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Optimism, leadership, and productivity have been three of the characteristics that have moved this country to a special place in front of the nations of the world.
--Jack Welch, 1992

Opportunity is missed by most because it is dressed in overalls and looks like work.
--Thomas Edison

Why and how Jack Welch, a guy who works in an office and talks a lot on the telephone, captured the imagination of the type of people that once looked to the likes of Winston Churchill or Dwight D. Eisenhower or John F. Kennedy for inspiration? It was a matter of circumstances. "People tend to pick out heroes for each era," said Gerald Gunderson, professor of American business and economic enterprise at Trinity College in Hartford, Connecticut. "The world quieted down. In the 1980s and 1990s business became more important in people's minds again. Politicians seem less vital."

A man for the time in which he lives, Welch could not have achieved anonymity if he wanted to, claimed Gunderson. "Society would not allow it. Leaders are adopted as symbols or mental shortcuts to explain an otherwise complex and confusing world."

But to describe Welch as merely a lucky traveler in history is to sell his own contribution to success short. Welch ascended in GE because of his charisma and ability to lead, and brought remarkable vision to the job. Edward Morgan, who worked on the "GE Brings Good Things to Life" campaign and later left GE to head the organization that runs New York's historic Bowery Mission, said that he learned from Welch the importance of motivation. "You tell your people, 'We're going to create a shining goal.' That goal needs to be inspirational. It needs to be broad enough that it excites people inside and outside the organization."

Welch worked at GE for 40 years--in fact, he never had a full-time job anywhere else--but that isn't to say his thinking stayed in one place. He had to change. During Welch's career the public image of a chief executive officer was subject to several incarnations and reincarnations. In the 1970s the CEO was seen as a bumbling bureaucrat who couldn't even build a car that would hold together, and certainly could not produce a small, fuel-efficient automobile that could compete with Japanese models. In the 1980s the CEO was a rapacious plunderer, accused of laying off loyal workers so that he could buy a racier corporate jet or capitalize on his own stock options. Now, as one century ends and another begins, CEOs are regarded as a celebrity class, an aristocracy, visionaries with exceptional powers to create wealth through innovation, enlightened management, and manipulation of assets.

Indeed Welch's life and career have been shaped by the time in which he lives, just as they have been influenced by the place where he was born and raised. Welch's life has turned out the way it is supposed to in America--he's the walking, talking American dream come true.

WHO IS HE? A CLASSIC AMERICAN SUCCESS STORY.

General Electric surely is the most typically American of all companies, and Welch, the son of John F. Welch Sr., a Salem, Massachusetts, railroad conductor, is the most blatantly American of any chief executive in the world. In the predictably American way, Welch has little patience with tradition for its own sake, and, as might be expected, he is unintimidated by trappings of social class. Welch, who stuttered for most of his life, gives his mother, Grace Welch, much of the credit for his self-confidence. "She told me I didn't have a speech impediment," he recalled. "Just that my brain worked too fast." His tongue just couldn't keep up.

An energetic, imaginative self-starter who grew up in the historic port town of Salem, Massachusetts, Welch thrives on confrontation and is outspoken to the point of being brash. Yet he also is a captivating ruffian who still speaks with the accent and cadence of a Boston-area kid who's playing a tough game of sandlot baseball. His high school classmates called him the "most talkative and noisiest boy." Sports were always central to Welch's psyche. Since his school days Welch has been known as an aggressive hard worker, and as a kid he was able to incorporate work and play when he earned $3 a day caddying at the golf course near his home.

Welch was the first in his Irish-American, working-class family to attend college, though he was not able to attend an Ivy League school as he'd hoped. The college he attended, the University of Massachusetts, did not have the prestige of nearby Amherst and Smith Colleges, but it has had many other distinguished graduates, including Jack Smith, who is chairman of General Motors. The spartan UMass campus sits like an old New England mill town in the midst of rolling green hills, but it was fertile soil for young Welch.

