS stock moving up. It's sort of inexorably for twenty years. 0:03:04.840 --> 0:03:08.000 And so during that time it became very hard for 0:03:08.120 --> 0:03:11.040 the business press to sort of see through and look 0:03:11.200 --> 0:03:15.200 past all that and really evaluate the consequences of what 0:03:15.240 --> 0:03:18.320 was going on. I don't want to say that I'm brilliant, 0:03:18.840 --> 0:03:21.680 but certainly by time we hit the end of the nineties, 0:03:21.880 --> 0:03:24.040 it was clear to me that he was cooking the books. 0:03:24.440 --> 0:03:28.440 I mean cooking the books. Would say there's illegality, I 0:03:28.440 --> 0:03:31.960 want to go that far, that he was manipulating the books, 0:03:32.000 --> 0:03:35.320 but that was not in the business press. There was 0:03:35.440 --> 0:03:39.480 very little of it. And I'm reminded here of the 0:03:39.520 --> 0:03:42.880 financial crisis in two thousand and eight, when everyone said, like, wait, 0:03:43.160 --> 0:03:45.520 these sub prime mortgages were a bad thing after all, 0:03:45.600 --> 0:03:48.640 Like where was the scrutiny right that that, like hyper 0:03:49.320 --> 0:03:53.520 uh financialization and like collaterized that obligations might be a 0:03:53.560 --> 0:03:59.000 problem uh, that there was very little recognition of uh 0:03:59.040 --> 0:04:01.360 of of some of those issues by the business press 0:04:01.480 --> 0:04:06.600 in the immediate months preceding the absolute implosion. And similarly 0:04:07.200 --> 0:04:10.720 that you're absolutely right to say that there was inadequate 0:04:10.760 --> 0:04:15.160 scrutiny of ges earnings. I think in the ES in particular. 0:04:15.480 --> 0:04:20.160 Now things were different. Then, the whole culture of Wall 0:04:20.200 --> 0:04:25.039 Street and corporate America was focused on much less transparency. 0:04:25.080 --> 0:04:28.640 This was before the Sarbanes Oxley Act, before the big 0:04:28.680 --> 0:04:32.159 scandals of the early two thousands, when Enron, World, Calm 0:04:32.240 --> 0:04:38.560 and Tycho collapse, leading to a much greater degree of 0:04:39.000 --> 0:04:44.560 oversight by the federal government. That said, Uh, you're entirely 0:04:44.600 --> 0:04:49.520 correct to say that for something like almost eighty quarters 0:04:49.600 --> 0:04:55.599 in a row, g e meet or beat analysts, expectations 0:04:56.080 --> 0:04:58.719 and anyone. You don't have to be a genius to 0:04:58.920 --> 0:05:02.719 understand that something is going on for that to happen. 0:05:02.800 --> 0:05:06.760 Something fishy is going on for a company to meet 0:05:06.880 --> 0:05:09.400 or beat for eighty quarters in a row, because that 0:05:09.480 --> 0:05:12.159 just doesn't happen, right that that's like against the laws 0:05:12.160 --> 0:05:16.000 of nature. So you talk about the change in regulations, 0:05:16.320 --> 0:05:19.920 this is your beat, and we know we had regulations. 0:05:20.120 --> 0:05:25.120 And then Trump undercut regulations. So to what degree, uh, 0:05:25.160 --> 0:05:28.719 do these corporations have to report now? To what degree 0:05:28.720 --> 0:05:34.640 it is different from the nineties I'm talking about presently? Yeah, 0:05:34.720 --> 0:05:39.880 that I would say, on balance, there is more granular 0:05:41.440 --> 0:05:44.720 level of reporting happening by major corporations today. There is 0:05:44.720 --> 0:05:48.600 certainly more accountability when it comes to the boards, and 0:05:48.640 --> 0:05:53.200 that was a big part of those early regulations. Um. 0:05:53.240 --> 0:05:55.760 If you know, if boards are signing off on truly 0:05:55.800 --> 0:05:59.240 cooked books, it doesn't