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Opinion Jack Welch’s toxic legacy

Images of Jack Welch at the New York Stock Exchange on Monday. (Richard Drew/AP)

Jack Welch, who died Sunday, became chief executive of General Electric in 1981 — barely three months after Ronald Reagan took the oath of office. Like the former president, the former CEO is one of the people responsible for the way we live now.

I do not mean that as a compliment in any way.

Welch popularized the concept known as “shareholder value,” the idea that the primary duty of a company’s management is to increase its stock price for the benefit of shareholders. In pursuit of this goal, he bought and sold companies, shedding huge numbers of employees along the way. GE’s share prices soared. For this, Welch was celebrated: imitated by competitors and lionized by the fawning business press.

Never mind the fact Welch routinely closed GE’s Rust Belt factories and moved the jobs to Third World locales, where workers labored for less — much, much less — than the former GE employees. Never mind the fact that he cut funding for research and development, something that can undermine a company’s long-term health. And never mind the fact that the humane postwar arrangement between corporations and their employees — give us your loyalty and we’ll take care of you as best we can — ended in part because of Welch. He made money for shareholders, and that was the important thing.

Sure, Newsweek came up with the moniker “Neutron Jack” for Welch’s fondness for mass job cuts (he, er, motivated workers by promoting a Hunger Games-like management style, including advocating culling the bottom-performing 10 percent on a regular basis), but places like CNBC, which GE owned during the dot-com boom years, promoted him as a business genius. Fortune deemed him the “the manager of the century.”

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Welch, like many a corporate honcho, believed in accountability for everyone but himself. When it came to his perceived needs, cost was not a concern. His compensation was outsize — he earned millions and millions of dollars annually. (In 1997, he earned 1,400 times more than the typical American factory worker). The pattern continued even after he exited GE: It came out during his 2002 divorce that the company had continued to pay for everything in his life, from his use of the corporate jet to meals at four-star New York restaurant Jean Georges. GE even settled the bill for the flowers in his apartment.

By the time Welch exited his position in 2001, GE earned a large chunk of its profits not from its traditional industrial strengths but as a financial services company. This turned out to be a major cause of the company’s undoing — it all but blew up in 2008, and Welch’s successors are still trying to put the company back together again. A share of GE is worth an astonishing 80 percent less than it was valued 20 years ago. So much for shareholder value.

In 2009, Welch actually had the chutzpah to call shareholder value “a dumb idea,” adding, incredibly, “Your main constituencies are your employees, your customers and your product.” Somewhere, the more than 100,000 former GE employees Welch downsized over the years laughed through their tears.

This is hardly a complete list of Welch’s sins. Underlings reported he could be an abusive and bullying boss. “When angry, he could lash out with lacerating, personal diatribes that sometimes left shamed managers hurt and speechless,” the Wall Street Journal’s Matt Murray reported on Welch’s retirement. When it came to the environmental contamination the company created, Welch was not particularly interested in helping with the cleanup and frequently fought efforts to make GE do just that.

Welch, in the name of shareholder value, championed corporate impunity by companies and top managers alike. From outsourcing to wealth inequality, not to mention the self-righteous and self-justifying pronouncements of the rich and privileged, Welch was a leader. The economic destruction he caused — and the establishment’s embrace of it — explains much of the societal and political anger we live with now. Welch is now gone, but the world he helped create lives on.

Read more:

Helaine Olen: CEOs don’t want to be blamed for inequality — or do anything about it

Robert J. Samuelson: Social responsibility won’t save corporate America

Luigi Zingales: Don’t trust CEOs who say they don’t care about shareholder value anymore

David Ignatius: Corporate panic about capitalism could be a turning point

Megan McArdle: It’s hard to argue against firms looking beyond investors. But let me try.