T
he U.S. economy was undergoing its deepest and most destabi- lizing downturn since the 1930s when Jack Welch finally be- came more than a just a name to GE’s chairman, Reginald Jones.1 Under other circumstances, Jones might never have become aware of Welch at all. But the 1970s were already developing into an extraordinary and, in many ways, desperate time for American busi- ness, and Jones could feel the pressures as well as anyone. So a rou- tine planning and budget session that Jones presided over not long after becoming chairman at the start of 1973 carried more impor- tance, as far as he was concerned, than might otherwise have been the case. And as luck would have it, at this meeting he encountered Jack Welch for the first time—at his toughest, smartest, and all- around best.Jones had officially taken over as GE’s chairman from his prede- cessor—a man named Fred Borch—on December 15, 1972, and the passing of the baton proved awkwardly timed to say the least, for
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scarcely had the new man settled into his new job than the Egyptian Army crossed the Suez Canal, unleashing the Yom Kippur War. The invasion caused the United States to rush military aid to Israel, and this provoked the oil-exporting nations of the Arab world to an- nounce an embargo of oil exports to the United States. Almost im- mediately, the stock market collapsed, knocking two-thirds of the value off GE’s stock price in a slide that eventually bottomed out but could not be reversed for years to come.
A tall, gaunt, chain-smoking Briton, Jones greeted the world with a reserved demeanor and a furrowed brow even in the best of times. And the start of his career as GE’s tenth leader since the com- pany’s founding in 1892 was hardly a time to be looked back on fondly by anyone in business, let alone this business leader with the sensibilities of an Old Etonian Tory and the looks of the Duke of Windsor; he was simply overwhelmed by events.
Beset with a collapsed stock market, soaring oil prices, and Spen- glerian editorials about the decline of the West, Jones seemed to move through his days enveloped in perpetual gloom about GE’s fu- ture if radical action weren’t taken, and quickly. “The place had be- come so ossified and hierarchal that it was impossible to get anything done,” says an executive who worked at corporate headquarters dur- ing the period. “Arguing over inertia had become everyone’s job.”
The company needed to be streamlined and reorganized so that it could compete in a world in which the only constant seemed overnight to have become relentless, accelerating, and threatening change. But what exactly should he do? Everywhere he looked busi- ness leaders were as uncertain as he was.
After a quarter century of global hegemony, an entire genera- tion of American “corporate statesmen” suddenly found themselves with their backs to the wall: Irving Shapiro of E.I. Du Pont de Nemours, Richard Gerstenberg of General Motors, Edgar Speer of U.S. Steel, Walter Wriston of First National City Corporation, John
QUESTION FROM THE CHAIRMAN: HOW MUCH DO I WEIGH? 99 DeButts of AT&T. For more than twenty years, men such as these—
and their colleagues, predecessors, and business leader rivals—had been the voices of unchallenged authority regarding how best to or- ganize economic activity and deploy it globally for maximum return.
Now they seemed to be wondering whether they even knew what they’d been talking about. Whichever way one turned, the American economy looked to be at war with business itself. In the wake of the oil crisis, consumer price inflation, already moving up steadily as a result of the Vietnam War (which by this time was actu- ally winding down), now shot into orbit. Meanwhile, productivity growth began to slow and eventually to peter out entirely, even as unemployment rose steadily. A whole new concept in political eco- nomics turned up: the Misery Index. You added the unemployment and inflation rates together and you got an index number of just how economically miserable the American people were thought to be.
Big and presumably rock-solid companies began to teeter, while second- and third-tier companies started dropping like flies. Mean- while, industries like automaking, shipbuilding, and steel manufac- turing—weakened by unions that had been demanding, and getting, some of the highest wages on earth—suddenly found themselves in frantic retreat from rival industries in countries like Japan and West Germany, which many Americans had smugly assumed were still re- covering from World War II.
Business leaders everywhere knew something was wrong, but few seemed to have a clear idea what to do about it, and those who did lacked business structures flexible enough to get anything done anyway.