get easy for for them to 0:05:59.440 --> 0:06:03.800 escape accountability. It's also the case that there are very 0:06:04.000 --> 0:06:08.919 few companies that are employing the same kinds of financial 0:06:08.960 --> 0:06:12.320 shenanigans that g E was up to. And there are 0:06:12.400 --> 0:06:17.040 very few companies that have anything close to UH an 0:06:17.160 --> 0:06:21.160 entity as complex as ge Capital was in the ninet 0:06:21.320 --> 0:06:25.880 nineties and early two thousand's um not to mention something 0:06:26.000 --> 0:06:30.200 like that paired alongside a massive, sprawling industrial business. So 0:06:30.240 --> 0:06:34.520 the comps get a little tricky right now. And it's 0:06:34.560 --> 0:06:38.560 also the case that when companies do engage in some 0:06:38.640 --> 0:06:41.800 of these shenanigans, the SEC has gotten better I think 0:06:41.920 --> 0:06:44.400 at calling them out and dinging them, you know, they 0:06:44.480 --> 0:06:47.679 and they ultimately caught up with in two thousand nine, 0:06:48.440 --> 0:06:53.200 the then CEO, Jeff M. L. Jack, Welch's chosen successor, 0:06:53.800 --> 0:06:58.400 settled these sweeping accounting fraud charges with the SEC that 0:06:58.560 --> 0:07:01.320 mostly covered the period from roughly I think two thousand 0:07:01.360 --> 0:07:04.280 three to two thousand five or so, just after Whils retired. 0:07:05.000 --> 0:07:08.400 But in the settlement and in the news release and 0:07:08.440 --> 0:07:11.720 all the remarks that the SEC made at the time 0:07:11.720 --> 0:07:15.080 of that settlement, they pointed to what sure looked like 0:07:15.200 --> 0:07:18.720 decades of impropriety. And we won't know right because we 0:07:18.920 --> 0:07:22.400 we there isn't the forensic accounting from the eighties and nineties, 0:07:22.680 --> 0:07:25.880 but they made the point that it sure looked like 0:07:25.960 --> 0:07:28.360 GE had been up to this sort of stuff, which 0:07:28.360 --> 0:07:31.720 they ultimately, you know, settled with the SEC for for 0:07:31.920 --> 0:07:36.200 years and years and years. In the newspaper today, there's 0:07:36.200 --> 0:07:40.760 a story about how the institutions, the professionals really didn't 0:07:40.760 --> 0:07:44.640 lose money on crypto. It was the retail investor. Anybody 0:07:44.640 --> 0:07:48.040 who's been exposed to one of these public companies know 0:07:48.240 --> 0:07:52.920 the knows that the CFO plays a huge role. And 0:07:53.000 --> 0:07:56.200 I can give specific examples from my own exposure of 0:07:56.280 --> 0:08:00.440 people who are literally shipping product changing to make the 0:08:00.560 --> 0:08:05.520 numbers look good. Okay, so that whatever they are, there 0:08:05.680 --> 0:08:07.920 is some fudge space. I'm not saying you can take 0:08:07.960 --> 0:08:09.760 a company to lose a hundred million and now makes 0:08:09.800 --> 0:08:15.200 a hundred million. But the public doesn't seem to understand this. 0:08:16.040 --> 0:08:19.440 So to what degree have you encountered this in your reporting? 0:08:19.840 --> 0:08:22.520 Listen on the crypto front, I think what we're seeing 0:08:22.600 --> 0:08:25.600 is the popping of a speculative bubble, and it's very 0:08:25.640 --> 0:08:28.560 hard to know when you know, when people stop buying 0:08:28.640 --> 0:08:32.880 two lips, just how how far the bottom is going 0:08:32.960 --> 0:08:36.040 to fall out from under people. I think the critical 0:08:36.120 --> 0:08:39.440 first point you made is one that is a through 0:08:39.480 --> 0:08:42.120 line of the reporting in this book as well, which 0:08:42.200 --> 0:08:46.360 is that the people in charge rarely