sounds like elite theory. who should I be reading next?

You would think some CEOs out there would have seen through his game.

deleted

Interesting. Thx.

"...My own take of Welch is that he was exactly what GE needed at the time - it had formerly been a very stodgy company run by bean-counters. Had Jack not come along and upset and realign its corporate culture - I'm certain that GE would be struggling today, or vastly diminished, like the other old-line behemoths who did not adapt, the US automakers. GE's in trouble today because it mirrors the US economy in that it used debt so extensively to finance its operations. But beyond its financial woes, GE is still an industrial powerhouse, with tons of talent, and an envied business culture..."

So, precisely just what is that Jack Welch is supposed to have actually accomplished? If one looks at his track record, Neutron Jack's principal accomplishment was to have turned GE into a bank, even if it didn't call itself one. His policies starved those industrial businesses you mentioned for funds and invested them into GE Finance, to the point where GE Finance WAS the firm by the time Welch. That was the concern on the street when Welch departed -- that GE was receiving industrial multiples for its performance when it really was a bank.

Worse, GE is no longer an industrial powerhouse as you state. It exited a large number of businesses during the last twenty years and has remained active in only a few. Power generation and aircraft engines, along with GE Medical remain the only real nameplate enterprises. In far too many cases, GE has been late to develop any really new technologies and has been forced to brute force their way into an application. That philosophy was one heavily bruited by Welch as the way forward. It has become one of the major reasons they are stuck in their current quagmire.

By that I mean the 200 mutual funds that owned most of GE's common stock. Plus the analysts, who began writing critical notes about the "bank's" potential for credit losses. To top it off, the SEC filings and annual report provided very little useful information about GE's financial business. People began bailing out of the stock, and in the past year it is the very lack of transparency that is now being cited as the main reason the stock hit $6/share (it is now up to $9).

I think it was an eye opener for people too when GE exited electric light bulb manufacturer. It was not only the foundation product for the company, but it was their connection to the consumer. They were giving up their icon status because they couldn't make money at it anymore.

I recall hearing about twenty-five years ago when Welch first looked at getting out of the appliance business, back during Reagan's recessions from my colleagues inside GE who had worked at Louisville. Welch really wanted to bail out of that business. It was slow growth insofar as he was concerned -- unionized, very competitive, with a difficult distribution system. He couldn't dominate anything in the whole supply chain, which would drive any control freak right into the wall. Unfortunately, the company did a major consumer study and learned that GE would essentially lose major loss of consumer mind-share if they exited the appliance business. Of course, GE did decide to leave it and lightbulbs over the last decade. Only the "meatball" brand logo survives for the consumer at this point. GE has become a backroom supplier at this point.

we compensated these bastards as if they had a cure for cancer.

You mean that Wall Street did, directly, and we did indirectly by allowing them to capture an inordinate share of national income.

Let's face it. Wall Street rules. The Obama administration is running the country for them, and they are looting us to the tune of trillions — again.

The term that’s used to describe this general problem, of course, is moral hazard. When people are protected from the consequences of risky behavior, they behave in a pretty risky fashion. Bankers can make long-shot investments, knowing that they will keep the profits if they succeed, while the taxpayers will cover the losses.

This form of moral hazard — when profits are privatized and losses are socialized — certainly played a role in creating the current mess. But when I spoke with Mr. Romer on Tuesday, he was careful to make a distinction between classic moral hazard and looting. It’s an important distinction.

With moral hazard, bankers are making real wagers. If those wagers pay off, the government has no role in the transaction. With looting, the government’s involvement is crucial to the whole enterprise.

Think about the so-called liars’ loans from recent years: like those Texas real estate loans from the 1980s, they never had a chance of paying off. Sure, they would deliver big profits for a while, so long as the bubble kept inflating. But when they inevitably imploded, the losses would overwhelm the gains. As Gretchen Morgenson has reported, Merrill Lynch’s losses from the last two years wiped out its profits from the previous decade.

