TIME: Almanac 1995

home *** CD-ROM | disk | FTP | other *** search

/ TIME: Almanac 1995 / TIME Almanac 1995.iso / time / 100394 / 1003200.000 < prev next >

Wrap

Text File | 1995-01-31 | 12.9 KB | 257 lines

<text id=94TT1320> <title> Oct. 03, 1994: Business:Jack in the Box </title> <history> TIME--The Weekly Newsmagazine--1994 Oct. 03, 1994 Blinksmanship </history> <article> <source>Time Magazine</source> <hdr> BUSINESS, Page 56 Jack in the Box </hdr> <body> In an interview with TIME, GE's CEO takes on critics who say his eye on the bottom line encourages ethical lapses By John Greenwald--Reported by Janice Castro, Thomas McCarroll and John Moody/New York and William McWhirter/Detroit "Do you understand what I'm trying to say?" demands John Francis Welch Jr. The embattled chairman of General Electric puts an arm around a visitor's shoulders and spreads out an improbable set of papers. One shows that GE, with 222,000 employees in 100 countries, has had only three criminal convictions in the 13 years that Welch has run the company. Another points out that the U.S. Justice Department, which has been hounding GE lately, has had 140 of its employees prosecuted for corruption or other on-the-job offenses just since 1992. Yet another shows that GE is headed for its most profitable year ever. The reason for this public relations offensive is that Jack Welch, perhaps the most admired corporate manager in America, is suddenly fighting for his honor as GE faces embarrassments from its outpost on Wall Street to its half-century-old engine division in Evendale, Ohio. Chief among the problems is the mess at Kidder Peabody, GE's money-losing brokerage unit, where head government-bond trader Joseph Jett concocted $350 million of phony profits over a 29-month period before he was fired in April. Jett now claims to have been acting with the knowledge of his superiors. The scandal led Welch to sack the Kidder chairman, Michael Carpenter, whom he had installed in 1989, and triggered fresh speculation that GE was aching to unload the troubled Wall Street company. Reports of ethical violations have also been clouding some of GE's traditional lines of business. In October the Connecticut-based company faces trial in federal court in Columbus, Ohio, on charges that it conspired with a unit of South Africa's De Beers mining company to fix the price of industrial diamonds. GE vigorously denies the Justice Department charges. Meanwhile, the FBI armed a GE whistle-blower with a hidden tape recorder last year to probe charges that the company had repeatedly ignored warnings about electrical problems that could compromise the safety of its aircraft engines. Not only has the whistle-blower brought a multimillion dollar suit against GE (the company calls the suit "frivolous and outrageous"), but the Justice Department is considering whether to bring its own charges as well. On top of all this, GE is again engaged in widely reported talks to sell some or all of NBC, which it acquired in 1986 when it purchased RCA Corp. While NBC currently boasts such comedy hits as Frasier and Seinfeld and has been reporting improved profits this year, the network continues to run third behind CBS and ABC in daytime and prime-time ratings. Among its many blunders under GE was letting David Letterman jump to CBS last year; Letterman regularly clobbers NBC's Tonight Show with Jay Leno in the ratings and has propelled CBS's entire late-night lineup into the No. 1 position, ahead of NBC. For a manager who is often consulted by his CEO peers, whose company has its own management school and whose published maxims include "Integrity is clearly the most important value," GE's problems have stung Welch deeply. Nonetheless, he considers the rash of troubles to be isolated blemishes on one of the world's proudest and most profitable corporations. As America's fifth largest industrial giant (1993 revenues: $60.5 billion), GE makes everything from light bulbs to locomotives in 22 business divisions--each of which, if it stood alone, would warrant a place among the ranks of FORTUNE 500 companies. And while other blue-chip firms such as Sears, IBM and General Motors floundered in the 1980s, most GE units surged ahead and consistently hit Welch's target of being No. 1 or No. 2 in every market. "If we didn't buy Kidder Peabody or NBC, we wouldn't be having this conversation," Welch told TIME in an interview last week. "No one else would be writing about it, and we'd be having great numbers." Concurs Bruce Atwater, the chairman of General Mills and a GE director: "Jack has been so successful that the least pimple seems to have a microscope turned on it. But it's still a pimple." Yet management experts have begun to question the man whose record has inspired such books as Get Better or Get Beaten! 31 Leadership Secrets from GE's Jack Welch. Richard Ellsworth, a 20-year GE watcher who teaches at the Claremont Graduate School in California, credits Welch with transforming GE from a lethargic and bureaucratic company into the very model of an innovative powerhouse that is quick to seize opportunities. Yet Ellsworth discerns "a certain hollowness of purpose" beneath Welch's relentlessly demanding management style. "He talks a lot about being No. 1 or 2 in their markets," Ellsworth says. "But what he hasn't articulated is the reason why they are competing, a more meaningful set of values. He has not given GE a morally uplifting tone. And that is one reason why you may have problems like the Kidder situation." "Welch has created a cadre of professionals and has given them a focus on serving their self-interest," Ellsworth goes on. "He has told them that GE will make them better professionals, more marketable professionals, and has subjected them to intense pressures to perform. But he has not given them a sense of loyalty to the organization, to some higher goal of the organization. He is still hammering away at being No. 1, competing and winning, but what he may not realize is that the message to managers is `Look out for yourself, win at any cost, do whatever you have to do.'" For his part, Welch argues that GE's ethical standards and performance are among the highest in American industry. "We're proud of our record," he says. "We work our tails off to try and do it right, and for the most part, for the vast part, we do do it right." Welch also scoffs