Capitolo 4
The Decentralization Revolution
By the 1950s, GE had evolved into a manufacturing powerhouse producing 200,000 different products across 170 plants in 31 states and multiple countries. The company employed 250,000 people, maintained research laboratories with 20,000 scientists and engineers, and generated over $150 million in net income on more than $3 billion in revenue.
Ralph Cordiner, who became CEO in 1951, immediately implemented a radical decentralization plan that would fundamentally reshape how GE operated. He split the company into twenty-seven independent divisions comprising 110 small companies - each "for one man to get his arms around." Division leaders gained unprecedented autonomy to make day-to-day decisions, propose budgets, and approve capital expenditures up to $200,000.
Cordiner bluntly told Time magazine: "When I took over in 1951, I told lots of people immediately that this company was not going to be a sinecure for mediocrity." He eliminated "assistants, coordinators and committees," declaring that committees "move at the speed of the least informed member and too often are used as a way of sharing irresponsibility."
This reorganization - one of the largest in corporate history - faced immediate resistance. Cordiner shifted two thousand managers to new assignments across the country, disrupting families and careers. Executives accustomed to giving orders were told to step back, serving only as consultants to newly empowered operating executives.
The decentralization created a culture where price-fixing thrived, however. The conspiracy operated with elaborate secrecy - executives used code names, maintained "Christmas-card lists" of conspirators, and held "choir practice" meetings in hotel rooms. Each company had a number (GE was 1), and participants used only first names. The cartel in circuit breakers allocated market share precisely: GE 45%, Westinghouse 35%, Allis-Chalmers 10%, and Federal Pacific 10%.
What drove this behavior was both industry volatility and Cordiner's relentless pressure for results. As one executive explained, "Each year we had to budget for more profit as a percent of net sales," creating a situation where managers felt "we couldn't accomplish a greater percent of net profit without getting together with competitors." The conspiracy was eventually exposed in 1959, leading to criminal charges and a significant blow to GE's reputation.
Capitolo 5
Jack Welch: The Rise of a Corporate Legend
Jack Welch joined GE in 1960 just as the price-fixing scandal was unfolding. After discovering his $1,000 raise matched everyone else's despite his superior performance, Jack "went apeshit" and quit to take a job elsewhere. However, Reuben Gutoff, impressed by Jack's presentation about plastic pellets, convinced him to stay with a $4,000 raise and freedom from his former boss. "All of a sudden I had a rabbi," Jack said of Gutoff. "This guy loved me. He was a slick operator. I learned from him."
For the next seventeen years, Jack ran GE's Pittsfield operation like his personal fiefdom, complete with his own private jet and office space in a downtown Hilton. His early career survived potential disasters, including when the PPO factory literally exploded in 1963. Though responsible for the incident, Jack was spared by Charlie Reed, a fellow chemical engineer who took a clinical rather than emotional approach to the failure.
Jack's ambition drove the development of Noryl, a modified version of PPO created after discovering the original formula became brittle at high temperatures. Under his leadership, Lexan became a wildly successful product that was "clear as glass and tough as steel." Jack marketed it aggressively, hiring baseball stars Bob Gibson and Denny McLain to demonstrate its durability.
Following the deaths of both parents in the mid-1960s, Jack threw himself into both work and play. He and his "band of Indians" engaged in "frequent parties at local bars" and "behavior that wasn't the norm" - all while his wife Carolyn remained home caring for their four children. Jack's wild behavior included insulting colleagues, "goosing" a colleague's wife at a dinner party, and frequenting local bars with his "Jack Pack."
Despite this behavior - which faced no accountability in the pre-internet, pre-#MeToo era - Jack's career continued its upward trajectory. By March 1972, at just 36, he became a GE vice president, earning his first mention in The New York Times and building what amounted to "an entire shadow-GE" through his ambition and energy.
Capitolo 6
The Succession Battle
When Reginald "Reg" Jones announced his retirement as GE's CEO in 1980, Jack Welch found himself competing against five other executives for the top job: Robert Frederick from corporate planning, Stanley Gault from industrial products, Tom Vanderslice from power systems, Ed Hood from technical products, and John Burlingame from the international division.
Jack hated the daily competition, feeling he was "walking on eggshells" and watching colleagues "kissing ass." Without his mentors Gutoff (who had left) and Weiss (who had died), Jack felt isolated in the unfamiliar corporate environment.