face consequences, and 0:08:46.360 --> 0:08:50.360 and that the men, and they're almost always men who 0:08:50.440 --> 0:08:52.960 have the most power in this economy and the most 0:08:53.000 --> 0:08:56.360 money in this economy are usually going to do just fine. 0:08:56.840 --> 0:09:00.960 There is very very little accountability for corporate mouthfeasance in 0:09:00.960 --> 0:09:04.520 this country, and there is a grand tradition in America 0:09:04.600 --> 0:09:08.880 of true impunity, even for the worst offenders and even 0:09:08.920 --> 0:09:13.480 for those who unleashed the most damage on society at large. 0:09:13.960 --> 0:09:16.280 So it doesn't surprise me at all that we're starting 0:09:16.280 --> 0:09:20.000 to see the same patterns play out in crypto and 0:09:20.000 --> 0:09:26.400 and F. T. S Um and my book, frankly is 0:09:26.559 --> 0:09:30.400 a recitation of like hundreds and hundreds examples of how 0:09:30.480 --> 0:09:35.960 Jack Welch and his cronies played the same game at 0:09:36.360 --> 0:09:39.920 major public companies for the better part of four decades. 0:09:41.040 --> 0:09:44.959 Let's go to the present day. So within the last 0:09:45.080 --> 0:09:47.760 six months, stock market has gone down, but let's focus 0:09:47.800 --> 0:09:54.320 on Netflix. Netflix reports essentially a flat quarter, loses seventy 0:09:55.080 --> 0:09:59.440 of the stock value. Let's be very clear, almost all 0:09:59.520 --> 0:10:04.560 of that decline is based on scuttle button analysts, this 0:10:04.720 --> 0:10:08.600 and that, very little to do with the underlying business. 0:10:08.640 --> 0:10:13.200 There might be question the underlying business, but you know, 0:10:13.280 --> 0:10:16.120 a drop of seventy and then of course a lot 0:10:16.160 --> 0:10:19.439 of other things have dropped simultane you know, later than that, etcetera. 0:10:19.840 --> 0:10:25.040 So to what degree is the street disconnected from businesses? 0:10:25.400 --> 0:10:28.040 And as long as they're making money, they don't really 0:10:28.240 --> 0:10:32.480 care what the hell you're doing? Uh? Well, who who 0:10:32.559 --> 0:10:34.400 is the day? And that last part of the question, 0:10:34.520 --> 0:10:37.000 the street or the business? I would say Wall Street 0:10:37.080 --> 0:10:42.080 meaning investors. I'll just make it a general investment community. Yeah, 0:10:42.160 --> 0:10:48.400 I mean, there's this is the subject of many you know, dissertations, Bob. 0:10:50.280 --> 0:10:53.679 I think when we talk about a story like Netflix, right, 0:10:53.760 --> 0:10:58.080 like that stock was obviously inflated because it was one 0:10:58.080 --> 0:11:01.200 of these pandemic stocks. And when the world moved online 0:11:01.679 --> 0:11:04.720 and everyone started spending twelve hours a day on their computers, 0:11:05.360 --> 0:11:09.560 um netfolks, shoure looked like a goodbye. And so, to 0:11:09.679 --> 0:11:12.320 answer one of the parts of that question more directly, like, 0:11:12.360 --> 0:11:14.920 there's of course a huge disconnect between the stock market 0:11:15.120 --> 0:11:18.480 and the fundamentals of any business. Um. You know that 0:11:18.600 --> 0:11:22.079 the stock is sort of a proxy for people's confidence 0:11:22.080 --> 0:11:25.319 in future earnings, Like we know this um in terms 0:11:25.400 --> 0:11:29.320 of the street and what they believe. I think that's it. 0:11:29.400 --> 0:11:31.280 That's a harder question for me to answer. I'm not 0:11:31.320 --> 0:11:36.120 an analyst, and you know, many analysts are gonna pour 0:11:36.240 --> 0:11:39.640 money into companies that are you know, are are going 0:11:39.679 --> 0:11:42.280 to invest heavily in companies that aren't making money. We 0:11:42.720 --> 0:11:46.280 see that all the time with big, unprofitable tech companies. 