But even as the encomiums pile up for Welch, known as Neutron Jack in his younger days for vaporizing jobs while leaving buildings intact, it’s time to play my traditional role as skunk at the garden party. Welch is clearly very, very, very good. But as effective as his leadership has been in helping GE transform itself from an old-line industrial company into a sleek, finance-oriented conglomerate, it’s not yet clear how good a manager Welch is. How can I say that? Because picking a worthy successor is one of the most vital elements of managing. Since we don’t know who Welch’s successor is or how worthy he (all the leading candidates are men) will prove to be, I think it’s too early to call Welch a management god.
This may sound like nit-picking, but please bear with me. Consider, if you will, what’s happened to Coca-Cola since the charismatic and wonderfully well-regarded Roberto Goizueta died in 1997. He was on the same level as Welch in the business pantheon. But Goizueta’s handpicked successor, Douglas Ivester, has had nothing but trouble since taking over the Coke chairmanship. Similar fates have befallen the people who succeeded two other well-regarded, visionary corporate chieftains: Charles Lazarus, who retired as Toys “R” Us chief executive in 1994, and Anthony O’Reilly, who retired from H.J. Heinz Co. last year. Lazarus and O’Reilly were good leaders–but not, in my humble opinion, good managers. It’s a bad reflection on them that their successors all seem to have had feet of clay. Hmmmm. It makes you wonder whether these guys were really as good as they seemed to be when they left office. And whether they’d have had trouble if they’d stayed around.
Why does this matter? Because it’s important to keep perspective and not get swept away by conventional wisdom. Reporting about the personalities and peccadilloes of corporate managers has in large part replaced reporting about the corporations they run–both in the media world and on Wall Street. That’s partly because people are generally more interesting than companies, partly because they’re easier to analyze.
A possible pitfall for Welch’s successor is that so much of GE’s profits–41 percent last year, 44 percent for the first nine months of this year–comes from GE Capital, its financial arm. It’s much easier to produce nicely rising earnings from financial businesses than from other businesses because you have lots more latitude–perfectly legally–in deciding to cash in profits or defer losses. When Welch took over GE, the financial business was only about 6 percent of the company. Any problems lurking in the portfolio? Beats me.
GE, as you can imagine, pooh-poohs the notion that it’s too early to call Welch a great manager. “Jack’s legacy is that he’s ensured a smooth transition and ensured he will have a great successor,” a GE spokesman says. An interesting comment, since Welch hasn’t picked a successor yet.
The bottom line? Welch seems to be a shoo-in for business immortality. But let’s take our lead from sports halls of fame, and wait until well after his retirement to put him among the immortals.