In June 1980, Jones asked Jack to write a memorandum explaining why he deserved to be CEO. Jack's eight-page letter was characteristically self-deprecating, charming, ambitious, and serious. He highlighted his leadership capabilities, noting that people working with him "have worked harder, enjoyed it more, although not always initially, and in the end, gain increased self-respect from accomplishing more than they previously thought possible."
After submitting his memo, Jack began receiving positive signals about his candidacy. At a summer party, he cornered HR partner Dave Orselet, who reluctantly revealed enough to make Jack optimistic. In September 1980, board member Ed Littlefield invited Jack to be his golf partner at the exclusive Cypress Point tournament, where Jack hit his first hole-in-one in thirty years.
On December 15, Jones officially informed Jack he would become CEO, with Hood and Burlingame staying on as vice-chairmen. At the announcement press conference, Jack declared himself "the most happy man in America today." Years later, Jack estimated the reaction was split: "forty percent cheered, twenty percent didn't know, and forty percent died. Hated the fucking thing. Hated the idea that Jack Welch had won."
The transition wasn't entirely smooth. At a February party Jones threw for Jack at the Helmsley Palace Hotel, Jack enjoyed himself thoroughly, having "a few extra vodkas" and socializing enthusiastically. The next morning, Jones angrily accused Jack of embarrassing him and the company. Jack was devastated until Jones returned hours later to apologize, having received over twenty calls from guests praising the event. "That's who I am," Jack told Jones, who admitted, "I never saw that. They all saw it, but I never saw it."
Capitolo 7
Neutron Jack's Revolution
Jack wasted no time transforming GE. One early target was the Elfun Society, an organization of GE executives he considered "an organization of suck-ups" representing "superficial congeniality." At their annual leadership conference, Jack bluntly told them, "I can't find any value to what you're doing. You're a hierarchical social and political club." Within weeks, Jack had transformed Elfun into a community volunteer organization of 42,000 members focused on building parks, playgrounds, and libraries.
Jack made his Wall Street debut at the Pierre Hotel, presenting to research analysts without mentioning a single earnings number. Instead, he summarized Carl von Clausewitz's military theories, arguing that in the slow-growth 1980s, companies must "insist upon being number one or number two" in every business or exit them. He posed Peter Drucker's famous question: "If you weren't already in the business, would you enter it today?" The analysts were unimpressed-GE's stock rose just 12 cents after his presentation.
In January 1983, Jack sketched his vision for GE on a restaurant napkin, drawing three interlocking circles representing GE's focus areas: "core" businesses (major appliances, lighting, turbines, transportation, motors), "high technology" businesses (medical, aerospace, aircraft engines, materials, industrial electronics), and "services" businesses (financial, information, construction and engineering, nuclear). Any business outside these circles, Jack decided to "fix, sell, or close."
Jack was determined to slim down GE's bureaucracy, firing forty thousand employees in his first nine months and another sixty thousand during his first two years. The media nicknamed him "Neutron Jack"-like the neutron bomb, he eliminated people but left buildings standing. Bob Nelson, his head of human relations, thought the nickname was accurate: at Appliance Park in Louisville, Jack cut the workforce in half while keeping the six big factories.
Jack's factory visits struck fear in local managers-rumors spread that fat people were told to stay out of sight, and one plant manager even kept a list of deceased employees to show progress in job reductions. Ironically, Jack's cuts nearly destroyed the economy of his beloved Pittsfield, where 80% of GE's workforce disappeared, with similar decimation in Schenectady and Waterford.
Capitolo 8
The Dealmaking Machine
By the mid-1980s, Wall Street dealmaking had captured America's imagination, becoming the subject of films like Oliver Stone's "Wall Street" and Tom Wolfe's novel "The Bonfire of the Vanities." Investment bankers achieved celebrity status in wealthy communities, and Jack Welch was not immune to the magnetic pull of financial dealmaking.
Jack desperately wanted a television network, seeing it as a business foreigners couldn't own due to regulations - protection from the Japanese competitors he feared in manufacturing. After an unrequited interest in CBS and Capital Cities Communications buying ABC, Jack set his sights on RCA, which owned NBC. Ironically, GE had been forced by the Justice Department to divest RCA back in 1933, and a recently eliminated consent decree now made repurchasing possible.