When their son took off for college in the fall of 1953 it was a new experience for the Welches, though the $50 a semester cost seemed a small sacrifice for their only child. Jack's usually taciturn father had simple advice for the boy: "Work really hard, and don't mess up."

CHEMISTRY RATHER THAN THE CHURCH

Welch's mother, a devout Catholic, had enormous influence on her son. She had been trying to have a child for 16 years with no luck; then, when she was 40, Jack was born. Grace Welch hoped her wonderful bright boy would study to be a priest or physician, but Jack followed his own course. He chose chemistry because he loved it. Welch played hard and lived in the rowdiest fraternity house on campus, but he also studied, and he graduated with honors.

"All of my professors--many of them have died now--were my friends until the day they died," recalled Welch. "I was sort of like their child. They pushed me through... They just liked me, and they took care of me, boosted me."

THE SECRET TO SUCCESS? ONE WORD: PLASTICS.

After graduating from UMass with high enough grades that he was offered graduate school fellowships, Welch moved on to the University of Illinois for a Ph.D. in chemical engineering. In 1960, Welch and his young bride loaded up the new Volkswagen Beetle he got for graduation and drove off to Pittsfield, Massachusetts, where he reported to his first real job. There, at a salary of $10,500 per year, Welch was given the opportunity to create a business in a field that was just starting to have significance--plastics.

"I was lucky enough to join GE in a place where I was, like, the only employee. So I hired my first technician. I was emperor, king, prince--you pick the title, okay?" Welch not only had a chemistry lab on his hands, he had a management lab. "We started a pilot plant, and when we got a little more money, we hired two, and three, and then four. So it was a rare break--starting with a piece of chemistry and saying, 'Go make something out of this, Jack.'"

Dennis Dammerman, GE vice chairman, said that when he and Welch began their careers at GE, most of the young executives were reminded incessantly that they were "stewards" of whatever department, division, business, or product line they ran. "We were entrusted with relics, sometimes Edisonian relics, on a velvet pillow. Growth and activity were fine, but stability and risk-avoidance were paramount. The ancient physician admonition applied: 'Above all, do no harm.'"

Dammerman said GE employees often talked about the company as a giant supertanker that needed miles and miles of water to turn once the wheel was spun. It was an oft-repeated analogy that implied stately ponderousness. But, he continued, the plastics division wasn't burdened with a past. "Welch and his team in the embryonic plastics business in the sixties and early seventies were regarded as wild men and bomb throwers. They felt no mandate to be 'stewards' of anything, because they hadn't been given anything to be stewards of."

Thanks to a flair both for technical details and for marketing, Welch rose to be head of the plastics division. As had happened when he was a boy playing baseball at the sandpit near his home, Welch found himself on a team, and he was the chosen leader. By age 37, Welch became a group executive for the $1.5 billion components and materials group. This included all of plastics, plus GE medical systems.

By then the management game was in his blood, and in 1981, at the age of 45, a dark horse, Welch became General Electric's youngest chief executive ever. From the start, GE-ers called Welch "someone who colored outside the lines," even a "wild man." And yet the previous CEO, Reg Jones, liked Welch. "We need entrepreneurs who are willing to take well-considered business risks--and at the same time know how to work in harmony with a larger business entity," explained Jones. "The intellectual requirements are light-years beyond the requirements of less complex organizations." In a business world where most top executives lose their effectiveness in 10 years or less, Welch has been an exception, staying on the job and driving GE to loftier levels of accomplishment for 20 years.

Part of Welch's magic touch is a trait he developed as he worked his way up through the ranks. He gave employees a sense that he knows them. Even people way down inside the system relate to Welch on a personal level. Brian Nailor, a marketing manager of industrial products who attended a management session at GE's Crotonville training center, said, "He's able to get people to give more of themselves because of who he is. He lives the American dream. He wasn't born with a silver spoon in his mouth. He got himself out of the pile. He didn't just show up."

