Reporter Offers Scathing Reassessment of “Lionized” Business Titan

Moments after being introduced by Stanford Graduate School of Business professor Jeffrey Pfeffer, author David Gelles sized up his audience of faculty and students and offered a good-natured rejoinder: “I feel like I’m in the lion’s den.” Polite laughter.

It’s possible that the writer of a book that stands as a blistering critique of corporate America would encounter derision and dissent from a crowd at a business school. As it turned out, though, the case that Gelles had come to the GSB to make — that former GE CEO Jack Welch had ushered in an era of rampant corporate greed largely at the expense of workers — was met mostly with nodding heads and tacit agreement.

Gelles’ new book, The Man Who Broke Capitalism: How Jack Welch Gutted the Heartland and Crushed the Soul of America — and How to Undo His Legacy, is unequivocal about who is to blame for decades of middle-class decline and growing income inequality. “Welchism was a virus, and having been incubated inside GE, it was now spreading,” one passage begins. “CEOs at other companies understood that eliminating workers was an easy way to increase profits, and they eagerly followed Welch’s example. The contagion had begun, and all of corporate America would soon be infected.”

Gelles, whose appearance was sponsored by the Corporations and Society Initiative, was equally frank in his talk at the GSB in October. Welch shuttered factories and fired tens of thousands of employees in a single-minded effort to bolster GE’s stock price, despite the company’s already strong performance, noted Gelles, a business reporter at the New York Times. “It wasn’t that there wasn’t any money for workers, it wasn’t that there were insufficient funds to keep those factories open. He was firing workers en masse, in the best of times. And that is so fundamentally at the core of the shift in the social contract, the relationship between the employer and employees, that he above all changed as CEO.”

As GE shareholders prospered, other companies emulated Welch’s tactics, often brazenly so, Gelles said. As the CEO of one of the world’s most successful and most respected companies, Welch had enormous influence. But is it fair to blame him for the pain caused by prioritizing shareholder value above all else? “The impact of doing it at GE was more profound… [and] essentially enshrined in the public imagination and in the business world his way of doing business as the best way of doing business,” Gelles asserted. And then, after a pause: “I’ve chosen my villain, and I’m sticking with him.”

Pfeffer, who moderated the event, pointed out that the business press had lionized Welch with its fawning coverage, and only later, after much damage had been done, did it begin a reassessment. Gelles agreed and acknowledged that his own role in celebrating business leaders had resulted in serious soul-searching. “It’s been part of my evolution as a professional, as a reporter over the last many years, trying to come to terms with ‘whose story am I trying to tell?’”

Undoing the damage may take a generation, Gelles noted. It begins with organizations thinking differently about their responsibilities. “Some corporations have taken steps that I think are starting to undo some of the legacy of Welch, and are pretty basic,” he said. “Things like making sure that even if your employees are making a minimum wage or making what appears to be a competitive rate in that market, that they can actually make enough to take care of their families, which is not always the case in this country.”

That requires not only a shift in practices, but a shift in values, Gelles said. The influence of Milton Friedman’s dictum that a corporation’s primary responsibility is to its shareholders still holds sway in some quarters. “These are tough questions that I’m inviting executives and directors to have.”

The cost of Welch’s scorched-earth approach is plain to see, and its effects linger, Gelles said. “When you get beyond the nice bubbles that probably everyone in this room exists in and walk around a strip mall in Tacoma, Washington — it’s pretty ugly out there.”