at the notion that his emphasis on winning might encourage employees to cheat or cut corners to meet corporate goals. "Joe Jett was thinking about GE's quarterly earnings sitting down there?" he asks rhetorically. "Anybody with an IQ over 70 would know that Joe Jett didn't care about GE's earnings. He never thought about GE. He had a game going for himself." Besides, says Welch, he has no choice but to call upon his employees to push their limits. "How can you tell an organization, `Run slower'?" he asks. "Or say, `Let's not do well?'" When it comes to Kidder, many Wall Street watchers insist that GE's 1987 purchase of that company was fated not to do well from the beginning. Acquired as a unit of GE Capital, a major provider of financial services, Kidder represented a plunge into brokerage and investment banking fields that GE knew little about. Scandal struck soon after the deal was completed when former Kidder merger whiz Martin Siegel pleaded guilty to illegal stock trading and tax evasion in a case that broke open Wall Street's most notorious insider-trading ring. This year Kidder has witnessed not only another huge scam but a swift run-up in interest rates that has battered the firm's portfolio of mortgage-backed securities; the drubbing could mean more than $500 million in losses for the ailing brokerage house, according to an outside estimate. Welch, who tried to sell Kidder to financial conglomerate Primerica in 1992 only to have the deal fall through, must first nurse the firm back to health before he can have any hope of finding a buyer. In the latest management shuffle at the brokerage, Welch brought in a new executive team headed by Dennis Dammerman, GE's chief financial officer, to restore Kidder's profits. "What I've got to do with Kidder is get it solidly grounded," Welch says. "Until Kidder gets stabilized, I don't have very many options to do anything." Like Kidder, NBC has from the start been a bruising journey into uncharted territory for GE. Close observers trace the declines in ratings and morale at the network to Welch's decision to install Robert Wright, who had been president of GE Financial, to run NBC. Wright promptly slashed budgets, laid off workers and, critics say, treated the business of providing news and entertainment as if it were indistinguishable from making loans or refrigerators. "If Welch has a weakness, it may be that he is not a good judge of people," says Warren Bennis, a management professor at the University of Southern California business school. "Robert Wright was the wrong guy to put in charge of NBC. He didn't know anything about television, or the creative side. NBC has suffered under GE's management." So much so that some NBC managers are rooting for GE to sell the network swiftly. "The record speaks for itself," a high-level insider says. "NBC may be well placed: it's profitable and having the second best year in its history. But its performance on the screen doesn't measure up. The problem is with the people Welch put in and left in place. It was Robert Wright who picked Leno over Letterman, and you see how that turned out. The loss of Letterman was the dumbest thing to happen in TV history." Welch is candid about his interest in striking some sort of deal involving NBC. While he refuses to comment on reports that GE is considering the sale of a 49% stake in the network to Time Warner, he acknowledges that "we've had discussions about every combination with everyone." That includes Walt Disney chairman Michael Eisner, who also has been eyeing NBC. Welch described his conversations with executives like Time Warner chairman Gerald Levin as "two guys groping, to see what fits." But he strongly hinted that he intends to keep at least some control of the network. "The outright sale is not something that is high on our priority list," Welch says. The lessons of NBC and Kidder might suggest that GE does best when it sticks to markets that it already knows. But allegations directed at the company's industrial-diamond and jet-engine businesses show that GE has been unsteady there as well. Insisting that GE had done nothing wrong, Welch refused a Justice Department offer in February to settle the diamond probe with a plea of no contest. "We think our chances of winning are good," he says, "but you never know before a jury." With regard to jet engines, Welch said GE notified the Federal Aviation Administration about an employee's safety concerns in 1992, before the engineer went to the FBI as a whistle-blower. The FAA and the Defense Department investigated, Welch said, and found no problem. "So far on this one, everything appears fine," he adds. "Air Force One has those engines. The President is flying everywhere with them. And everyone feels comfortable." That is how Welch wants everyone to feel about GE, which often appears to be his lengthened shadow. "The biggest tests in business are not about how great men handle success but about how good men handle crises," says G.G. Michelson, a longtime Macy's executive and an 18-year member of the GE board. As Welch makes his case and marshals his papers in GE's executive conference room, this highly celebrated corporate manager knows he is certainly facing one of those times of testing. TROUBLE IN GE'S EMPIRE While General Electric is enjoying the most profitable year in its history, the company has faced a series of mishaps that raise questions about Neutron Jack's relentless focus on the bottom line. The success of Seinfeld and other shows has failed to overcome long-term declines in morale and ratings at NBC. With at least part of the network now on the block, some NBC insiders are hoping that GE will find a buyer quickly. Joseph Jett's creation of $350 million in phantom profits is only the latest scandal to rock Kidder Peabody. Welch must restore Kidder to financial health before he can hope to unload the troubled Wall Street firm. Air Force One is among the planes that use GE aircraft engines. Both the FAA and the Defense Department looked into a whistle-blower's charges that the engines could be hazardous, but neither found any safety problems. GE goes to trial in October to face charges that it conspired with another company to fix the price of industrial diamonds. GE rejected a Justice Department offer in February to settle the case and denies doing anything wrong. </body> </article> </text>