THE COMPANY HE INHERITED

Welch had the unusual knack to be simultaneously a maverick and a company man. This ability can be attributed to both luck and his basic nature. The company man aspect of his life has been central to his success, since no leader functions in a vacuum. CEOs inherit corporations with both tangible and intangible assets. Some say corporate leaders should be judged on the difference between what they inherit and what they bequeath. Welch did indeed inherit an impressive canvas on which to paint.

In terms of longevity alone, the 123-year-old GE is exceptional. GE is the only one of the companies among the original 12 stocks in the Dow Jones Industrial Average that remained there on the Dow's 100th anniversary. The average life expectancy of a U.S. multinational corporation, a Fortune 500 or its equivalent, is between 40 and 50 years. At least one-third of the companies listed in the 1970 Fortune 500 had vanished by 1983--acquired, merged, or broken into pieces. Even people tend to live longer than corporations. Of the 9 million companies in the United States, about 74 percent are 25 years old or less. Only 2.5 percent are more than 75 years old. GE is in a class with such ancient and influential Japanese conglomerates as Matsushita and Sumitomo, the European corporations Unilever and Nestlé, and deeply rooted American giants DuPont and the Coca-Cola Company.

Since its inception, GE has endured 20 American presidents, 25 recessions, the Great Depression, six wars, and countless changes to the tax code. During that same time, GE was awarded more patents than any other company in the United States, and expanded its business operations to more than 100 countries.

Though the company traces its roots back to 1878, the General Electric we know today was founded by a consolidation of Thomson-Houston and Edison General Electric in 1892. GE counts among its forefathers Thomas Alva Edison, perhaps the most prolific and world-changing inventor of all time. He was the holder of more than 1,300 patents; his creations include the lightbulb, the phonograph, and the motion picture camera. Edison's impact on the twentieth century and the way we live even now is profound. Although Edison is the best-known name in GE's history, the inventor Charles P. Steinmetz is credited with building America's first major industrial research lab. Steinmetz started GE's lab in a carriage house in 1900, but within 15 years the lab had 300 researchers and was churning out innovations in X-ray equipment, radio, lighting, and more. Steinmetz's research facilities soon came to be called the House of Magic.

THE GE VALUES

Not only has GE been a pioneer in one of the most revolutionary eras of human history--the application of electrical energy to everything from lighting up the night to traveling long distances to looking inside the body to diagnose disease--GE was innovative in the creation of the modern corporation and the contemporary workplace. Forbes magazine reported in 1929 that "General Electric is the latest large American enterprise to grant all classes of workers vacations with pay. This news should interest many executives. Few corporations are more progressive or better managed than General Electric. Briefly, all classes of the company's 75,000 wage-earners are to be given a week's vacation after three years' service, an arrangement which will include 75 percent of the workers."

Not only was GE well managed; the company Jack Welch inherited was, at least financially, one of the strongest in America. With a triple-A debt rating, $2.2 billion in cash and marketable securities, and a 19.5 percent return on equity, it sat on solid bedrock. Furthermore, GE's core ideologies were firmly in place. These often articulated values include:

• Improving the quality of life through technology and innovation
• Interdependent balance between responsibility to customers, employees, society, and shareholders, with no clear hierarchy
• Individual responsibility and opportunity
• Honesty and integrity

Just because a company has values, however, doesn't mean the company or its employees don't stray from the values, either accidentally or intentionally. GE has been accused of being a major polluter, dumping both chemicals and radiation into the environment; of abusing antitrust laws; of unethical business practices both at home and abroad; and, especially under Welch's leadership, of treating longtime employees badly for the sake of higher profits. One of the main complaints about GE is simply that it is so large that it overwhelms many of the people, governments or other companies it encounters.