0:11:46.760 --> 0:11:49.640 And it's also the case conversely that there are plenty 0:11:49.720 --> 0:11:56.400 of companies that have um you know, very respectable, reliable, 0:11:56.920 --> 0:12:01.760 maybe even growing, though perhaps not terribly quickly, profits that 0:12:02.040 --> 0:12:06.560 one could say are are tremendously undervalued. I think to 0:12:06.559 --> 0:12:09.920 to sort of comment on anyone's stock is is difficult, 0:12:10.040 --> 0:12:13.160 especially at the moment we're seeing a major market correction, 0:12:13.200 --> 0:12:15.439 and there's so many other global forces at work from 0:12:15.440 --> 0:12:19.720 the supply chain at Ukraine. Um So I would just 0:12:19.800 --> 0:12:25.199 say that in any few months, sort of reading too 0:12:25.280 --> 0:12:29.199 much into the movement of a particular stock is sort 0:12:29.240 --> 0:12:31.920 of an exercise and potential folly. But if you look 0:12:31.960 --> 0:12:34.560 at the long chart of g E, I think you 0:12:34.600 --> 0:12:36.920 really do see the story that I tell in my 0:12:36.960 --> 0:12:40.160 book played out quite quite viscerally, which is that for 0:12:40.240 --> 0:12:44.600 twenty years Jack Welch essentially used this combination of downsize 0:12:44.600 --> 0:12:48.480 and deal making and financialization to inflate the valuation of 0:12:48.600 --> 0:12:52.680 GEES stock, and that as soon as those games stopped 0:12:52.720 --> 0:12:55.840 working for some combination of reasons that we can get into, 0:12:56.240 --> 0:12:58.840 the stock fell apart and never recovered. And it was 0:12:58.880 --> 0:13:01.160 just last year, of course, at the curren CEO Larry 0:13:01.160 --> 0:13:02.680 Colp said that they were going to split the company 0:13:02.760 --> 0:13:07.080 up forever. Okay, let's go back to the narrative. Paint 0:13:07.080 --> 0:13:10.800 the picture of what's happening with g E and how 0:13:10.960 --> 0:13:16.000 Jack gets the gig and what are the financial conditions, compensation, 0:13:16.640 --> 0:13:20.680 show us what's going on when he comes on as CEO. Yeah. 0:13:20.760 --> 0:13:26.319 Jack took over g E in n and before that. Uh, 0:13:26.400 --> 0:13:31.640 it's really hard to overstate what an integral company General 0:13:31.640 --> 0:13:35.680 Electric was to the American economy. This was the company 0:13:35.720 --> 0:13:39.840 that was founded by Thomas Edison that you know, introduced 0:13:39.920 --> 0:13:44.000 or popularized everything from the radio to the dishwasher, to 0:13:44.120 --> 0:13:47.480 the refrigerator, to the jet engine, to the laser to 0:13:47.640 --> 0:13:49.720 the damn plastic the guys who landed on the moon 0:13:49.720 --> 0:13:54.200 were we're in other visors. Um GE was essentially deeply 0:13:54.280 --> 0:13:58.120 integrated and someone would say synonymous with the American economy 0:13:58.240 --> 0:14:02.280 for all for much of the twenties entry and that 0:14:02.400 --> 0:14:06.560 was the company that he inherited in nineteen. Now for 0:14:06.640 --> 0:14:09.000 those years, for that ten years or so before he 0:14:09.040 --> 0:14:12.000 took over, the stock had mostly been flat. You know, 0:14:12.160 --> 0:14:16.240 the economy as a whole was experiencing stag inflation sort 0:14:16.240 --> 0:14:21.920 of combination of stagnant uh stagnant growth and inflation that 0:14:22.120 --> 0:14:26.280 was making for a really rough run for investors. And 0:14:26.320 --> 0:14:29.760 Welch comes to the job with this real single minded 