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Citation: Washington Monthly March 1999, v.31, 3, 52(1)
Author: Mintz, Morton
Title: GE's Greed.(Review) reviewed by Morton Mintz
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COPYRIGHT 1999 Washington Monthly Company
This book makes a valuable contribution to our understanding of corporate
America. Superbly researched and written, it could drive some readers to take
a fresh look at stocks. I mean the old-fashioned kind, the kind consisting of
a heavy timber frame with holes for confining the ankles and sometimes the
wrists. Of whom? First, the czar of the world's most profitable corporation,
the most successful, most admired big-business executive in America, a
frequent White House guest of Ronald Reagan, a golfing partner of Bill
Clinton, the father of corporate downsizing. Next in line, his hatchet-men,
followed by bought legislators and scientists. Finally,
idolaters--journalists, authors, business-school professors. To believe them,
John F. Welch's General Electric brings only good things to life. Thomas F.
O'Boyle persuades you that GE--Jack Welch's GE--brings bad things to life. In
abundance.
Yet At Any Cost is no populist tract. The author, a longtime Wall Street
Journal correspondent and now an assistant managing editor at the Pittsburgh
Post-Gazette, draws stark contrasts between the many large corporations that
prosper mightily with foresighted, rational and humane policies, and GE as
it's been run for 18 years by a tyrannical, sometimes impetuous, surprisingly
blunder-prone, and--above all--profit-obsessed chairman and CEO.
"I have done everything in my power to write a fair and balanced account of
General Electric," O'Boyle writes. He succeeds at every turn, partly by
providing insightful, textured context--historical, scientific, engineering,
competitive, political, legal, ethical, personal. He enables readers to see
things whole. Yes, the Justice Department obtained price-fixing indictments
against GE's synthetic diamond business and the DeBeers cartel (it makes a
fascinating chapter even if Justice lost in the end). Remember, though, that
between 1940 and 1948, when Welch was a boy, the government had sued GE for
antitrust violations 13 times. O'Boyle shows how Welch's obsession with
profit, an ideology, really, translates into unrelenting, pitiless pressure on
his executives to better last year's numbers every year. They must do this
with "enthusiasm and gusto," real or feigned, because loyalty in Welch's GE
runs only upward. Their heads are never far from the chopping block. They
sometimes do terrible things. Could it be otherwise?
GE had 285,000 U.S. workers when Welch took over in 1981; it had 120,000
fewer by 1997. If his profit obsession means repeated wholesale downsizings,
if these decimate communities (Schenectady, N.Y., lost 22,000 jobs;
Louisville, Ky., 13,000; Evandale, Ohio, 12,000; Pittsfield, Mass., 8,000), if
they wreck families, if they lead several workers to kill themselves (as
happened in Erie, Pa., after downsizings eliminated 6,000 jobs), that's not
"Chainsaw Jack"'s problem.
Contrasts: Motorola fires no employee with 10 years' service "without the
explicit concurrence of the Chairman of the Board." Lucent Technologies was to
cut 23,000 jobs when AT&T spun it off. Welch's counterpart, Henry Schacht,
gave every worker 100 shares of Lucent stock at a discounted price. "He met
with employees to listen to their concerns and address them," O'Boyle writes.
"And the 19,000 jobs that were ultimately eliminated have all been regained."
No one calls Schacht "Chainsaw."
If the profit obsession means lying to regulators about intentionally
polluting the Hudson River with 1 million pounds of birth-deforming PCBs over
a 30-year period, don't believe it: Jack says PCBs pose no danger to human
health.
In 1992, the year before it sold its arms business, GE became the first
major defense contractor to be indicted for defrauding the government. GE
"pleaded guilty to four felonies, including money laundering and violations of
the Foreign Corrupt Practices Act," O'Boyle writes. "It was the third criminal
conviction on defense fraud charges since 1985, along with 13 civil
settlements, giving GE the dubious distinction of [being the] leading
corporate criminal among the Pentagon's 100 largest defense contractors."