"GE, of course, is a very different company than when it was founded," said Trinity College professor Gerald Gunderson. "It came about in the last part of the nineteenth century, when the unifying theme was coming together around some element of science. Union Carbide, U.S. Steel, and the railroads are examples of such companies. In GE's case the science was electricity. That meant the company always had to have a divisional structure. You had a lot of difference between people in lightbulbs and people in transformers, because each draws on electrical theory or knowledge, but each requires special applications. So the company was naturally structured to move into the modern era. That said, an awful lot of things could have happened differently. GE has carried on. It has a shrinking base in electrical products compared to the total. Now it is big in financing, jet engines, and so forth. It made a transition. Others haven't done as well."

SEEING THE NEED FOR CHANGE

But the 1980s, when Welch took charge, also were times of technological change, economic stress, and challenges from outside the United States. Many old-line companies were slipping down. GE prior to Welch had the goal of simply growing a little faster than the economy as a whole, which was less than inspiring. When Welch became CEO in 1981, GE's outgoing chairman Reg Jones was voted the best CEO by his peers among the Fortune 500 companies, and GE was voted the best-managed company. Nevertheless, Welch saw that the company, indeed the entire nation, could and should be better, and must be better to maintain its momentum in the last two decades of the century and to propel itself into the twenty-first.

On the December day when his promotion was announced, the U.S. prime rate rose to 21.5 percent; the economy was slowly coming out of one recession and was about to drop into another; the Dow Jones Industrial Average was at 937, a level it first reached 15 years earlier. Stocks had just experienced their worst decade since the 1930s. GE's own stock had lost half its value over the previous 10 years.

Not just at GE, but everywhere in America, old management ideas were clearly worn out. Technology was on the move; Europe and Asia had recovered from the cataclysm of World War II, and the United States itself was ready to recover from the Vietnam War. Japan was sweeping the world with its commitment to quality, and W. Edwards Deming was calling attention to the U.S. deficits in that particular realm.

"We were dealing with Asian threats across every business," explained Welch. "It was a reminder that we'd better get a lot better, faster. So I guess my message in our company was, 'The game is going to change, and change drastically.' And we had to get a plan, a program together, to deal with a decade that was totally different."

THE COMPANY HE RUNS

Welch set out on a mission to see GE become the world's most valuable company, and he achieved that goal. In 1997, GE became the first company in the world to exceed $200 billion in stock market value. With a share price that rose an average of 23.5 percent per year, by 2000 GE's market value exceeded $500 billion. With the Honeywell merger, GE's market capitalization is expected to rise to at least $520 billion. GE and Microsoft often trade places as the corporation with the highest market value. The Honeywell acquisition, finally and firmly, put GE ahead of Microsoft. These two archetypal U.S. companies juggled back and forth in the top slot, and when taken together, their impact on the economy is incredible.

In the first three months of 1998, the rise in share prices of Microsoft and General Electric created more wealth than was added by the entire growth in the nation's output of goods and services. The stock market value of Microsoft and GE together rose $102 billion, beating an estimated $92 billion increase in the country's annual gross domestic product. This of course could mean several things: Perhaps GE's and Microsoft's share prices were overvalued; maybe their growth was just a spurt, making up for (or to be evened out later) by underperformance. It could mean other producers in the U.S. economy were lagging very badly, and the country's weight was being carried by two extraordinary companies. Late 2000 brought a stock market correction indicating that the prices of many stocks were too high, but the correction notwithstanding, GE has been a stellar investment.

NO WONDER INVESTORS LIKE WELCH

If you bought $10,000 worth of General Electric shares in March 1981--when Welch was elevated to chief executive--never sold, and reinvested your dividends each quarter, your stake would have been worth more than $640,000 at the end of 1999. (During that time, there were four two-for-one stock splits.)

Berkshire Hathaway chairman Warren Buffett often laments that it has become increasingly difficult for Berkshire's stock price to beat the market as the company grows. Yet Welch has bested the S& P 500 index in most of the past 30 years. For the period between March 31, 1981, and December 31, 1999, GE beat the S& P 500 index by a factor of 1.4 times. For the most recent three years of that period, the factor was 1.8.