0:14:29.800 --> 0:14:34.360 focus towards reversing that trend and making g E not 0:14:34.440 --> 0:14:40.000 only engine of profits, but really, in his mind it 0:14:40.120 --> 0:14:42.640 had the potential to be the most valuable company in 0:14:42.680 --> 0:14:46.840 the world, and he set about doing that um But 0:14:47.040 --> 0:14:50.600 the CEO he took over from could not have been 0:14:50.640 --> 0:14:53.680 more different the guy who preceded him, Regg Jones. He 0:14:53.760 --> 0:14:58.520 was this sort of genteel Englishman. He lived quite modestly 0:14:58.720 --> 0:15:02.320 relative to certainly the way Jack would one day run 0:15:02.560 --> 0:15:07.120 run the company. As a CEO, he made you know, 0:15:07.960 --> 0:15:10.640 a respectable sum a million dollars or so, maybe more 0:15:10.640 --> 0:15:12.440 a couple million dollars by the end of his tenure, 0:15:12.440 --> 0:15:15.960 but not tens or hundreds of millions of dollars. And 0:15:16.000 --> 0:15:18.920 so Jack comes in and is about the opposite in 0:15:18.960 --> 0:15:25.040 every way. He is brash, impulsive, He is argumentative, whereas 0:15:26.360 --> 0:15:31.240 Regg Jones had been cerebrill and deliberative and from you know, cordial. 0:15:32.360 --> 0:15:39.280 Welch is completely unafraid to throw tradition out the window. 0:15:39.880 --> 0:15:45.360 Whereas Jones had been very respectful of gees legacy, and 0:15:45.960 --> 0:15:51.840 whereas Regg Jones really focused on making ge UH an 0:15:51.840 --> 0:15:54.440 excellent version of the company it already was when he 0:15:54.480 --> 0:15:57.920 took over in the early seventies or eight sixties, Welch 0:15:58.280 --> 0:16:02.240 comes to the job with almost like an a completely 0:16:03.600 --> 0:16:06.560 um immoral is not the right word. What's the word um? 0:16:06.880 --> 0:16:13.640 With no real allegiance to gees traditional businesses of lighting 0:16:14.120 --> 0:16:17.440 and power systems and transportation. You know, he'll make the 0:16:17.440 --> 0:16:19.600 most of those businesses, but at the end of the day, 0:16:19.880 --> 0:16:23.680 he's much more interested in things like media and finance 0:16:23.800 --> 0:16:29.800 and all sorts of finance UM too, and sees those 0:16:30.120 --> 0:16:33.600 new industries as the real future for General Electric. And 0:16:33.640 --> 0:16:37.040 he identifies all that all everything I just described is 0:16:37.120 --> 0:16:39.880 pretty clear within the first year or so that Welch 0:16:39.960 --> 0:16:41.920 takes over, and then he makes good on it. He 0:16:41.960 --> 0:16:45.560 spent the next twenty years sort of executing on that plan. 0:16:46.320 --> 0:16:48.960 Let's go back a chapter. Who is this guy? You 0:16:49.000 --> 0:16:52.760 read the book and it's reference that he has short 0:16:52.840 --> 0:16:57.000 man syndrome. The other thing is when you work in 0:16:57.040 --> 0:17:02.920 a giant corporation, yes you have to deliver, but relationships 0:17:02.920 --> 0:17:06.679 and getting along but one of the key elements. So 0:17:06.760 --> 0:17:09.280 let's start out with who is this guy and how 0:17:09.280 --> 0:17:11.919 does he end up? G Yeah, we'll tell that to 0:17:12.000 --> 0:17:14.040 Jack Wellips that you need to be nice to your colleagues. 0:17:14.280 --> 0:17:17.239 I think he would have disagreed with you. At the 0:17:17.280 --> 0:17:20.800 top it's a different game. He was. He was an 0:17:20.920 --> 0:17:23.000 argument at of s ob from the get go. All right, 0:17:23.040 --> 0:17:25.200 So who was this guy? Jack Bats was the only 0:17:25.320 --> 0:17:28.439 son of a poor family who grew up in the 0:17:28.520 --> 0:17:31.919 suburbs of Boston. His mom was a homemaker, his father 0:17:33.119 --> 0:17:38.960 was a unionized rail conductor on the local UH commuter 0:17:39.000 --> 0:17:48.120 train system. Welch was as you said, short, uh, muscular, feisty, argumentative. 