The RCA board voted 9-1 to pursue a deal with GE, with Frederick being the lone dissenter. Jack offered $66.50 per share in cash - deliberately "50 cents more than expected" to leave goodwill when "the seller's ongoing involvement was important to the company's success." The $6.3 billion acquisition - the largest non-oil merger in history - took just 36 days from first meeting to announcement, cementing Jack's reputation as a savvy dealmaker.
Jack methodically dismantled the pieces of RCA that didn't fit his "best-in-class" vision for GE. He sold RCA Records to Bertelsmann, TVs to Thomson, radio to Westwood One, and spun off the carpet business. The David Sarnoff Research Center was given to SRI International with $250 million in contracts. These sales generated around $1.3 billion, plus another $1 billion from the Thomson deal.
Jack's deal with Thomson was particularly brilliant. While entertaining customers at the French Open, he met with Thomson chairman Alain Gomez and proposed swapping GE's TV manufacturing business for Thomson's medical imaging business, CGR. Though Gomez initially resisted selling CGR, he was enticed by the opportunity to become the world's largest TV manufacturer. Thomson paid GE $1 billion in cash and transferred valuable patents generating $100 million in annual after-tax profits for fifteen years. The deal tripled GE's market share of medical equipment in Europe to 15 percent.
When Grant Tinker declined to stay as NBC's leader despite Jack offering "an ocean of money," Jack appointed his friend Bob Wright to run the network. Despite industry skepticism about "how this GE guy could run a network," Jack was determined to streamline operations. In a closed-door session with NBC executives in 1987, Jack praised the network's accomplishments but warned that some "turkeys" would soon be looking for work.
Capitolo 9
The Financial Engine: GE Capital
While Jack Welch was transforming GE's industrial businesses, he recognized the untapped potential in GE Credit (later GE Capital). Despite his limited financial background, Jack's instinct told him the business could be transformative. Originally focused on financing GE appliance purchases, the unit had expanded into equipment leasing, second mortgages, commercial real estate, manufactured homes, and private-label credit cards.
Jack was impressed that GE Credit generated per-person profit of around $9,500 in 1977, compared to just $2,100 in his plastics business. "To play with money was so much better than bending metal," Jack observed. Under his leadership, GE Credit pioneered what later became known as the high-yield or "junk bond" market - profitably lending to less creditworthy customers.
By 2000, the renamed GE Capital grew from $67 million in earnings with 7,000 employees to $5.2 billion with 89,000 employees. The success hinged on GE's AAA credit rating (allowing it to borrow money more cheaply than banks) and using GE Capital to reduce taxes on industrial earnings through strategic depreciation arrangements.
GE Capital expanded into buying accounts receivable, financing leveraged buyouts, manufactured homes, real estate purchases, and more - all under an 8-to-1 leverage ratio presented to Wall Street as one big business without transparency into individual segments.
By the end of the 1980s, GE Capital had transformed from a $115 million profit center to a financial powerhouse generating nearly $1 billion in profit, contributing 20.7% of GE's net income. This shift toward financial services drew scrutiny from financial analysts.
In October 1990, money manager David Tice published a critical analysis in Barron's, questioning Jack's expansion into financial services. After his article, GE's stock fell 3% on Monday morning, eventually dropping 9% in one week and 27% from its July high. GE went on the offensive with investor conference calls where Larry Bossidy defended GE Capital's practices, claiming earnings grew 20% in the first half of 1990 with projected 15-20% growth in the second half.
Inside GE, the problems in the LBO group were significant enough that managers warned junior employees to be cautious in meetings with Jack. During one "skip-level meeting," Jack directly confronted an employee about troubled assets, demonstrating he already knew about the problematic companies at GE Capital. Jack bluntly told the group, "If we blow up GE Capital right now, our P/E is going to go from eleven to two, and there's nothing in the world I could ever do as CEO that would ever compensate for that."
Capitolo 10
The Succession Dilemma
As Jack Welch approached retirement, the question of succession loomed large. Unlike his predecessor Reg Jones, who had put Jack through a public competition, Jack was determined to handle succession differently. By 1998, the field had narrowed to three finalists: Jeff Immelt (medical systems), Jim McNerney (aircraft engines), and Bob Nardelli (power systems). Jack deliberately kept them stationed away from headquarters to prevent them from trying to curry favor with him in Fairfield.