General Electric's underlying numbers seem to justify its share price. By 1999, GE was the ninth largest and second most profitable company in the world. Since Welch took over in 1981, GE sales rose more than sixfold (from $27.2 billion to $173.22 billion); profits also grew more than six times (from $1.6 billion to $10.72 billion). Measured by sales, it is second in the nation after Exxon Mobil. In terms of profits, GE also is second only to Hutchison Whampoa.

Welch agrees with Buffett that size is a burden unless you make it work for you by using the size for leverage, and that is exactly what he has done.

"The two greatest corporate leaders of this century are Alfred Sloan of General Motors and Jack Welch of GE," says Noel Tichy, a longtime GE observer and University of Michigan management professor. "And Welch would be the greater of the two because he set a new, contemporary paradigm for the corporation that is the model for the twenty-first century."

THE WAY WELCH RUNS GE

The Canadian magazine Maclean's reported that in addition to being the most admired corporate leader in the world, "He is also, by near-universal agreement, a tough and foulmouthed SOB," who conducts meetings so aggressively, using criticism and demeaning ridicule, that people tremble. This description leans toward the truth, but is somewhat extreme. Welch is direct, plainspoken, and decisive, and does not suffer fools gladly. He demands a lot from GE employees and, in doing so, does not use words as if he were in church school on Sunday. He would never have been able to change GE as much as he did without a forceful personality. And yet, say the people closest to him, he listens to others and he is consistent and fair.

Certainly Welch can be impatient. Tom Peters recalls hearing a story about when Welch asked some purchasing people to work on some tasks. "Weeks later, he met with them to review their progress. To his dismay, they had none to report, only weighty analyses and half completed efforts at coordinating with various departments. Welch was furious. He called the meeting to an abrupt halt, then ordered it reconvened only four hours later. The agenda? To report on progress. He got it, too. More was done in those four hours than had been done in several weeks preceding them."

Even with acknowledgment of Welch's strong spirit, there are differing ideas as to what accounts for his success. Writers at Forbes say that the secret to Welch's accomplishments is not a series of brilliant insights or bold gambles, but rather fanatical attention to detail. Some say his greatest talent is matching technologies to markets; others say it is that of a change agent. Most agree he truly Americanized GE--bringing the democratic process, the voice of the ordinary worker, into the corporate arena--while at the same time pushing GE into global leadership.

Management experts say Welch's reputation as a leader can be attributed to four key qualities:

1. He is a skillful, intuitive portfolio strategist.
2. He's willing to change the rules if necessary.
3. He's highly competitive.
4. He is a great communicator and motivator.

The Strategist

As a portfolio strategist, Welch knows what he likes and doesn't like. He is focused and analytical, but after his homework is done he trusts his instincts. He demonstrated this skill immediately after becoming CEO by restructuring GE from 350 businesses down to two dozen core activities, and either expanding internally or making acquisitions to position all GE's businesses as either number one or number two in their fields. The last-minute, high-intensity Honeywell acquisition was Welch's last and largest strategic strike, and it is one that will be redefining GE for years to come.

Seizing the Opportunity to Change

The Honeywell acquisition and Welch's postponed retirement are examples of how boldly and swiftly Welch can readjust course, but his attitude toward change goes deeper than any specific event. It is a philosophy. When Welch instructs his managers to "hate bureaucracy and all the nonsense that comes with it," he is shifting from top-down to outside-in orientation. He is saying, basically, let external demands, not internal management, guide your productive behavior. That makes intuitive sense to workers. They don't need to commission a management study to confirm what he says.