Gives you a comfy feeling about GE owning NBC, right?
GE's Kidder, Peabody illegally forced out 17 investment bankers because of
age. The Equal Employment Opportunity Commission responded with the biggest
age-discrimination lawsuit ever brought by the federal government against a
Wall Street brokerage. "Let's not kid ourselves," Welch told The Wall Street
Journal "[T]his is a kick in the teeth for those guys", "[T]hose guys"? One of
"those guys", O'Boyle reminds us, was "Welch's close associate Mike Carpenter,
who ran Kidder, Peabody and reported directly to him."
Welch got a comeuppance in July 1992. Rep. John Dingell, who had been
investigating defense fraud for years, insisted Welch testify before his House
investigations subcommittee. Welch came, kicking and screaming, big-time
lawyers fronting for him. But Dingell compelled him "to acknowledge, for the
first time and in a very public forum," that GE, as a Pentagon contractor, had
broken the law, "and to, in effect, take responsibility for what GE had done."
From its beginnings in 1889, GE's glory was research and development for the
long term. Lord, how it paid off--for the country, not just GE! Its R&D, well
funded, done by great, respected--and trusted--scientists and engineers,
produced a cascade of enduring, diverse inventions, four being "the first
moving picture with talking sound, the first jet engine, the first synthetic
diamond--and the first Children's Silly Putty."
Welch called R&D "Blue Sky" research. He cut it by nearly 20 percent in the
1990s. The way to go, he'd decided, was financial services, including snapping
up distressed properties taken by the government from failed S&Ls. Contrast:
Motorola first outpaced GE's R&D spending in 1993--and has added 43,000
manufacturing jobs since 1992. Siemens employs more than three times as many
scientists and engineers as GE and is big on long-term R&D, as are Hitachi and
Toshiba. All show impressive results.
But the move to financial services sent shareholder value soaring. GE's
shares increased 1,155 percent in value in the 15 years starting in 1982; and
in mid-1997 GE became the first corporation to be valued at more than $200
billion. By last July it was valued at $300 billion. It has earned more in
single quarters than in all four quarters of 1980. Welch's investments in
Washington lobbyists, lawyers and politicians have paid off handsomely, too.
In 1980, GE paid $330 million in federal taxes; in 1981 it had a net tax
refund of $104 million.
Many horrors--pre- and post-Welch--occurred at the GE-run Knolls Atomic
Power Laboratory at West Milton, NY. GE allowed nuclear reactors to operate
without emergency core cooling systems. One day, state regulators asked
Knolls, with reason, to release no radioactivity into the atmosphere; it
released 600 curies--40 times as much as Three Mile Island would release in
1979.
Knolls used radioactive fill for a parking lot. It illegally dumped
radioactivity into the Mohawk River. It deposited 389 tons of radioactive and
toxic wastes in thousands of steel drums, buried the drums at dozens of sites
near the lab, and kept no records of what it had buried and where. It let
plutonium-contaminated water seep into an office building and into the
drainage system migrating toward the Mohawk. The Navy urged demolition of the
building. It was brushed off.
Whistleblowers finally got the facts out. GE executives responded just as
they did in numerous other horrifying episodes at GE sites elsewhere. Mostly
in secrecy, they fumed, lied, and covered up.
A bumper crop of CEOs emulates Welch's bare-knucklism. O'Boyle argues that
companies that make layoffs the "first resort" jettison not only people, but
also "the old-fashioned business values that made this the American
century--loyalty, trust, respect, teamwork, hard work, compassion." He has a
point. But don't forget, say, the men in the good-old-days steel mills who
worked 12-hour shifts six days a week and 24-hour shifts every second week.
O'Boyle asks, "Do companies have obligations beyond the bottom line?"
His--and my--bottom-word answer: Yes.
MORTON MINTZ, author of At Any Cost: Corporate Greed, Women and the Dalkon
Shield (1985), is a former Washington Post reporter and a former chair of the
Fund for Investigative Journalism.
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