Like many large manufacturing and industrial businesses that traced their roots to the turn of the century, GE had operated from the start as basically a holding company with a small and centralized corporate management ruling over what eventually developed into nearly a dozen separate operating fiefdoms, which the company
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called “Works.” They were scattered across most of the Northeast quadrant of the United States, in the cities where GE either started—
or more commonly, acquired—businesses of one sort or another.
During the World War II years, GE and the country’s other lead- ing manufacturing enterprises adapted easily to the evolving bureau- cracy of the Pentagon and the War Department, and a lot of the resulting heft at the corporate level carried over into the 1950s. But efforts to reform and streamline the structure for the demands of civilian life simply resulted in whole new layers of bureaucracy being piled on top of what was already there.
Ralph Cordiner, the company’s president at the start of the 1950s, led the most notable of these efforts.* Standing barely five feet tall in his stocking feet, Cordiner seemed determined to wrestle the GE bu- reaucracy into submission one way or another—to which end he pro- ceeded to break up the Works operations (by then totaling eleven) into 190 separate “departments,” some with yearly revenues of barely
$2 million. Cordiner asserted control over this fragmented system through nearly fifty separate and specially created “Divisions”—in ef- fect, a vast new layer of management bureaucracy inserted where none had existed before. These divisions reported to just under a dozen “Groups,” and the Groups reported to Cordiner.
To make sure that everyone in these new levels of management was on the same page, Cordiner next set up a management training center in the Westchester County village of Crotonville, north of New York City. He then had his aides codify the collective manage- rial wisdom of GE (as interpreted by Cordiner) into a five-volume encyclopedia of organizational bafflegab called the “Blue Books,”
* Among other things for which he is remembered, Cordiner hired Ronald Reagan (“ Tall, handsome, and well spoken . . .”) to be GE’s pitchman. The company furnished the Rea- gans with an “all-electric home” that was featured in GE advertisements. Reagan is best known as the host of GE Theater,which ran weekly on CBS from 1954 to 1962.
QUESTION FROM THE CHAIRMAN: HOW MUCH DO I WEIGH? 101 which soon enough generated a whole new bureaucracy of Blue Book “enforcers.”2
After Cordiner came another GE chairman, Fred Borch, who tried to make GE’s superstructure more manageable, only to wind up making it even bigger and more unwieldy. Borch’s unique contribu- tion: To increase the number of departments by a third, to 350, and to create an “Executive Office of the CEO” with three vice chairmen sandwiched between Borch and the Groups.*
Somehow, this entire apparatus needed to be disassembled and discarded in favor of something leaner and more nimble, so that it didn’t take forever to get the company to act on an idea, or even make a decision. But although Jones knew what needed to be done, his retiring temperament seemed to hold him back, and after three years as chairman and CEO, GE was still weighed down with the same unwieldy management hierarchy it had inherited from Borch.
To Jones, reforming GE was turning out to be like trying to alter the course of a supertanker underway; you needed five miles of forward motion to shift the ship’s heading by just one degree.3
So it was Jones’ good fortune—and Welch’s as well—that the two men were to meet at a moment when everything Jones felt he needed to begin turning GE in a new direction would wind up stand- ing before him—at this otherwise forgettable budget and planning meeting—in the person of Jack Welch.
At this point, Jones himself had been in his job for less than a year and he was already coming to dislike these sessions—especially the little presentation kits that the various Group heads prepared and used like show-and-tell props. As far as Jones was concerned, they all suffered from the same fundamental dishonesty—what Jones liked to
* In one of his last missions before turning over the chairmanship of GE to Jones, Borch led a group of a dozen like-minded CEOs in a pro-business lobbying effort in Washing- ton. The group developed into the Business Roundtable the following year and is today regarded as the leading such organization of its type.
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think of as “the hockey stick forecast.” Each could be counted on to show basically the same thing: Group earnings declining steadily for several quarters as capital investment in some grand new project ramped up . . . followed by earnings shooting through the ceiling year-after-year for the next half decade as the company harvested the rewards of the Group leader’s brilliance. Jones had become fed up with the very idea of these useless forecasts.