Running a Business Like a Feisty Little Hockey Player

Nothing has demonstrated Welch's competitive nature as clearly as the day he realized that one of GE's major competitors, United Technology Corporation, was about to acquire Honeywell, giving UTC control over some of the most advanced and forward-thinking technology in the aviation industry. Welch's reaction was swift and effective. From the start of his career until the Honeywell incident, Welch injected his own competitive nature into GE's very fiber. He set painfully high standards for huge growth margins, market leadership, and near-flawless quality for his divisions, standards he calls stretch goals because they require employees to reach as high as possible--but he also expects the standards to be met and maintained. While there is no doubt about who is in charge at GE, the nature of Welch's leadership is flexible and constantly adapting. Rather than planning and controlling the operations of GE divisions from corporate headquarters, Welch sets performance targets and lets each business unit run itself. He exudes faith in his employees, but as one NBC worker explained, he also instills a little fear. "When the chairman speaks, you'd better listen."

Even though he puts a touch of tyranny into his leadership, Welch has transformed himself into the most influential manager of the century. Beyond a CEO, he is seen as a management role model, an oracle, an icon for those people who hope to ascend to the mountaintop of management.

The Masterful Communicator

Welch became a teacher, a guru, within GE by actually stepping into the classroom. At Crotonville, GE's acclaimed management academy, Welch has led more than 250 class sessions in his two decades as chairman, engaging more than 15,000 GE managers and executives in a dynamic dialogue about the company, its functions, and its future. Welch's hell-bent-for-leather sessions sometimes last up to four hours.

Even so, communicating to large numbers of people was something Welch had to learn. Welch says that he was five years into his term as CEO when he realized that his message wasn't getting across to the entire company and he wasn't always as convincing as he hoped to be.

"I was intellectualizing the issues with a couple of hundred people at the top of the company, but clearly I wasn't reaching hundreds of thousands of people," he recalled.

The company's powerful in-house communications machine does its part. After Jack Welch gave a rousing leadership speech at GE's January management meeting in Boca Raton, Florida, the next day 750 video copies of the speech were dispatched to GE locations around the world. The tapes were prepared in eight different languages, including Mandarin and Hungarian.

Many people have tried to condense the Welch philosophy into bullet points, and Welch himself likes to use simple concepts to sell big ideas. They almost always distill to the following concepts:

• Face reality, but don't be afraid to envision big results.
• Be forthright and candid with everyone.
• Lead rather than manage.
• Change before you are forced to do so.
• If you don't have a competitive advantage, get out of the game.
• Control your own destiny, or someone else will.

"For me," explained Welch, "good communication is simply everyone having the same set of facts. When everyone has the same facts, they can get involved in shaping the plans for their components. At the Corporate Executive Council, everyone in the room sees the entire company and can draw his or her own conclusions about its performance, its environment, where it's going for the next 90 days, where it's going for the next two years, and where the vulnerabilities are, where the strengths are."

IS WELCH A GE AVATAR?

As some see it, Welch wasn't entirely in control of his own destiny once he started up the management ladder at GE. He soon became an avatar, the embodiment of the GE ideal, a reincarnation of previous GE leadership, simply adapted to his own time and conditions. Welch was the eighth chairman of GE and the youngest GE chief executive in the company's history, but he wasn't an anomaly. Each of the previous eight GE chairmen captured the spirit of his own era. Gerald Swope, Ralph Cordiner, Fred Borch, and Reg Jones have been legends, although perhaps not to the extent that Welch has been. Collins and Porras insist Welch did not inherit a grossly mismanaged company, that in fact the opposite was true. The challenge for Welch was to spot trouble before it occurred, to take preventive measures, and to make the most of GE's tremendous momentum.

Welch was a Yankee revolutionary; but, once again, he wasn't GE's first revolutionary. In 1913, GE hired Owen D. Young, a reputable lawyer, to help protect the company from government Sherman Antitrust Act probes that had started in 1911. When he reported for work at the company, Young was amazed by the potential he saw there. He lived in a world mostly lit by kerosene lantern and moved by hydro and animal power. "Electricity was then a new art and the notion that great machines could move without belt or other visible ties opened my eyes and mouth with wonder."