The board's Management Development and Compensation Committee spent nearly four hours wrestling with the pros and cons of each candidate. Though Jack was fighting not to make up his mind prematurely, Cornell president Frank Rhodes suggested Immelt was "the One" - a choice Jack, Dennis Dammerman and Bill Conaty agreed with, though they weren't ready to make it official.
Despite the growing consensus around Immelt, board member Ken Langone revealed McNerney had been "shopping around" for jobs outside GE, effectively removing him from consideration. Langone believed Nardelli was never truly in contention but merely a "stalking horse," claiming Jack had already decided on Immelt and simply wanted to create "this magnificent moment."
The decisive board meeting took place October 29 in Greenville, South Carolina - home of GE's power systems business run by Nardelli. After a day of golf at Augusta National, the board convened for dinner at the exclusive Poinsett Club. Bob Wright, NBC CEO and newly appointed GE vice-chairman, recalled Jack seemed "uncommonly nervous" as he initiated an informal succession discussion. When Jack asked Wright for his recommendation, Wright supported Immelt, though he later admitted he personally preferred McNerney but had promised Jack his support.
Though Jack portrayed the decision as unanimous, Langone revealed that Paolo Fresco objected to Immelt's selection, arguing emphatically for McNerney. Denis Nayden at GE Capital agreed with Fresco, believing McNerney was superior "hands down" as a leader. Nayden criticized Immelt as lacking people skills, contrasting him with Jack who, despite being opinionated, would listen to others and could be persuaded to change his mind.
Jack faced the difficult task of telling McNerney and Nardelli they hadn't been selected. On a stormy Sunday, he flew first to Cincinnati to meet McNerney, who joked about wanting a recount like the ongoing Florida election dispute. Though disappointed, McNerney remained gracious. Jack then flew to Albany to tell Nardelli, who took the news harder, asking "What more could I have done?" Jack insisted both men would make excellent CEOs elsewhere.
Capitolo 11
Immelt's Inheritance: A Company at Its Peak
When Jeff Immelt took over GE on September 10, 2001, the company was trading near $40 per share with a market value approaching $400 billion, ranked as both the "most respected" and "most admired" company globally. However, the days that followed would reveal a stark contrast between the popular perception of GE and its reality.
The September 11 attacks immediately tested Immelt's leadership. With his executive team scattered across the country, he coordinated GE's response through teleconferences. The crisis demanded immediate action as GE faced multiple challenges: two employees killed, canceled NBC commercials costing hundreds of millions, reinsurance exposure to both towers and all four planes totaling a billion-dollar write-off, and existential questions about GE's massive aviation business.
When markets reopened on September 17, GE's stock immediately lost $40 billion in value, with another $50 billion vanishing three days later-a 25 percent decline on top of the one-third drop since August 2000. GE's stock liquidity made it an easy target for investors needing cash. Immelt was shocked when GE's largest shareholder dumped half its stake, claiming ignorance about GE's reinsurance exposure. This revealed a troubling reality: "People didn't really know why they owned GE at that moment in time."
Many GE observers believed Immelt should have used the post-9/11 period to "reset" Wall Street's expectations about GE's earnings. He could have ended Jack's practice of managing earnings, taken necessary write-downs, and defused the ticking time bombs in GE's balance sheet. Jeffrey Sprague, a Wall Street analyst, noted: "9/11 was a terrible event, but it did provide an opening to reset things, and he really chose not to do it." Years later, Immelt admitted: "I wish I had reset the company in 2002."
Following the collapses of Enron, WorldCom, and other major companies due to accounting scandals, media and investors grew increasingly skeptical about corporate disclosure practices. GE, with its remarkably consistent earnings record, became an obvious target. Even Fortune magazine, which had just named GE the most admired company for the fifth consecutive year, joined the skeptics. The financial precision once admired was now viewed with suspicion, with one analyst noting that companies delivering reliable 15% growth were "the new smokers." Immelt defended GE's practices, insisting, "We don't manage earnings, we manage businesses."