0:17:48.480 --> 0:17:50.399 He grew up he had a chip on his soldier 0:17:50.440 --> 0:17:52.199 from an early age. He said, I grew up with 0:17:52.200 --> 0:17:54.879 my nose pressed up against the glass. He was poor 0:17:55.160 --> 0:17:57.159 and he knew it, and he did not like it. 0:17:58.280 --> 0:18:01.480 His parents were Irish, hathlic His mother made him an 0:18:01.600 --> 0:18:04.600 ultra boy, but also instilled in him a real competitive street. 0:18:04.720 --> 0:18:06.800 Made him learned how to play poker as a kid 0:18:07.040 --> 0:18:10.359 by using his own allowance money, so right away at 0:18:10.400 --> 0:18:13.800 this visceral sense of winning and losing. Um, he was 0:18:13.840 --> 0:18:17.920 incredibly smart. And I always mentioned that because there's no 0:18:18.119 --> 0:18:19.720 there's no way that he could have done all the 0:18:19.800 --> 0:18:27.159 things he did without having an absolutely, absolutely um you know, 0:18:27.600 --> 0:18:31.199 keen sense not only in strategy and intuition, but he 0:18:31.320 --> 0:18:35.040 was also just you know, brilliant ability to hold and 0:18:35.080 --> 0:18:37.920 synthesize great deals of information. He was smarter than a 0:18:37.960 --> 0:18:39.760 lot of the people he worked with, and he knew it, 0:18:40.280 --> 0:18:44.160 and even early in his career when he hadn't proved anything, uh, 0:18:45.119 --> 0:18:48.200 that pisted him off as well. He went to college 0:18:48.280 --> 0:18:50.840 and then was the youngest person ever to graduate with 0:18:50.880 --> 0:18:55.359 a PhD from University of Champagne in Illinois. Graduated with 0:18:55.400 --> 0:18:58.000 a PhD in chemical engineering I believe it was, and 0:18:58.040 --> 0:19:00.600 his first job was a g e um. First year 0:19:00.640 --> 0:19:03.280 in he threatens to quit because he gets a one 0:19:03.320 --> 0:19:06.119 thou dollar raise, just like the other people in his group, 0:19:06.200 --> 0:19:08.600 but he thinks he deserves more, so he almost he 0:19:08.680 --> 0:19:11.920 threatens to quit. He finally talks his boss's boss into 0:19:11.920 --> 0:19:14.200 giving him a little more money, uh, and he agrees 0:19:14.240 --> 0:19:16.399 to stay. And then it's sort of off to the races. 0:19:16.480 --> 0:19:19.679 They start moving him up pretty swiftly, and he rises 0:19:19.680 --> 0:19:23.360 through the ranks at GE for you know, better part 0:19:23.400 --> 0:19:26.520 of twenty odd years, twenty five years before he's ultimately 0:19:26.560 --> 0:19:37.320 made CEO. Why does he get moved up the ranks 0:19:38.080 --> 0:19:42.640 and it's just despite his edgy personality or somehow does 0:19:42.720 --> 0:19:47.920 that help him? And how does he get chosen at CEO? Yeah? 0:19:48.760 --> 0:19:51.320 It certainly seemed to help him. You know, ge was 0:19:51.640 --> 0:19:56.520 a deferential culture. It was in line with much of 0:19:56.560 --> 0:19:59.760 corporate America where there weren't a lot of very hard 0:19:59.840 --> 0:20:03.760 edge is um. But the fact that he was so 0:20:03.880 --> 0:20:07.800 different and that he was willing to essentially fire people 0:20:08.080 --> 0:20:10.600 to improve the profitability of a group, that he was 0:20:10.640 --> 0:20:15.800 willing to push his executives and his team members to 0:20:15.920 --> 0:20:21.120 go harder, to work faster, to take chances with volatile processes, 0:20:21.160 --> 0:20:24.400 and which in