What happened? Banks borrowed money from lenders around the world. The bankers then kept a big chunk of that money for themselves, calling it “management fees” or “performance bonuses.” Once the investments were exposed as hopeless, the lenders — ordinary savers, foreign countries, other banks, you name it — were repaid with government bailouts.

In effect, the bankers had siphoned off this bailout money in advance, years before the government had spent it....

At a time like this, when trust in financial markets is so scant, it may be hard to imagine that looting will ever be a problem again. But it will be. If we don’t get rid of the incentive to loot, the only question is what form the next round of looting will take.

DAVID LEONHARDT: The Looting of America’s Coffers

[Emphasis added]

GM and GE, and others are "too big to fail," too, and with their financial subsidiaries, they function like banks. They need to be broken up, along with the financial and insurance giants, before they eat us and our children again.

"...To overcome the Accounting System at GE, which was used to camouflage earnings in a business unit, they had to invent the Dashboard, which gave management insight into how the processes were doing, (I wondered how they did their capital budgeting and NPV studies)..."

You raise a rather interesting paradox which confronted a typical GE business manager. That person needed to highlight just how well the business was doing while simultaneously hiding things from upper management. It's the classic case of trying to keep three sets of books at one time - one for the government, one for the owners and one for yourself so that you know just how you are performing.

My experience with accounting at GE was that they usually tried to respond to requests by the operating components within a business. If they didn't, it usually meant that reporting systems in place could not truly provide the information. Businesses do evolve, with new products and services being added and eliminated all the time and sometimes the reporting systems just don't have the right granularity to keep current. Generally, only being able to report gross numbers about chunks of a business results in management finding itself in a cul-de-sac because they invested less than wisely.

When the company barely managed to survive the real estate/energy credit collapse of the 1980s, CEO John Reed had the staff create a high level daily view of the risks of the bank, with the sense that they could turn dials and levers to control risk when necessary. I think they even called it the Dashboard and eventually Windows on Risk.

One of the criticisms of Sandy Weill after he kicked out John Reed was that he jettisoned the Dashboard, and had little interest in risk. John Reed often said it took a near-death experience for Citibank to get serious about risk management. Weill was able to retire from Citibank before anything blew up, but his personal wealth since then has taken a hit considering Citi's shares got down to $0.97/share. Still, he's not likely ever to say "I made a mistake getting rid of those risk management tools."

Several studies have shown that boards choose CEOs who are overwhelmingly male, taller than average, good looking, and almost always with a complete head of hair. This has some practical benefit and may be justified out in the open, since CEOs these days are media figures by the nature of the job. But there are dumpy, competent CEOs who avoid the television media except when necessary, so this argument is rather weak. The general observation, though, is that such males have advantages throughout their careers, and it is not just as CEOs and not just boards of directors who defer to them.

I once saw a startup where The Boss was 6'7 and The Executives were all 6'2. Really spooky.

Invader Zim took this out in a great way: invading space aliens are all short except for 2 guys who are tall. They are the leaders, known officially as "The Tallest". There's a great scene where an earthling asks an alien, "you really choose your leaders by whoever is tallest?". The alien merely has a blank look, as in "you have just poked at a repressed thought and my mind has frozen to avoid it".

When a computer startup I worked at was flipped to Enron by Archibald Cox, Jr. (!!) I learned about Rank & Yank. There were already hints of excessive bogosity but that nailed it. "Archie" BTW is also 6'7.

"Turning Japanese I think I'm Turning Japanese I really think so da-da-da det det det det" - The Vapors

Jack Welch didn't create all his ideas out of the blue. He had some favorite consultants that he brought along with him into each company or position he managed. I think his Neutron Jack nickname in the early days derived from the mass firing practices that he perfected having become convinced by a consulting firm that only such drastic pruning would save the company.

The role of consultants in American business has exploded in the past 25 years, and they had fertile ground to exploit because business was unsure how to compete in a globalizing economy (starting with NAFTA). There was no doubt some good work done here, but an incredible amount of CLAPTRAP was sold that did nothing but make money for the consultants.