Capitolo 12
The Financial Crisis and GE's Near-Death Experience
By mid-2007, warning signs emerged as GE's credit-default swaps costs surged from twelve to sixty-four basis points - a fivefold increase. Despite this, Immelt relied on McKinsey's optimistic assessment that GE Capital would remain well-funded through sovereign wealth funds, overlooking the fundamental risk of operating "an industrial company inside a bank."
In April 2008, GE shocked markets by missing earnings projections by $700 million, causing its stock to plunge 13% in one day. Immelt finally acknowledged that GE Capital had long served as an "earnings candy store," but the financial crisis made selling assets nearly impossible. This prompted Jack Welch to publicly criticize Immelt on CNBC, declaring he had a "credibility crash." Immelt responded privately to Welch, confronting him about the difficult legacy he'd inherited.
The 2008 Lehman Brothers collapse brought GE to the brink. Unable to become a bank holding company or access TARP, GE faced a crisis when initially excluded from the FDIC's Temporary Liquidity Guarantee Program. This exclusion effectively rendered GE's long-term debt worthless, as investors favored competitors with government guarantees. After intense lobbying and paying $2 billion in fees, GE Capital gained access to the program, ultimately issuing $131 billion in FDIC-guaranteed debt. Immelt later described the experience as "like having the stomach flu for eighteen months," though he managed to navigate the crisis without revealing its full severity.
Capitolo 13
The Final Unraveling
By 2015, after fourteen years at the helm, Immelt believed he had finally turned the GE battleship in the right direction. GE Capital was being unwound, the SIFI designation would soon disappear, and the Alstom deal had closed. Trian Partners' $2.5 billion investment seemed to validate Immelt's strategy. Despite challenges in oil and gas, Immelt projected confidence from the SNL stage he'd rented for his annual state of the union. One hedge fund investor remarked, "A year ago, only twenty-five percent of the people in this room would have supported Jeff. Today he is a god."
However, GE's power business, particularly after the Alstom acquisition, was imploding. The company had miscalculated demand for the H turbine and maintained an optimistic market outlook while competitor Siemens correctly predicted a downturn. As pressure mounted to hit Power's numbers, executives resorted to desperate measures. Paul McElhinney, who ran Power's service business, pushed Joe Mastrangelo, head of new units, to build billions of dollars worth of "upgrade kits" (profitable turbine upgrades) without orders. Eventually, Mastrangelo relented and built the kits at a cost of $2-3 billion, but as he predicted, they couldn't be sold and became worthless inventory.
By early 2017, the Power business was severely underperforming. After missing its 2016 target by over $500 million, tensions between Immelt and division head Steve Bolze reached new heights. Immelt blamed Bolze for GE's overall earnings miss, while Bolze seemed oblivious to the severity of the situation, even celebrating Power's performance.
Despite mounting evidence that GE couldn't achieve its promised $2 per share earnings target for 2018, Immelt doubled down at the annual Electrical Products Group meeting in Florida. When pressed by analysts, he defensively insisted that "$2 should be at the high end of the range" for 2018 earnings. His performance deteriorated as he faced tough questions, eventually snapping at JPMorgan analyst Steve Tusa, swearing, and making awkward jokes. One executive called it "a fucking disaster" while a research analyst described it as "flat as hell."
Following this disastrous performance, Trian's Ed Garden called Immelt to say, "It's over. People have stopped listening. You have no credibility." Board lead director Jack Brennan contacted Immelt to discuss a timetable for stepping down, with the goal of naming a new CEO before the end of the second quarter.
On June 12, 2017, GE announced that John Flannery would become CEO on August 1. The press release misleadingly claimed succession planning had been underway since 2011. At the analyst meeting, Flannery praised Immelt but acknowledged problems needing "urgency and purpose," promising a "comprehensive" portfolio review by fall. While Immelt's departure caused GE stock to rise 4 percent, another problem was quietly emerging - CFO Jeff Bornstein had ordered an actuarial review of a long-forgotten insurance liability at GE's Kansas subsidiary that would become a ticking time bomb for the new CEO.
Capitolo 14
The Final Chapter: Dismantling an American Icon
Flannery's tenure would be short-lived. In January 2018, he announced a $9.5 billion pretax charge ($6.2 billion after tax) related to GE's insurance businesses, requiring $15 billion in capital contributions over seven years. GE Capital suspended dividend payments to GE, and the company faced potential fines over WMC, the mortgage originator acquired during Immelt's tenure.