one case resulted in the of blowing 0:20:24.480 --> 0:20:27.000 up of a factory that he was very proud of 0:20:27.080 --> 0:20:30.280 in in his own way, this set him apart. And 0:20:30.320 --> 0:20:33.760 so at that moment, after a decorative stagflation, just just 0:20:33.760 --> 0:20:37.160 just just slow down for one second. Define for those 0:20:37.200 --> 0:20:39.480 who were not as sophisticated and informed as you, what 0:20:39.480 --> 0:20:43.200 do you mean by him blowing up a factory. Yeah, 0:20:43.359 --> 0:20:49.359 this is a relatively well well documented incident. Somewhat earlier 0:20:49.400 --> 0:20:55.080 in his career. He's running a factory in Massachusetts. They're 0:20:55.119 --> 0:20:57.600 trying to come up with a new product. There's a 0:20:57.640 --> 0:21:00.960 real pressure from the folks up to op or down 0:21:01.000 --> 0:21:04.520 in Fairfield as it were, at headquarters, to get this 0:21:04.680 --> 0:21:08.119 right and to make a profitable new plastic A S 0:21:08.119 --> 0:21:10.560 A P and get it to market. They were having 0:21:10.560 --> 0:21:15.680 trouble doing it, but Welch, you know, had his team 0:21:15.720 --> 0:21:18.720 pushing as hard as they possibly could, and in the 0:21:18.800 --> 0:21:24.520 end that meant experimenting with some very highly volatile processes 0:21:24.560 --> 0:21:27.560 and solutions that probably hadn't been fully vetted from a 0:21:27.600 --> 0:21:30.840 safety perspective. And one day he's sitting there in his 0:21:31.040 --> 0:21:35.399 office overlooking Plastics Avenue in Massachusetts and boom, the whole 0:21:35.520 --> 0:21:40.400 plant blows up and there's a massive explosion the building, 0:21:40.600 --> 0:21:44.280 the roof of the building is blown off. Miraculously, no 0:21:44.359 --> 0:21:46.800 one has hurt, no one is seriously injured, no one 0:21:46.800 --> 0:21:51.960 has killed uh. And yet it was sort of one 0:21:51.960 --> 0:21:57.240 of these early anecdotes that that demonstrated just how potentially 0:21:57.320 --> 0:22:01.120 volatile this man was, how how explosive he could be 0:22:01.200 --> 0:22:04.600 as a manager. He's called to Fairfield to headquarters the 0:22:04.640 --> 0:22:06.840 next day as to drive a hundred miles or so 0:22:06.880 --> 0:22:10.440 and explain himself to the to the higher ups at headquarters, 0:22:10.480 --> 0:22:13.800 and essentially they gave him a pass. And that, to me, 0:22:13.960 --> 0:22:18.520 I think, really was one of those moments where he 0:22:18.680 --> 0:22:21.640 suddenly realized that he could get away with it, and 0:22:21.720 --> 0:22:26.560 even if he pushed people. Even if he was taking chances, 0:22:26.640 --> 0:22:31.440 even if he caused some real destruction, there weren't immediate consequences, 0:22:31.480 --> 0:22:35.240 and that I have to believe embolded him. Going forward. 0:22:36.200 --> 0:22:39.119 How do you actually get the Giga CEO? There was 0:22:39.119 --> 0:22:44.040 a process, as there always is. Regg Jones himself requested 0:22:44.480 --> 0:22:50.000 that Jack b included in the in the vetting process, 0:22:50.080 --> 0:22:55.720 and then um, they made they made the the potential 0:22:56.000 --> 0:22:59.160 candidates to succeed Red Shans write a series of memos 0:22:59.200 --> 0:23:02.919 to a series of interviews. Uh. And in one of 0:23:02.960 --> 0:23:08.160 those memos, Welch outlines this vision for a much more aggressive, 0:23:08.440 --> 0:23:13.240 much more competitive, much more ruthless, frankly version of g E, 0:23:13.600 --> 0:23:16.679 one that would compete in a different way in the 0:23:16.760 --> 0:23:20.879 nineteen eighties. And uh, you know Jones and the board 0:23:21.040 --> 0:23:23.080 they bought into that vision, and he got the gig 0:23:23.240 --> 0:23:26.040 and he was he was young, he was a shock candidate. 