How many millions of hours have corporations (and now government and the non-profit sector) wasted on Mission Statements and Visions? Haven't we all sat in meetings where words are carefully parsed by committee to the point where they are meaningless? The annual review has become a useless ritual where the employee learns to praise themselves up to a point but always include some modest failure that they can admit to and work on in the coming year. I often thought some company should manufacture and sell to U.S. corporations a product they would call THE BOX. Employees could then practice their skills at thinking outside of it.

If I were CEO I would decorate conference rooms with Demotivational Posters. These are the antithesis of the stupid and ubiquitous motivational posters of soaring eagles and mountain climbers practicing teamwork (and as you know, there is no I in teamwork).

America can only hope that its consulting industry manages to sell the same useless thinking and tools to Chinese and Indian companies. Then the competitive field will really be even.

If I may digress, I remember well the huge amount of time spent by administration revising the mission statement of the hospital I used to work at. As if a mere revision would miraculously result in improved patient care. I used to shake my head each time I read the hospital's motto on its stationary - "Inspired Care". What inspired them was how to cut back more services on the backs of the nursing staff, whose workload became humanly impossible - I've seen enough sweat dripping from the healthcare aids whose physical labour is comparable to that of construction workers. Just imagine having to give someone a bath who is trying to hit, scratch and bite you as is often the case with patients that are demented. "Inspired Care" indeed!

_{Tolerating prostitution is tolerating abuse and torture of women and children.}

Now I'm nostalgic. I remember seeing a major corporation's vision statement in the elevators of their Connecticut headquarters. It was a bunch of neologisms thrown together, very awkward. I asked one of my contact, someone who should known, what that was all about. He said, 'Oh, that crap in the elevator. Some board member said that we needed it so we had someone put it together.' These were easy people to deal with.

the Agonist has been crafting a mission statement for literally years now :D herding cats indeed

too bad we can't see. I'm sure some were very creative in saying what he should do to himself :D

But it's not worth it. His blog prints one response from a Mr. Dan Danford, and it is probably typical:

Dan Danford
3/13/2009 11:36 AM

You are absolutely right about this, Jack. The notion of managing a corporation for shareholder value is mother to financial engineering. Too many executives expend too many resources in trying to "make numbers" that support a higher share price. Long-term, share prices rise from growth and profits, not accounting practices. Drop the fancy finances and focus on serving customers. That alone creates shareholder value. I posted this on my blog (www.familyinvestmentcenter.blogspot.com) and on my Twitter feed, which is @family_finances. (I'm following Suzy there, by the way - when will you join us?)

I wonder if Mr. Danford is a consultant. He uses consultant-speak: "The notion of managing a corporation for shareholder value is mother to financial engineering." What the hell does this sentence mean? Did he intend to write "mother's milk"? Even so it doesn't make sense, and financial engineering refers to derivatives and quant models, so maybe he is telling Jack that GE Capital should never have gotten into this business.

It is one of the hallmarks of consulting and modern American management that communication be shrouded in made-up words and euphemisms, especially when bad things are about to happen to the employees ("We are right sizing").

I will say, Mr. Danford showed the proper fawning by bringing into the conversation Suzy Welch, Jack's trophy wife who tags along with him dispensing consulting advice to American corporations. Also, Mr. Danford showed his tech bona fides by mentioning Twitter and his blog, where he posted his insights for everyone to read. So he was properly sycophantic to the Master(s), yet sufficiently narcissistic to preen and sell himself. A perfect model of the Modern American Manager.

... nailed!

Donna Knezek
3/14/2009 7:10 AM

what were the origins of "rank and yank"? great site, btw.

yanno, sometimes I'm a little freaked out by being a real person and and an internet abbreviation. liz sez play this again:

It's from TIME magazine dated June, 2001. It tells of a growing trend to brand workers each year by performance percentile. The bottom ten percent are counseled to improve immediately, or in some cases they are simply forced out.

The two companies specifically cited for rank and yank? Sun Microsystems and Enron. It's interesting to read all the praise that Enron receives from various consultants for its aggressive work force, over-achievers, and of course its high growth rate of earnings.

