🎧 Listen: In today's episode of The Journal podcast, tgryta details how the management philosophy of General Electric, which had a reputation as the company whose leaders knew how to run any kind of business, fell back down to earth
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Tom Gryta: To me this is like, the mythology of GE. That for decades, people looked at GE as the example of corporate excellence. And, of course, it's decline was moved along through mismanagement. Tom Gryta: They get into the healthcare business through building one of the first x-ray machines. They designed a turbo for an engine that would enable planes to fly higher.
Kate Linebaugh: The idea was that with so many different businesses, GE could ride out the economy's ups and downs. But taking all these disparate divisions with thousands of employees, required strong leadership. And that role fell on Jack Welch when he became CEO in 1981. He'd risen up through GE's plastics division, and he had a management style that quickly set him apart.Jack Welch: If you're running a company, you better get your butt out into the field.
Jack Welch: The best thing you can do to an employee is early on, as early as you know they're the bottom 10, let them know. So they can go on and adjust their life, and get in the right game in the right level of company. That's in my view, a kinder, gentler company than the company that winks at the truth.Tom Gryta: GE's Stock was doing very well in the late 90s. I think his straight from the gut gruff attitude at winning, that was admired, because of the performance.
Tom Gryta: It might be easiest to think of him as just being so different from Jack. He didn't have that gruff, rank-and-yank, make your numbers or else. He's very good at talking to people. He knows how to work a room. He's optimistic, and could be captivating, almost like a politician. Tom Gryta: It either reveals or creates a problem they have to solve, which is that GE Capital was just pivotal to them making their numbers. It created this gaping hole where they used to have a lot of earnings power.
Tom Gryta: He said there would be huge upside from this deal. And that the opportunity for it was just ... it was going to change what GE was. And this was going to be the beginning of the new GE, focused on its industrial operations. But Alstom was in worse shape than they thought. And the review of the deal was more than a year. In that time, Alstom deteriorated. It got even worse.
Tom Gryta: They cut the dividend, which is, gasp, for GE. And he makes this statement, which is shocking. Is that GE has not been producing enough cash flow to cover its dividend for years, which is nuts. That means they are paying a dividend to shareholders, but they don't actually have the cash. Now, you should only be doing that with excess cash, right? Just like you should only be buying back shares if you have excess cash.
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