The Multinational Monitor

July/August 2001 - VOLUME 22 - NUMBER 7& 8

Dignity and Defiance

An Interview with John Hovis

John Hovis has been General President of the United Electrical, Radio and Machine Workers of America (UE) since 1987. He currently coordinates UE’s national bargaining with GE. His first GE servicing experience came as a field organizer in 1973. From 1975 through 1980, he was active in organizing campaigns at GE plants in the southern United States. He serviced UE’s largest GE shop — the Erie GE Locomotive Works — from 1980 to 1982. From 1984 to 1987, he served as UE’s director of organization. He has been involved in organizing and negotiating with the General Electric Company for 28 year

One of
Jack Welch’s
dictates is that
every business should attempt
to outsource
every job unless management
can justify
keeping it
This turns
on its head.

Multinational Monitor: How many GE jobs have moved out of the United States, and through what mechanisms?
John Hovis:
Like most multinationals, GE has moved a lot of jobs out of the country. Our union has lost more than a thousand GE jobs as a direct result of work being moved out of the United States.

I don’t know if anyone has an exact fix on the numbers. We do know that 40 percent of GE’s revenue now comes from its international operations.

GE is not necessarily building new plants in other countries; they buy and sell companies both here and abroad like no other corporation I know of.

Chairman Jack Welch recently said that the company bought and sold over 100 companies last year alone. That’s fairly typical of the pace at which GE buys and sells companies each year. Not all of those companies are involved in manufacturing, but some are. So there’s a constant “churning” — the company’s word — of businesses within General Electric. The company has been particularly active in Japan and Asia, taking advantage of the downturn in those economies to buy up businesses at bargain prices. Moving jobs abroad is just one of the strategies GE uses to boost its profits and consolidate its power around the world.

The company’s tremendous cash assets allow it to move very rapidly to accomplish large and small transactions alike. The 1986 RCA purchase, the Tungsram Lighting plant in Hungary and the recent Honeywell acquisitions are good examples. GE knows how to make use of its size. They see something they want, they go after it. When they decide to sell something, they sell it, regardless of the consequences for employees or the community.

Unfortunately, as Jack Welch admits and as Kidder, Peabody and other acquisitions show, not all of the moves have proven to be “home runs,” the term Welch uses. But when you’re as big and rich as GE, you can afford to make a few mistakes.

Aside from the moves to locations outside of the United States, an even greater number of jobs are lost to a sharp increase in subcontracting. It’s easier for us to track those numbers. GE workers were hit hard by plant closings in the 1980s –– the “Neutron Jack” years. In the 1990s, the company’s strategy has switched toward transfers of work and subcontracting. GE uses a number of methods and terminology: outsourcing, inside contracting, transfers of work, farming out and relocation. They all amount to the same thing.

There was an article in the local paper in Erie, Pennsylvania which cited company officials who said GE provides $160 million in business for more than 140 companies within 100 miles, just for the Erie plant.

The company has been working for a number of years toward turning its remaining large production plants into final assembly facilities. The goal is to employ a limited number of higher skilled, higher paid, more permanent workers supported by a more flexible semiskilled workforce that is susceptible to regular layoffs. Subcontracting advances this strategy.

Additionally, subcontracting enhances GE’s ability to dominate production: GE has the ability to put a good deal of pressure on subcontractors to hold down costs. We routinely hear that GE subcontractors have been ordered to reduce costs by 3 to 7 percent or lose GE as a customer. They hold all the cards, so it’s easier to bargain with contractors competing for their work than it is to bargain for concessions from their own employees. At one time in Erie, the company had subcontractors waiting at the construction gates to get an opportunity to do work inside the plant –– mainly maintenance work, painting, electrical and plumbing work –– work formerly performed by GE employees.

One of Jack Welch’s dictates is that every business should be attempting to outsource every job unless management can justify keeping it in-house. This turns everything on its head. It puts people in a position where the work is going to be lost unless the company can figure out some way to justify keeping it, as opposed to figuring out if sending the job out is justified. GE has set up a whole internal structure of outsourcing managers in the major divisions of the company. Managers justify their position by subcontracting work, even if it leads to higher costs to the company. Unionnegotiated Job Preservation Committees are just now verifying that the inherent abuse in this policy has led to higher costs for GE and the senseless loss of jobs for our members.

Constant speed up is another part of Welch’s managerial strategy. He refers to it as “squeezing the juice out of the lemon.” According to Welch, there’s always more to be squeezed out; the lemon never runs dry. Like most executives, he prefers to use the more polite term of “increased productivity,” but on the shop floor, it’s speedup.

In the early 1980s, at the locomotive plant in Erie, the company on average shipped about 350 locomotives a year while employing about 7,500 hourly workers. As a result of improved technology, speedup and subcontracting, the Erie Locomotive plant last year produced 911 locomotives with about 4,000 hourly employees. GE workers are very productive, to say the least.

MM: To what extent does GE use the threat of job shifting to leverage its position in contract negotiations?
: The threat is always there.

