BIO: William D. Cohan, a former senior Wall Street M&A investment banker for 17 years at Lazard Frères & Co., Merrill Lynch, and JPMorgan Chase, is the New York Times bestselling author of seven nonfiction narratives, including his most recent book, Power Failure: The Rise and Fall of An American Icon.

STORY: William discusses lessons from his most recent book, which is a story of General Electric (GE), a former global company with facilities worldwide. In his book, William focuses on former GE CEO Jack Welch, who took over the company in 1981 and increased its market value from $12 billion to $650 billion. This company became one of the world’s most valuable and respected companies, and then it all fell apart.

LEARNING: Leadership matters. You are not always right. Achieve the numbers in an ethical manner.

“I try to write books that I like to read, with great characters and great stories. And, yes, it’s a long book, but I think it’s a great story and worth your time.”

William Cohan

Guest profile

William D. Cohan, a former senior Wall Street M&A investment banker for 17 years at Lazard Frères & Co., Merrill Lynch, and JPMorgan Chase, is the New York Times bestselling author of seven nonfiction narratives, including his most recent book, Power Failure: The Rise and Fall of An American Icon.

William is a former guest on the show on episode 739: Get the Numbers Right Before You Invest. Today, he’s back to discuss lessons from his most recent book, which is a story of General Electric (GE), a former global company with facilities worldwide. In his book, William focuses on former GE CEO Jack Welch, who took over the company in 1981 and increased its market value from $12 billion to $650 billion. This company became one of the most valuable and respected companies in the world, and then it kind of all fell apart.

Leadership matters

The ability of a company to adapt and flexibly evolve in response to market changes is crucial for sustained success. This is vividly illustrated through the leadership tenures of Jack Welch and Jeff Immelt at General Electric (GE), where Welch’s strategic boldness and Immelt’s subsequent decisions markedly impacted the company’s fortunes. The two leaders demonstrate the importance of getting the right man on the right job.

Welch was among five candidates vying to become CEO in 1981. He was picked as the CEO because he was potentially the most disruptive—he was going to be this change agent, there was no doubt about it. Welch had pledged to disrupt things to change how GE was run, and he was frankly a fantastic leader. People loved working for him, and he got more out of people than they thought possible. Welch was beloved, feared, respected, and delivered.

When choosing a successor, Welch gravitated towards Immelt because he went to Dartmouth and Harvard Business School, got his Ph.D. from the University of Illinois, and was generally intelligent. However, Immelt didn’t understand GE Capital. He didn’t understand finance well or know the dangers of borrowing short and lending long.

Borrowing in the commercial paper market is like a 30-day liability, and lending out 7-10 years means that if something happens and dries up your source of capital, you’re toast. This saw him make wrong decisions, which significantly impacted the company.

In comparison, when Jack Welch made big decisions, he made the right decisions. When Jeff Immelt had big decisions to make, he made the wrong decisions, by and large.

You are not always right

The value of dissent and dynamic team interactions cannot be overstated; fostering an environment where open debate and criticism are encouraged catalyzes innovation and helps circumvent potential strategic missteps. These elements underscore the complex interplay between leadership style, strategic adaptability, and the importance of a culture that champions constructive debate within an organization.

Welch encouraged dissent. Many people in organizations are afraid to speak up, dissent, and share what they think because there will be consequences for their careers. Welch encouraged people to express their opinions, and though he was whip-smart, he would allow his mind to be changed. And there were plenty of examples where his mind was changed.

Sometimes, the separation of the Chairman of the Board and the CEO is justified; other times not

The debate over whether to separate the roles of CEO and Chairman is critical in corporate governance, aiming to boost board independence by clear role division: the CEO manages daily operations, while the chairman leads board strategy and oversight. The CEO’s primary focus is growth, and the chairman’s is risk. This separation, supported by major shareholders and advisory firms like BlackRock, Vanguard, and Glass Lewis, aims to enhance decision-making and governance, particularly when a board’s independence is questioned.

However, some see benefits in combining these roles for efficiency and unified leadership, a stance shaped by personal experience and shareholder views. The increasing focus on ESG criteria has intensified calls for role separation, though it’s debated whether this could have impacted significant leadership decisions in major companies. It is hard to say if a stronger board and a separated Chairman would have prevented Welch from making what he called the biggest mistake of his career, hiring Jeff Immelt.

At GE, the board was aware of Welch’s succession process and the candidates and had a role in vetting them. Welch was not only the CEO but also the chairman of the board, and whatever he wanted, he got.

As the CEO, Welch wanted Immelt as his successor, and even though there was some dissension on the board, it didn’t amount to much—it wasn’t enough to win the day. Then, when Immelt became the CEO, he kicked out board members who had actively dissented from his appointment, such as Ken Langone and Sandy Warner, the head of JP Morgan at the time.

Achieve the numbers in an ethical manner

The General Electric narrative illustrates the vital link between ethical standards and sound financial management in corporate governance. GE’s decline from a beacon of innovation to facing financial turmoil and ethical scrutiny is a cautionary tale. It highlights the dangers of prioritizing profits without robust ethical and financial oversight, mainly seen in the complex operations of GE Capital and its repercussions on the company’s stability and stakeholder trust.

This case stresses the importance of integrating ethical considerations into financial strategies to ensure long-term corporate success and integrity. GE’s experience is a critical reminder for businesses to uphold financial prudence and a strong ethical culture, ensuring decisions contribute to sustainable growth and maintain corporate integrity rather than compromising it for short-term benefits.

You are not invincible

The downfall of a corporation can often be traced to a mix of hubris and a disconnect between its public persona and internal realities. This phenomenon is particularly evident in the case of General Electric, where a sense of invincibility stemming from past achievements led to complacency and overconfidence.

This corporate hubris, or excessive pride, can blind a company to emerging challenges and necessary evolutions, setting the stage for decline. Furthermore, GE’s experience underscores the significance of aligning its outward image with its internal operations and culture. The disparity between GE’s celebrated public image as a beacon of innovation and its many internal challenges illustrates the dangerous gap that can develop when a company loses sight of its foundational values and operational integrity in pursuit of maintaining a facade of success.

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