But Welch’s presentation proved entirely different, and review- ing it in advance of the meeting, Jones could see that a great deal of thought and effort had gone into it. Performance forecasts were set forth in detail, quarter-by-quarter, for every specific product line in Welch’s Group. Customer demand forecasts were also set forth, once again in detail, and once again for each specific product in the Group. There were forecasts for penetration into new markets, and flowcharts to show the planned development of new products, indi- cating when they would become marketable to customers, and when return revenue flows would begin.
It was a completely different presentation from anything Jones had seen before—maybe different from anything that anyone at GE had ever produced before—for any chairman or CEO. It was unique—a forecast that fully and carefully brought together the outlook for products and cash flows at the Group level over the next five years.
Reviewing it, Jones thought to himself, “Say, this is really some- thing. This is really well thought through. It’s well considered.”
By the time the meeting began, Jones had read the presentation several times over and had prepared plenty of questions to ask the young Group head. He was going to put him through his paces, make the man defend his work as if he were facing off against the senior faculty in his PhD orals.
Yet, by the end of the session it was Jones—and not Welch—
who’d been rendered speechless. Granted, Welch was a short,
QUESTION FROM THE CHAIRMAN: HOW MUCH DO I WEIGH? 103 pugnacious fellow, with an adenoidal voice and a working-class Boston accent. And he had some annoying nervous habits and twitches that Jones didn’t much care for—especially when it came to biting his nails and punctuating his speech with staccato-like stammering at odd moments.
In fact, in every way one might have imagined, the two men were polar opposites. Welch stood five feet eight inches and some- times looked even shorter, thanks in part to his habit of wearing blue blazers and gray slacks to every function—a two-toned color en- semble that emphasized the very stubbiness of his fire hydrant frame. What’s more, he liked to boast of maintaining an “open door”
policy to his office—though the boast was meaningless because few executives seemed to welcome the experience of barging in on him unannounced.
By contrast, Jones stood six feet four inches and looked even taller—thanks largely to his office uniform of a dark blue suit, white shirt, and muted tie. Taken together, the ensemble created the ap- pearance of an individual who somehow seemed larger than life.
Other GE executives spoke of the hushed stillness of his office, and the sense that would overtake them upon entering it, of being in a mighty place, ruled by a powerful but benevolent leader. One did not raise one’s voice in this place, for the simple reason that one did not need to: When the leader spoke, the mere speaking of the words was enough to command attention.*
Yet so far as Jones was concerned, all that was nothing when weighed against the substance of Welch’s answers: He had a ready, well-reasoned response for every single question Jones put to him.
* Said a GE executive not long after the Welch appointment as chairman and CEO was announced, “When I used to go to see Reg Jones, I thought I was entering the Oval Of- fice. But when I go to see Jack, it’s just like visiting one of the guys.” BusinessWeek (March 18, 1981), p. 110.
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In fact, when Jones later reflected on the performance, it seemed almost as if Welch had actually anticipated Jones’ questions—and rehearsed his answers—before he ever left Pittsfield.*
After the meeting, Jones asked Welch’s immediate boss, a vice chairman named Herman Weiss, to chat for minute. He said, “Herm, this Welch fellow is someone we’ve got to be bringing along. I think we should get him down here to Fairfield, show him some more of GE than what’s up there in Pittsfield.”
Not long after, Weiss reported back that he had put the idea to Welch, but that the young man had declined; and Jones thought,
“He’s a big fish in a small pond up there, but he’s going to have to make up his mind.”