GE’s policies are so well known among the people who work for them that the company does not have to make explicit threats. GE doesn’t come out and say, “If you don’t do what we demand, we’re going to close this plant or move this work.” They just say a plant is “under study” or a certain job is “being studied,” and that gives workers the signal that the company is prepared to move the work and it’s just a matter of time before you may get notification of a plant closing, a plant sale, or that work is being moved out.

Everyone knows Jack Welch’s theory on getting things produced as cheaply as possible anyplace in the world. We’ve all heard his statement about ideally having every plant on a barge.

The company tries to put the burden on the union: “You tell us what you are willing to do to save your jobs.” GE wants to force the union to come forward with concession proposals. The ongoing fight to defend jobs at Appliance Park in Louisville, Kentucky (represented by the IUE-CWA) and the Bloomington, Indiana refrigerator plant (represented by the IBEW) are just two examples of situations where GE has used such tactics.

MM: Welch is known for pushing to cut costs all the time. What have been the consequences for workers?
As I’ve said, the plants operate very efficiently, but employees are under a lot more stress. In fact, one GE management strategy implemented under Welch is known as “management by stress.” The idea is that if you keep people working under a certain amount of stress they’ll be afraid of their jobs being lost due to a plant closing or outsourcing. The angst, or fear is supposed to induce workers to improve their productivity and control absenteeism. As one might expect, there’s been a significant increase in the amount of stress experienced by GE workers in recent years. Management has clearly accomplished that, but I think it’s been counter-productive.

A company as restless as GE is always inventing new cost-cutting regimes. For some time the theme was the Work-Out Program; then Total Quality Management (TQM), and Best Practices, which involved borrowing ideas from other companies, and Demand Flow Technology (DFT). These programs were aimed at developing a “boundaryless company” with “centers of excellence,” where all of the best ideas would come together for the good of all concerned. Over the past 20 years, there’s been one program or catch phrase after another, all adding to a somewhat confusing and very stressful work environment.

The latest program is Six Sigma, which aims at producing higher quality to meet the customer’s needs. Every manager at GE must be a “black belt” –– the martial arts language is part of the whole Six Sigma scene –– in Six Sigma methods, and every division has a Six Sigma project underway, even the human relations and the union relations divisions of the company.

Regardless of how high their profits per employee go, GE is not shy about demanding greater employee contributions in the areas of health and dental insurance or other benefits the company can very easily afford to pay for. The edict is to show continuous improvement –– their term –– in controlling costs.

Despite GE’s claims, Six Sigma is not really about maintaining the company’s bottom line in the competitive global economy. The fact of the matter is that GE doesn’t like to compete. That’s why Jack Welch mandated that GE get out of businesses in which it wasn’t the first or second player. The company wants to set the rules and control the playing field, and being number one or two allowed them to do both.

So Six Sigma and programs like it are really geared toward attempting to sustain its continuous improvement –– not the least of which is “continuously improving” stockholder expectations.

GE managers, many of whom have had their pay incentive packages tied to stock performance, come to the bargaining table every three years with demands for concessions, even after six years of double digit growth covering the terms of the last two union contracts.

MM: To what extent does the cost-cutting approach reflect a culture imposed by Jack Welch, and will it change under his successor?

I don’t think much will change under Jeff Immelt. But we don’t know him very well, so I’m not inclined to rush to judgement. I know he preaches that GE must “play hard, play to win and always play offense.” But from what I’ve been told, he’s much more personable than his predecessor.

We know that the Jack Welch culture is deeply rooted in GE; each of the newly appointed business leaders is a Welch devotee.

That’s not only true of GE –– the Welch culture can be found in the many companies that former GE executives now head up. Robert Nardelli at Home Depot and James McNerney at 3-M are the latest, but there are several others, including Lawrence Bossidy, formerly of Allied Signal and later Honeywell. All these CEOs have been weaned on Jack Welch’s principles and the drive to delight stockholders.
Adherence to Welch’s philosophies has become something of a business cult, and I believe his influence will be felt at GE for some time. I don’t know that Mr. Immelt could change it even if he wanted to, and I seriously doubt that he wants to. The pressure on him will be to perform as well as Jack Welch. That won’t be easy, since the Welch legend has grown larger than reality. I’m sure Mr. Immelt has some ideas of his own, but I think the basic GE culture is ingrained and he will probably try to use that to his advantage.

MM: There are a number of unions that represent General Electric workers in the United States. What difficulties does that pose for workers negotiating with the company, and what are the unions doing to overcome such problems?
: Negotiations were much more beneficial to GE workers when everybody was in one union. Today, we all do our best to work together through the umbrella group formed by AFL-CIO unions in 1966 — The Coordinated Bargaining Committee (CBC). The UE was invited to join in 1969. Coordinated bargaining has worked pretty well; it’s really the only choice GE workers have.

The IUE-CWA represents the largest number of GE workers; however, both the IUE-CWA and UE maintain national agreements with GE. The other CBC unions have master or local contracts.

By agreement and out of necessity, the CBC guidelines allow each union to maintain its autonomy and independent positions, while presenting a common front to the company. At times it can be a difficult task to accomplish, but we work together pretty well.