Young quickly learned the business, and when GE purchased the Wireless Telegraph and Signal Company Ltd. and renamed it the Radio Corporation of America, Young became RCA's first chairman. There he supervised David Sarnoff, a daring thinker in the radio and television industry. Young first became chairman of GE in 1922, with Gerald Swope serving as president. Young served as chairman until 1940, and then briefly again between 1942 and 1945. Young and Swope believed that electrifying the home was the key to GE's future success. Demand for household goods would grow dramatically when they were cheap and reliable, and in turn, use of electricity would expand. Young was the first person to reinvent and reengineer GE, and he did it 70 years before the terms became catchwords in the business vocabulary. He was hailed as a new breed of manager--a scientific one.

To the public, Young pledged "either a better product at the old price or the same product at a lower price." To employees he promised, "We must aim to make the earning power of human beings so large as to supply them not only with a living wage, but a cultural wage." In other words, the company's wealth would be shared so that everyone could have the opportunity to develop their intellect and enjoy life more. Young had grown up poor on a farm, and he didn't wish poverty on anyone. The shareholders didn't necessarily like Young's attitude, but he, like Henry Ford, realized that satisfied workers were not only more productive workers they were consumers of GE's products. Young also understood business cycles, though the concept did not enter the lexicon until 1919. His president, Swope, introduced the concept of "enlightened management."

Other GE change agents were Fred Borch and Ralph Cordiner. Cordiner (1950 to 1963) pushed GE into a vast array of new industries. He restructured and decentralized the company and created Crotonville, GE's famous management training and indoctrination center. Fred Borch (1964 to 1972) took GE into many new bold, risky ventures such as jet aircraft engines and computers. "Borch let a thousand flowers bloom," observed Welch. "He got us into modular housing and entertainment businesses, nurtured GE Credit through its infancy, embarked on ventures in Europe, and left Aircraft Engines and Plastics alone so they could really get started. It became evident after he stepped down that GE had once again established a foothold into some businesses with a future."

IMPECCABLE TIMING

What makes Welch seem different, argue some observers, was propitious timing. Not only did Welch come aboard at such a low point in the economy that any recovery would be hailed as heroic, he became GE's CEO at a time when the importance of business to the American culture was ascending. He has benefited from two great eras of prosperity, that which occurred late in Reagan's first term and stretched through his second, and the long Clinton-era prosperity. While it could be said that Welch was able to take advantage of these economic windfalls, it equally can be argued that GE contributed to them as well, since as a single company it represents more than 1 percent of the U.S. gross domestic product.

Allan Sloan, a Newsweek business columnist who describes his journalistic role as that of "a skunk at the garden party," is one who makes that claim. Sloan concedes that Welch is very, very, very good at what he does, but that to some extent, Welch's success can be credited to the superior economic times in which he has served. The economy was dead in the water and interest rates were above 20 percent when Welch took over GE. Even so, GE's stock price rose from 4 3/16 (adjusted for four stock splits) on March 31, 1981, the day before he took over, to $133.75 in November 1999. That's a 3,200 percent increase, more than triple the Standard & Poor's 500 900 percent rise during the same period. GE stock rose 20.5 percent per year, compounded, compared with 13.2 percent for the S& P.

As the economy continued to expand at a healthy rate and as Welch gained experience and saw his programs mature, the results got better and better. The average total return on GE shares since 1980 has been about 27 percent, and as the years passed the return grew. The total return for 1999 alone was 54 percent.

