In her third “The Forgotten Book” column, Amity Shlaes looks at some of the books covering Jack Welch’s time at GE, including Welch’s own modestly titled Winning from 2005.
It’s fair to say that Welch does not emerge well from Shlaes’s discussion:
Never mind that Welch was exploiting the accounting flexibility of a financial-services company, GE Capital, to cover up shortcomings in his manufacturing divisions, as Cohan details. Never mind that Welch was massaging his numbers, which bore a resemblance to the way in which Soviet leadership massaged agricultural productivity metrics to cover for their regime’s failures in the same period. Never mind that he was sending his attorneys to silence any reporter who was seriously delving into GE’s numbers. . . .
A wise, successful, and highly experienced investor once told me that she was instinctively suspicious of any company when the CEO became a media star in his or her own right. It didn’t disqualify the company from consideration as a potential investment, but it raised a red flag. When I called her after attending a presentation by a European company to tell her that the pack for those attending included not only the latest company report and a brochure describing some new products, but also a large photograph of the CEO, she said that was a flag of the deepest red.
Shlaes:
Too many were paying attention to the men, too few to the company. The very moves that had made Welch such a star spelled dark days for his company, whoever succeeded him. Welch had clearly fiddled with numbers to make the company look stronger than it was. But more damaging was the reverie of the analysts and fans, who in their daze failed to spot the vulnerabilities in the company.
Read the whole thing.