0:23:26.560 --> 0:23:28.600 And uh, I think I'm quote, I think I'm gonna 0:23:28.600 --> 0:23:31.040 get this quote right when when when it was announced 0:23:31.320 --> 0:23:35.280 the Wall Street Journal said that g E had replaced 0:23:35.320 --> 0:23:39.440 a legend with a live wire. So we know, via 0:23:39.560 --> 0:23:44.919 ge capital and so many other things, that Jack was 0:23:45.000 --> 0:23:49.320 really into financialization. The average person was not aware of 0:23:49.440 --> 0:23:54.960 the extreme depth of financialization on Wall Street until the 0:23:55.000 --> 0:23:59.320 two thousand and eight crash, But even for years before that, 0:24:00.119 --> 0:24:03.879 people had commented that Wall Street no longer build things, 0:24:04.240 --> 0:24:08.200 It was the business of money that was their business. 0:24:08.280 --> 0:24:12.720 To what degree was Jack responsible for that and how 0:24:12.720 --> 0:24:18.480 did he get into that vertical of capital. I would 0:24:18.720 --> 0:24:23.960 hesitate to put the whole transformation of Wall Street on 0:24:24.720 --> 0:24:27.000 Welch's feet. I lay a lot of blame at his 0:24:27.080 --> 0:24:29.200 feet for a lot of different issues. I think Wall 0:24:29.240 --> 0:24:31.679 Street was going to be changing during the nineteen eighties 0:24:31.800 --> 0:24:35.800 almost no matter what. Where I think welch Is influence 0:24:36.680 --> 0:24:42.000 really connected Wall Street with corporate America. Was the degree 0:24:42.000 --> 0:24:47.080 to which he made Ge adopt a lot of the 0:24:47.119 --> 0:24:51.560 worst aspects of banks and other global financial institutions. And 0:24:51.600 --> 0:24:55.520 we then saw many other companies following suit and doing 0:24:55.560 --> 0:24:59.920 some of the same things. In terms of how exact 0:25:00.280 --> 0:25:03.240 he did it, it all started with this little unit 0:25:03.240 --> 0:25:06.960 called GE Capital um. GE had a finance arm for 0:25:07.040 --> 0:25:11.440 decades and decades during the nineteenth century and excuse me, 0:25:11.520 --> 0:25:15.120 during the twentieth century, and it was mainly used as 0:25:15.160 --> 0:25:19.600 a way to help corporations and even individuals finance their 0:25:19.640 --> 0:25:23.119 purchase of ge products and services. If you couldn't pay 0:25:23.280 --> 0:25:28.719 for uh, you know, your refrigerator outright, it was basic 0:25:28.840 --> 0:25:31.760 lending arm. They could they pay, charge a little interest 0:25:31.760 --> 0:25:34.720 and you could pay it in installments. Welch saw the 0:25:34.760 --> 0:25:39.399 potential of taking that arm and turning it into what 0:25:39.520 --> 0:25:43.159 was essentially an unregulated bank and ran with it. And 0:25:43.240 --> 0:25:46.240 he saw it from the get go. He's in one 0:25:46.280 --> 0:25:49.040 of those memos I mentioned that he wrote to Red Jones. 0:25:49.359 --> 0:25:53.399 He said there was no where at the company where 0:25:53.680 --> 0:25:56.720 quantum change, I believe was the phrase he used, was 0:25:56.840 --> 0:26:00.399 needed more than in finance, because he understood in this 0:26:00.640 --> 0:26:03.720 kernel of a little business unit, there was the potential 0:26:04.000 --> 0:26:08.120 to create what would ultimately be a six hundred billion 0:26:08.160 --> 0:26:12.919 dollar pool of capital that stretched from everything from least 0:26:13.040 --> 0:26:19.639 satellites to tie auto loans to commercial real estate debt. Okay, 0:26:20.040 --> 0:26:24.560