In June 2018, Flannery announced the board's unanimous support for his vision: GE would separate its healthcare business through a 20% IPO (using proceeds to pay down debt) and spin off the remaining 80% to shareholders. Combined with the previously announced merger of GE's transportation business with Wabtec and the spin-off of Baker Hughes, GE would become focused primarily on aviation and power systems. Ironically, on the same day as the breakup announcement, GE was dropped from the Dow Jones Industrial Average after being a component since 1907.
In July 2018, Flannery reported disastrous second-quarter earnings for the Power division. Orders were down 26% year-over-year, with gas power systems equipment orders plummeting 78%. The power market had collapsed 50% in two years - GE sold 107 gas turbines in 2017 but expected only 50 in 2018.
With operational challenges mounting and the stock price collapsing, GE's newly reconstituted board began asserting itself. Led by Ed Garden and Larry Culp, the board contemplated the once-unthinkable decision of firing Flannery after just fifteen months and replacing him with Culp, who would become the first outsider to lead the company in its 126-year history.
On October 1, 2018, GE announced Flannery had "resigned" and reduced its 2018 earnings guidance, confirming a $23 billion impairment charge for the power business. Flannery left in shock, walking his dogs with his wife on Beacon Hill, trying to understand what had happened.
On November 9, 2021, Larry Culp announced the end of General Electric after 129 years, breaking it into three separate companies: healthcare (to be spun off in 2023), energy (to be spun off in 2024 and renamed GE Vernova), and aviation (keeping the GE name with Culp as CEO). This decision essentially implemented Flannery's plan without acknowledging its origin. The announcement marked the final capitulation of what was once the world's most admired and valuable company.
Capitolo 15
The Lessons of GE's Downfall
Steve Bolze, who nearly became CEO, identified "three Cs" that went wrong at GE: capital allocation, corporate governance, and culture. Under both Welch and Immelt, too much capital went to GE Capital and unsuccessful M&A deals. Immelt overpaid for acquisitions, including Alstom, while selling NBCU cheaply. On governance, Bolze noted GE executives weren't trained in corporate governance at Crotonville, focusing instead on leadership. The board grew too large after GE Capital became a SIFI, and the company accumulated excessive debt. Finally, GE's culture deteriorated from Jack's "four Es" (edge, execution, energy, energize) and "three Ss" (simplicity, speed, self-confidence) to Immelt's relentless push for growth without sufficient focus on profitability.
One Wall Street analyst attributed GE's failure to the hubris of Harvard MBA training, arguing that the very skills that made Immelt a finalist to succeed Welch-creating persuasive presentations, flipping objections into sales points-ultimately led to "success theater" rather than actual performance. The analyst suggested that Immelt failed to recognize that energy is fundamentally a commodity business where technology doesn't improve product quality but merely increases supply, driving down global prices.
Jim Grant of Grant's Interest Rate Observer diagnosed GE's fundamental problem as "a loss of moral compass" and the conceit of a company believing it could do no wrong. This hubris led GE to operate without backup lines of credit for billions in commercial paper borrowings and to ignore the inherent cyclicality of financial services businesses. As Grant told former United Technologies CEO George David, GE would eventually have to "burn their furniture" to keep going. David replied, "There's a whole lot of furniture to burn." Eventually, Grant noted, "There was a lot of furniture burned until the kindling caught fire, and then it all went up in smoke."
Despite GE's dramatic fall, the company's technological legacy remains formidable. GE continues its tradition of innovation with over 35,000 active patents. Recent breakthroughs include the "Affinity" engines for supersonic jets, the GE9X (world's most powerful commercial jet engine), sustainable aviation fuel development, and work with Airbus on hydrogen-powered engines that could enable zero-emission flights by mid-2030s.
At the Research Center in Niskayuna, New York, scientists work on cutting-edge technologies like bioelectronic medicine, using noninvasive ultrasound to treat chronic diseases by stimulating neurons. The Additive Manufacturing lab demonstrates how 3D printing revolutionizes manufacturing - consolidating 355 parts in the Catalyst aircraft engine into a single part, increasing power by 10% while reducing weight by 20%. Edison's quote in the lobby captures the spirit that drove GE's innovation: "I find out what the world needs, then I proceed to invent it."