Financial writer Alan Abelson, a columnist for Barron's and other publications, cast himself as a second skunk at the garden party. He agrees that Welch's stature and skills are indisputable, but that to some extent, GE has cleverly managed earnings so as to make them smooth and predictable, something that gives investors confidence. GE has reported 100 consecutive quarters of increased earnings from continuing operations, a pattern that is extremely rare in the business world. An example of how earnings can be manipulated, says Abelson, is right there in GE's annual report, although it is buried in fine print. The footnotes in GE's annual reports show that in 1997, pension fund income contributed $331 million to GE's total earnings of $8.2 billion. In 1998, pension income accounted for $1.01 billion of the company's total earnings of $9.3 billion, when the money's leverage value is taken into consideration. If pension fund earnings were subtracted from GE's total, earnings growth would be about 5.1 percent, versus the reported 13 percent. Abelson then uses a multiple of 25, which was the going rate for the Dow Jones Industrial Average at the time, to estimate how much of a boost GE's stock price was getting from the addition of retirement fund income to total earnings.

"By this reckoning, the $685 million more in pension-plan income GE took into earnings last year than it did in 1997 added a tidy $179 billion to its market capitalization. Man, that's leveraging to a fare-thee-well!" wrote Abelson.

There are other ways to measure performance besides increase in share price or growth in earnings. Using pretax return on equity (ROE) as a benchmark of financial performance, it becomes evident that Welch's predecessors performed as well as Welch did in his first 10 years. From 1915 to 1980, ROE was 28.29 percent. For his first decade, Welch's ROE was 26.29 percent. Among his fellow GE CEOs, Welch ranked fifth out of seven. ROE isn't a completely objective yardstick, however, since it doesn't take into account recessions, depressions, wars, and so forth.

But still, however GE's performance is measured, Welch had to play his cards just right to maintain and improve GE's overall position, and he did so. Professor Joseph Bower of the Harvard Business School believes that "GE is thoughtful and innovative in the way it approaches managing a company. In that sense GE must have shaped Jack Welch. Now Welch then shapes GE, because he did so much with his inheritance that he made it radically different in many ways."

AN AGENT OF CHANGE

A superior CEO like Welch has been compared to sports legends. Like a Michael Jordan, a Tiger Woods, or a Florence Griffith Joyner, not only does he win, he changes the way the game is played. Although there are divergent opinions on the specific key to Welch's success, it is widely agreed that he rewrote GE's playbook in several ways: First, Welch conquered the company's diversity, making it a strategic asset rather than a liability. Additionally, he made bureaucratic GE quick-thinking and entrepreneurial by accelerating all of its activities to warp speed. Finally, capitalizing on GE's fraternal nature, Welch got his managers to feel like business was a game and they were headed for the Super Bowl. Forbes magazine explained, "His greatest achievement is that having seen [what needed to be done], he faced up to the huge, painful changes it demanded, and made them faster and more emphatically than anyone else in business."

Welch has characteristics in common with other business leaders as well. Like CNN founder Ted Turner, he wanted his company always to be a contender. Like Microsoft founder Bill Gates, Welch has been keenly in touch with the future. Like Berkshire Hathaway's Warren Buffett, he shared his ideas with anyone who would listen, and plenty of people did.

The British magazine The Economist concurred that Welch's greatest accomplishment was getting GE to confront three big external shocks: globalization, the move from manufacturing to services, and the Internet. These were big challenges, requiring vision, energy, and time. The first two accomplishments--globalization and the shift to services--are well worth exploring, and we will do so in the chapters ahead. Welch's role in the third--integration with the Internet--may be more perception than reality, an issue that will be discussed in the third section of this book. It will become evident that Welch succeeded because he was the right person to lead the company at the time. He indeed took charge of GE during an era when the economy was in crisis, the automobile industry was being redefined by the Japanese, conglomerates like GE were out of favor, and business leaders were responding miserably to a number of threats. Welch applied a group of expansive, positive ideas to the unique challenges of the time.

Not everyone is convinced that the company was completely transformed by Welch, or rather just highly groomed so that it could continue to maintain its prodigious heritage. And yet, "Welch's GE," claims Victor Vroom, a professor at the Yale School of Organization and Management, "is a model for the promise--and the problems--of creating the modern industrial company."