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s the economic crisis of the 1970s continued to spread, Jones came to see Welch more and more as a potential savior for the corporation. And it thus became easier and easier to accept the very unpredictability of the man—charming one minute, abrasive the next—as the price one had to pay to purchase his strengths. And those strengths were, frankly, obvious. First of all he was smart, with a knack for taking complex ideas and reducing them to core con- cepts that helped him make his point. And who knew, when people spoke of his street fighter’s charisma, maybe they were referring to that adder-like wit and the mercurial tongue.Of course, dogged as Jones was with the problems besetting his company, he had little time to inform himself of the downside to Welch’s odd and idiosyncratic approach to employee relations—es- pecially when their greatest impact might lie buried in bureaucratic
* In that, Jones was certainly right. All sources who were interviewed for this book re- garding Welch’s management style agreed that he was almost fanatical in his attention to detail concerning both the substance of his presentations and the theatrics with which he liked to embellish them.
QUESTION FROM THE CHAIRMAN: HOW MUCH DO I WEIGH? 105 effluvium twenty-five levels down in the organization. As Jones him- self was willing enough to admit, the bureaucracy of GE had grown so suffocating over the years that it was hard to stay abreast of the day-to-day activities of executives even three levels below him.*
So given all that, it is highly unlikely that Jones knew anything at all of the bizarre world of Becker House that had been Welch’s springboard to higher office, let alone of the person who became its first casualty. Yet, plenty of people in Selkirk itself knew, and one of them was Bob Kunze.
Not terribly comfortable with the situation in Selkirk to begin with, nor seemingly very eager to ingratiate himself with Welch and the Jack Pack, Kunze eventually landed a job in GE Plastics, Europe, and by 1968 he was gone even as Welch himself had by now re- turned to Pittsfield to take on broader responsibilities than just the Noryl project in Selkirk.
But it was Welch who had set the tone of the place in Selkirk as its first leader. And after his departure, nothing changed. In fact, things seemed to grow worse. As a result, stories from Selkirk kept reaching Kunze—in particular about his former secretary, Regina—who had apparently morphed during her brief GE career from a quiet young woman who minded her own business into a kind of wild party ani- mal who was getting passed around among the men of Becker House as if she were nothing more than a slab of meat with tits.
The gossip about Regina’s behavior was relentless, and so was the seeming enthusiasm of her new boss, Tom (“Fitzy”) Fitzgerald, to keep everyone up to speed on the latest developments. Did you know, for example, that Regina had been seen in town the other day with one of the hardhats from outside in the yard? Or did you know
* In N. Tichy and S. Sherman, Control Your Destiny or Someone Else Will(New York: Harper Business Books, 2001), the authors note that by the time Jones retired in 1981, nine en- tire layers of management separated department level executives from the CEO (p. 58).
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about the other night at the Bush? You didn’t hear what happened?
How she was over there by the jukebox, smoking and flirting with half the second floor, when her husband came storming in and dragged her out, and there was a big row in the street? You missed all that?
It is unclear when Bob Kunze actually learned of the suicide of Regina Paulsen. By the time she took her life, in August 1974, Kunze was gone not only from Selkirk but from GE entirely, and was about to begin work in a management position at W.R. Grace & Company, the chemicals firm, which he thereafter left as well. Nonetheless, the news of what had happened to Regina eventually caught up with him anyway.
Leaving the chemicals and plastics industry, Kunze moved next into investment banking, becoming a partner in the West Coast ven- ture capital firm of Hambrecht & Quist, where his career flourished in the biotech and high-technology booms of the 1980s and 1990s.
He became a wealthy man and an outside director on the boards of various companies. But neither the passage of time nor the accumula- tion of wealth could bury for long his festering thoughts about his secretary back in Selkirk.
Carbon monoxide poisoning is the most common form of toxin- induced death in the United States. The gas, which is both colorless and odorless, kills its victims by starving them of oxygen. This is be- cause red blood cells, which transport oxygen to the cells of the body, are 200 times more likely to bind to carbon monoxide than to blood, so that a relative small quantity of carbon monoxide can block the blood from transporting any oxygen to the cells. Starva- tion occurs first in the brain and heart—the two internal organs of the body that have the highest metabolic rates and thus need the most oxygen to function.
Because the amount of gas that is inhaled determines the effects of carbon monoxide poisoning, it is possible to become incompletely