Rank and yank is described as management's way to force lower managers to give negative reviews, and of course it is said to revitalize the company every year with new talent and fresh ideas. It turns out in Enron it resulted in a two day swap trading exercise among all managers to decide who that year would be in the lower 10%. Inevitably good performers from previous years somehow found themselves dropped down, possibly because so many other good performers had already been forced out.

Any corporate manager who wants to institute rank and yank Darwinian competition to his company deserves to get his bonus henceforth in Enron stock.

See: http://www.time.com/time/business/article/0,8599,129988,00.html

_{Tolerating prostitution is tolerating abuse and torture of women and children.}

but ya know what they do to people who are perfect?

they crucify 'em ;>
.............................
I had read a story about an old time French chef that used to go in and fire someone just to improve morale. Thought about doing it yesterday myself, in fact. but then I would have been washing dishes last night instead of posting videos :)

I'm thinking the roots go waaaayyyy back on this one. or way deep. maybe it's just Lent and I have a bee-yoo-tiful mind ;>

http://en.wikipedia.org/wiki/Parable_of_the_Talents

For the kingdom of heaven is as a man travelling into a far country, who called his own servants, and delivered unto them his goods.
And unto one he gave five talents, to another two, and to another one; to every man according to his several ability; and straightway took his journey.
Then he that had received the five talents went and traded with the same, and made them other five talents.
And likewise he that had received two, he also gained other two.
But he that had received one went and digged in the earth, and hid his lord's money.
After a long time the lord of those servants cometh, and reckoneth with them.
And so he that had received five talents came and brought other five talents, saying, Lord, thou deliveredst unto me five talents: behold, I have gained beside them five talents more.
His lord said unto him, Well done, thou good and faithful servant: thou hast been faithful over a few things, I will make thee ruler over many things: enter thou into the joy of thy lord.
He also that had received two talents came and said, Lord, thou deliveredst unto me two talents: behold, I have gained two other talents beside them.
His lord said unto him, Well done, good and faithful servant; thou hast been faithful over a few things, I will make thee ruler over many things: enter thou into the joy of thy lord.
Then he which had received the one talent came and said, Lord, I knew thee that thou art an hard man, reaping where thou hast not sown, and gathering where thou hast not strawed:
And I was afraid, and went and hid thy talent in the earth: lo, there thou hast that is thine.His lord answered and said unto him, Thou wicked and slothful servant, thou knewest that I reap where I sowed not, and gather where I have not strawed:
Thou oughtest therefore to have put my money to the exchangers, and then at my coming I should have received mine own with usury.
Take therefore the talent from him, and give it unto him which hath ten talents.
For unto every one that hath shall be given, and he shall have abundance: but from him that hath not shall be taken away even that which he hath.
And cast ye the unprofitable servant into outer darkness: there shall be weeping and gnashing of teeth.

but really. it still relies on exponential growth. but people do multiply exponentially. theorectically, anyhow. all I know is I've got people's children to take care of now, and therefore it's time to grow. it's a tough nut, that one. however I still beloeve usury to be a sin. jubilee, baby, jubilee.

re: rank and yank. I'm thinking more along the lines of scapegoating. Jesus was a scapegopat, yanno? that's only the one I'm most familiar with. I'm sure there are others. like the third guy in the parable
for the love of money

When I consider how my light is spent
E're half my days, in this dark world and wide,
And that one Talent which is death to hide,
Lodg'd with me useless, though my Soul more bent
To serve therewith my Maker, and present
My true account...

i been wrestling a lot lately with the whole magilla...

jack welch seems a pimple on the boil of the world in perspective -and when i think of GE, i think of NASA and the military, not lightbulbs. world class corporate management, as an art, has been defiled to put it mildly, on levels higher.

ohhh yes, we do have to return to ground level as humans. societal constraints at this point are so stringent they're buckling, and it's imperative we retain our capacity for viewing reality as a blank canvas we may freely act upon. we have more personal obligations to meet now than societal -one is the other. art is more obligatory than ever, with the act almost more important than the result. it's imperative.