We try hard to balance things out, while keeping in mind that it’s still two national agreements that are being negotiated. When you put 14 different unions in one organization, they each have different mandates from their members, so we’re each obligated to not only support our own members’ proposals, but those of the other unions as well. We have to set priorities. We communicate and cooperate with each other the best we can, but clearly GE has benefitted from the 1949 CIO split — which is why the company actively helped to engineer that split.

GE negotiations today bear little resemblance to the pattern bargaining done by the United Steel Workers (USWA) in the steel industry, or the United Auto Workers (UAW) in the auto industry. There was a time when GE workers were on equal footing with the workers in both industries in wages and benefits, but they’re not quite there today. The split has had a direct material impact on GE workers.

MM: Jack Welch is about to retire and the business press is singing his praises as the greatest manager of the last century. What have they missed?
: Clearly the last 20 years have been pretty good for the shareholders.

I’m not convinced they have been as good for the employees or the many communities where GE plants are located.
Even in straight business terms, I’m not convinced that it’s always been good for the long-term viability of the company to be chasing numbers as opposed to building its business. The company has stripped down their manufacturing base by deskilling a number of jobs and then subcontracted or moved the work out of the country to Mexico, Asia, South America and other locations. I don’t know that such a policy is in GE’s, let alone the country’s, best long-term interest.

GE has divested some solid businesses that other companies seem to be able to make a decent profit from. Black and Decker has done all right with GE’s small appliance business. Martin Marietta, now Lockheed-Martin, may prove to be another example.
The company’s general attitude has also become more arrogant. That wasn’t GE’s style under former CEO Reginald Jones. Under Jack Welch, it’s been my way or the highway.

Jack Welch can be inspiring and he has shown exceptional leadership abilities. He has proven he can move mountains, but that can be a double-edged sword.

Welch has had a tendency to become infatuated with any number of programs that have been brought to his attention and I don’t know that he always takes the proper time to do the in-depth thinking or obtains the kind of advice one should seek out before moving an entirecompany the size of GE. Acting with speed and embracing change have been his mantra.

I don’t know what problems the Honeywell merger or its failure will present for GE, but for a mega deal of this size it came awfully fast, and the company isn’t prepared for it internally.

And while Welch professes to not want a bunch of “yes men” around him, it appears that he in fact expects that from people. Clearly there aren’t many people who have stood up to Jack Welch and challenged him on his views. There’s not been an executive of Frank Doyle’s stature and influence in the company since he retired several years ago. Doyle was one of a rare breed who dared voice his opinion of Welch’s decisions.

Beyond the businesses of course, are the communities in which GE operates. I think GE has been very callous about any kind of commitment to the communities they do business in. The RCA acquisition in 1986 is a good example. They cleaned that whole company out. They kept NBC, but they destroyed RCA. An awful lot of people lost their jobs. Some employees ended up being involved in the trade-off to Thompson Electronics for the medical systems –– GE gave up some of its appliance business for that. But an awful lot of people either ended up losing wages and benefits or losing their jobs altogether.

GE constantly beats the drums for decreases in public school taxes and property taxes. I think that’s really mean-spirited. And the company’s behavior around the ongoing battle to avoid the EPA-mandated clean up of PCBs in the Hudson River has been perfectly shameful. It’s a good example of what happens when a corporation can rent –– or own –– all the airtime it wants.

I believe Jack Welch is wrong when he says that loyalty is a misguided sentiment in today’s business world. That might be true for a corporate CEO or company manager, I wouldn’t know, but it doesn’t apply to people with civic and moral values. Loyalty is a virtue that should not be limited to local sports teams.

Finally, there is GE’s relationship with its workers. For all the lip service paid to total involvement and building a boundaryless company, GE managers pay little attention to the hourly employees, the very people who get the job done. They pay attention to their shareholders, and when they have to, to the needs of the customer, but managers rarely listen to the ideas of their hourly workers.

GE accountants tend to view hourly employees as “head count,” an expense that reduces company profits. They tend to view employees as a liability rather than as the assets that they truly are.

In its more than 65 years, UE has devoted itself to the idea that the ordinary and hardworking members of this (or any) society should not only receive the material rewards necessary to lead dignified lives, but that they should participate fully, as workers and as citizens, in decisions about how industry and the wealth it generates should be invested.

That’s what we exist to accomplish. Our experience with GE has taught us that nothing could be more alien to the company’s agenda.

The Welch culture can be found in many companies that former GE
executives now
head up. All of
these CEOs have been weaned on Jack Welch’s
principles and the drive to delight
GE doesn’t like
to compete.
That’s why Jack Welch mandated
that GE get out
of businesses
in which it
wasn’t the first
or second player.
GE wants to
set the rules
and control
the playing field;
being number one
or two allows
them to do both.
GE has stripped down their
manufacturing base by deskilling a
number of jobs
and subcontracting or moving the work out of the country.
... I don’t know that such a policy is
in GE’s, let alone
the country’s, best long-term interest.