July/August 2001 - VOLUME 22 - NUMBER 7& 8
An Interview with Thomas OBoyle
Thomas F. OBoyle is the author of At Any Cost: Jack Welch, General Electric and the Pursuit of Profit. He has been writing about business and management issues since 1979. He covered U.S., European and Asian industrial corporations for 11 years at the Wall Street Journal. He is currently an assistant managing editor at the Pittsburgh Post-Gazette.
of last resort.
Now it has
at every major
in terms of
GE was one
of the major
Multinational Monitor: What led you to write the book, At Any Cost?
Before publication, they were very adversarial, as they always are in
their dealings with the media. They got a copy of the book proposal through
channels that to this day are not clear to me, and they used the thesis
as described in the book proposal to pepper me with threats. I must have
gotten about a dozen letters that were threatening in nature from GE over
the six years of writing the book.
People want to admire Jack Welch because hes made them wealthy.
You cant deny the fact that he has. The numbers are phenomenal.
Market capitalization the value of GEs shares is just
under $500 billion today and it was only about $12 billion when he took
over in 1981. Thats made shareholders immensely wealthy. That in
itself explains why hes so celebrated.
Shareholders whether theyre large mutual funds or institutional
or small investors are now extraordinarily impatient. They want
their earnings now. I think Welch has been a major changer in the zeitgeist
of that environment. He has been known as the CEO who delivered earnings.
That has consistently been his record. In delivering those earnings, there
have been some shortcuts taken at the company and at all American
companies including the abandonment of research and development
and getting rid of employees.
In the realm of research and development, its extraordinary how
steep the reductions in R&D spending have been at GE from 1981 to
2000, while theyve consistently improved their net income year after
So I would say the major thing that will be viewed in hindsight as so
difficult is the short-term-sightedness of CEOs in general and Welch in
GE Capital generated only about 8 percent of the companys earnings
when Welch took over in 1981 and now they generate about 50 percent. So
most of GE is a bank. As a finance operation, it has great power in the
marketplace for financing the purchase of GE products, which helps GE
in its competitive position. When they go to sell an aircraft engine,
for instance, vis-à-vis their main competitors Pratt &
Whitney and Rolls Royce GE can offer financial terms and incentives
for the purchase of GE engines. To some extent it can be anti-competitive.
Thats why some governmental regulators have looked very carefully
at the finance operation lately when GE makes acquisitions.
GE Capital was started back in the 1930s to finance the consumer purchase
of GE appliances. It expanded through the 1960s, but Welch really put
the accelerator to the floor. Its a major explanation why profits
have grown as greatly as they have at GE during Welchs term.
MM: To what extent is GE currently involved in military-related
They got out of that business and sold it to Martin Marietta. That story
is also in my book. They were the target of very persistent anti-nuclear
protests and controversy [led by the group Infact], and I think that had
a major impact in forcing Welch to abandon the aerospace and military
contract business and stay with jet engines.
MM: Whats the motivation behind GE pushing so hard on the
If you look back at the creation of the company the predecessor
of GE was founded by Thomas Edison in 1892 theres a long
tradition of GE being a dominant player in the businesses in which it
competes. Welch sharpened that focus during his tenure to a point where
he set down the rule that you have to be either the first or second largest
competitor in any market in which you compete. Thats an extension
of market dominance.
I think that is what is behind the Honeywell deal and why the European
regulators have taken such a tough look at it. The merged company would
have extraordinary market dominance in the field of aviation. Not just
in jet engines Honeywell is a player in smaller jet engines that
are used for corporate-sized jets but Honeywell is also a big player
in avionics and a lot of the sophisticated instrumentation thats
used in aviation. I think thats the major impetus for the deal.
Well see in the next couple of months whether it passes antitrust
It has in the United States, but whether it does in Europe remains to
be seen. If it doesnt, I think theyll pull the plug and not
continue with the deal.
MM: Do you think that the case can be made that the company is
too diversified for its own good?
Furthermore, you can make the argument that each of the discrete elements can be sold to other corporations that are solely dedicated to that endeavor. Siemens, for instance, does many things in the electrical world they make lightbulbs, theyre involved in the transmission and distribution of electricity. You could easily take GEs power systems division and its lighting business and sell them to Siemens. You could take the plastics division of GE and sell it to Exxon-Mobil. So too much diversity could wind up hurting GE.
Theyre really a kind of throwback to the 1940s, 1950s and 1960s
when there were lots of conglomerates around. Only a few conglomerates
exist now. The reason they do exist is because the sum of the parts must
be greater than the whole, and if its not if its less
than the whole then the market will figure out how to yield more
value out of those parts.
MM: Can you say what GEs business is now?
MM: Should citizens care about this change?
It matters because an extraordinarily capable institution General
Electric has been transformed into something that is not that any
longer. Until 1986 GE was the number one patentee of inventions every
year in the twentieth century among all U.S. corporations, every year
from 1900 to 1986. Now theyre not even in the top 20.
They were the inventors of the modern corporate research and development
laboratory. The number of things that GE invented in the last century
is breathtaking. Of course there was the light bulb, but there was also
the first jet engine GE was the first to put it on an airframe;
the first synthetic diamond; the first silly putty. There was also the
first Noril and Lexan, which are polycarbonate plastics. Lexan was used
in the visors of the Apollo 11 astronauts that landed on the moon. They
also made the first diesel locomotive, the first x-ray machine and the
first home refrigerator. The number of firsts that came out of General
Electric is mindboggling. This is a company that once had extraordinary
capability in manufacturing, engineering and research.
What has happened through a poor shepherding of those skills is that
that value has been diminished. GE is not the same significant player
in these elements of American life that it once was. You can make an argument
about whether maintaining that role was even possible thats
a legitimate and good argument. Maybe it was just inevitable.
But I would argue that Welch pushed the process by pulling the plug on
lots of businesses that were sold and that foreign companies now control.
That has diminished Americas competitiveness in the global marketplace.
diversity could wind up
a kind of
throwback to the 1940s, 1950s
and 1960s when there were lots
of conglomerates around.
a bank. As a
it has great
power in the
of GE products, which helps GE
in its competitive position.
To some extent
it can be
GE was the
not even in
the top 20.