Former GE CEO Jack Welch spoke at the Marshall School today to pitch his new book, _Winning_, and, since I RSVPd for a ticket immediately, I actually got to get into the event and look at the back of someone’s head while listening to Welch talk for two hours (Jason, you have exactly five gray hairs). Actually, it was a really incredible speech and I was very impressed by Jack Welch’s clear, straightforward style and his blunt (although not-particularly-offensive) honesty. A good role model for us all and a lot of great food for thought. I’ll probably turn into a corporate tool and buy _Winning_ now to read what Jack Welch had to say in print.
Yeah, sorry, this is probably going to be one of those un-funny entries; I’m going to mostly report and include very little commentary. Hopefully it will, as we say in b-school, add value.
Welch certainly added value. I’ll admit I was a bit skeptical at first that he would just pitch his book; but the forum, which was designed as an interview of Welch by famous leadership scholar and Marshall Prof Warren Bennis, really got Welch to say some useful and topical things. Some of the subjects upon which Welch spoke included (in no particular order):
* Outrageous CEO pay packages and severance bonuses
* His famous employee ranking system at GE
* How to make good hires
* The only three metrics you need to run a company
* Expensing options
* How to prove yourself in your first job
* The difference between being an employee and a boss
* And much, much more that I should have rememebered but, darn it, I forgot already!
When Welch retired from GE, there was a bit of a brouhaha over who his successor would be; there were three qualified individuals who had been groomed for the post. One was chosen, and the other two left within about ten days of the choice. A lot of people said “too bad you couldn’t keep those other two qualified people,” but Welch doesn’t feel that way, for four reasons:
* Keeping the “losers” would have created cliques of people who thought “they should have hired the other guy!”
* What kind of an example does it set to have a bunch of #2s around?
* Make room for the up-and-coming young execs! Don’t keep people around who won’t be promoted further.
* The two “losers” deserved CEO spots, and got them; they just had to go elsewhere.
The two passed-over execs have been very successful CEOs at other companies, and Welch’s successor has been successful at GE.
When Welch ultimately retired, he told his replacement to feel free to tear everything down, despite GE’s incredible success over the last 20 years. “Imagine you lived in a house for 20 years,” explained Welch, “you’d think everything was fine. You’d think the carpet was fine, that the arms on the chairs were fine. Then you sold the house, and the buyers came in and they said, ‘look at the holes in this carpet, look how threadbare the chairs’ arms are.’” Welch expected change when he left, and he felt he had the right man around to move things forward.
Welch is a big believer in building internal succession plans; not least, without such a plan, you run the very real risk of ending up paying:
h3. Outrageous CEO Pay and Severance Packages
Welch specifically called out the example of Carly Fiorina here, not because he felt she had a particularly inapproporiate package but because she was a good example. “You’re HP,” he said, “you’ve just fired your CEO for incompetence, and you want to hire someone new. What do you have to do to hire Carly Fiorina away from her good job as CEO of Lucent?”
Think about it from Fiorina’s point of view: you’re hired to take over a floundering company, bring it back from the brink, leave a solid job with a successful company in which you look good and from which you probably don’t need to worry about being fired. Oh, and if you fail in this new job you’ll probably do so spectacularly enough that you’ll never find another job. How much would you want to see your pay be? How much would you want your severance package to be?
Similarly, Tyco’s new CEO was hired away from a good VP position at Motorola to take over a company in bankruptcy that might be liquidated. He turned Tyco around. What do you think it takes to get someone to quit a good job and go to another that might not be around in a month? Money. If you groom internal successors, you don’t need to “bribe people to come to work for you”.
h3. Employee Ranking at GE
During Welch’s tenure, GE instituted a revolutionary ranking system: everyone was ranked by their boss as either in the top 20%, the middle 70%, or the bottom 10%. The bottom 10% were fired. Welch admitted that suddenly instituting this program, without building up to it over a period of time, was a major mistake. “A guy gets a bottom 10% rating and is shown the door. ‘Wait a minute,’ he says, ‘I’ve been here 23 years and nobody ever told me I was in the bottom 10%!’” Of course that’ll cause problems! Make big changes part of a whole plan and sell it first.
h3. How to Make Good Hires
This anecdote was based on a question Welch got at an earlier speech. Welch said the one question to ask anyone you are thinking about hiring was “why did you leave your last job?” From that you’ll learn about dreams, about initiative, about interaction patterns, about who’s a whiner and who’s a worker, and more.
h3. The Only Three Metrics You Need to Run Your Business
# Customer Satisfaction
# Employee Satisfaction
# Cash Flow
“If your customers are satisfied then you’re growing share. If your employees are satisfied then you’re making productivity gains. If you have strong cash flow then you’re making money.” Oversimplified, but philisophically very sound.
Welch is no big fan of SarbOx; he thinks it is far too burdensome on small companies. He’s particularly against the requirement for independent directors: “what makes you think you want a poet on your board more than you want Warren Buffett?” he asked. Welch’s proposal: index the requirements to firm size, with lighter requirements for smaller firms.
h3. Expensing Options
Welch is famous for making GE one of the first companies to pervasively use options as part of compensation. “I’m proud that 90% of options at GE went to regular guys,” he said. Of course, at the time, options didn’t have to be expensed; now they increasingly are being expensed, and Welch doesn’t like it. “The fat cats will always get their options,” he explained, “it’s the little guy who’ll lose them.” Welch thinks that the old way of doing it was adequate, because the footnotes showed how dilutive the options were.
“The only thing a mentor is good for is to show you where the coffee is and where the lunchroom is,” said Welch. He’s not a fan of mentoring programs, because he thinks such programs cause people to put all their eggs in one basket. Welch encourages everyone to have as many mentors as possible and not risk getting attached to one “turkey” who will take you down when they fall.
h3. How to Prove Yourself in Your First Job
Overdeliver. “Never do what your boss says.” Always do more.
h3. The Difference Between being an Employee and being a Boss
When you’re a boss, it’s not about you anymore, it’s about your employees. Welch related an anecdote: “A manager I knew asked me once, ‘Jack, I have ten employees and two of them are just smarter than me. How do I evaluate these two people?’ I said ‘What the hell’s wrong with the other eight?’”
That’s my not-so-brief summary of what I learned from Jack Welch. Interesting and thought-provoking all! Also I learned to show up early for popular events so that I don’t get stuck in the back, which is probably a good lesson for some point in my life.
I would highly recommend trying to hear him speak if you get the chance. I think you’ll be impressed, like me, by what a straight shooter he is. Now if only I weren’t on a fixed income I’d go out there and buy _Winning_.
If you’re interested in the topic, I’ve got a bit more “information on leadership”:http://cleverbird.com/wiki/LeadershipTechniques/LeadershipTechniques from other perspectives over at “Cleverbird”:http://cleverbird.com.
_Update: Check out the “Daily Trojan’s article”:http://www.dailytrojan.com/news/2005/04/27/News/Welch.Imparts.Business.Knowledge-941139.shtml on the speech, it mentions a few details I forgot._