The View’s Still Great From the Corner Office
May 8 2005 by Chief Executive
WITH so many celebrity chief executives spending more time in courtrooms than in boardrooms these days, the race for the corner office may seem to be losing its appeal.
But John F. Welch Jr., the former chief executive of General Electric and the co-author, with his wife, Suzy, of “Winning” (HarperBusiness, 2005, $27.95), says he thinks that the climate of negativity will recede and that a new generation of business leaders will emerge. Here are excerpts from a recent conversation:
Q. In your career, have you ever seen an environment in which chief executives are being turned out of office this rapidly and in these numbers?
A. I don’t recall in my career seeing that. We clearly had some alarming situations that have required some actions. I think this, too, will pass.
Q. Has the pendulum swung too far? Many chiefs are critical of Section 404 of the Sarbanes-Oxley law of 2002, or Sox, which requires extensive internal controls.
A. We’re going to need a relook at some of these things. We had to have Sarbanes-Oxley. The public needed to have confidence rebuilt, to know that the system was working. And they got it. I think it passed 97 to 0 in the Senate. But like any hastily done bill, there might be extremes in here. I think Sox 404 is a heck of a burden on small entrepreneurial companies about ready to go public. Maybe some modification is needed. I don’t think it’s a problem for big companies. These have well-established processes, internal auditors, audit committees and everything else. I also think the independent-director argument might be too precise. I always liked having people who have skin in the game to have a voice in management.
Q. These days, directors are personally liable if they make the wrong decision. Has that changed the dynamics of the boardroom?
A. I’m not in boardrooms, but I think it has to have. What we ask is, “What is the role of a director?” We’re picking them for their judgment, their character, their ability to see around corners, to sense whether the strategy is right. But they can’t do that by looking at the books. They can only do that by walking the company. They have to get out and meet people at all levels, and get a feel for what it feels like out there. Are they hearing the same things out there that they’re hearing in the boardroom? Then they have to support the C.E.O. The company has to win. If they don’t have confidence in the C.E.O., they’ve got to make the change. But being timid and being afraid is not what we’re looking for in directors.
Q. When you go out on your book tours, what do you say about being a C.E.O.?
A. What I talk about is, any time you are managing people, your job is not about you, it’s about them. I was talking to students at Columbia and New York University, several hundred at each one. I tell these kids: “It starts out about you as you go as an individual into a company. But once you get a leadership job, it moves very quickly to being about them. You have to hire great people who can excite, and make you look good and make the company win. It quickly goes from “you” to “them.” Your ability to excite them and go after challenges will determine how good you are. Because you can’t do it by yourself.
Q. Do you find that younger people still aspire to become chief executives or have they been turned off?
A. I’m going to M.B.A. schools. I’ve got kids who’ve committed $80,000 or $100,000 to get a degree and go for it. I will say this, though: you don’t go anywhere that there isn’t a question or a concern about ethics. It’s top of mind.
Q. In today’s environment, are American executives focused on playing defense?
A. No, I don’t think that’s true. I don’t think the great C.E.O.’s in America today are in any way focused on defense. Their boards wouldn’t let them. They’re in a global competitive battle. That requires them and their boards to work in concert to win. You may see some concerned because their boards are not giving them the backup they need. But in general, I would not make that sweeping observation.
Q. Who are the best active chief executives today?
A. There are so many out there. But I know three great ones: Jim McNerney, Bob Nardelli and Jeff Immelt [the chief executives of 3M, Home Depot and General Electric].
Q. Since you trained them all at G.E., isn’t naming them a conflict of interest?
A. Yes. I’m filled with conflict of interest on that. But you gotta admire the job Procter & Gamble has done in this environment. I like the way Bill Harrison and Jamie Dimon [chairman and president, respectively, of J.P. Morgan Chase] are integrating the BankOne deal. There are a lot of people doing a great job. I think being a C.E.O. today in this terrific economy is more exciting than ever. You’ve got more playing fields around the world, whether it’s Eastern Europe or India or China. You’ve got more opportunities and, yes, more threats, but that makes it more fun, more engaging.
Q. Are American executives responding well to competition coming from abroad?
A. Absolutely. I think there is a healthy understanding of what global competitiveness is all about.
Q. How well is the economy handling this competition?
A. When I became C.E.O. of G.E., the prime rate was somewhere north of 20 percent. The unemployment rate was double-digit. Inflation was double-digit and we had several quarters of negative growth in 1979 and 1980. The Japanese were going to take over the world. When I see hand-wringing today, with 5 percent unemployment, with inflation in the 3 to 4 percent range, with the prime rate at about 6 percent and with G.D.P. growth of more than 3 percent for eight quarters, I don’t have much sympathy for hand-wringing. This economy is in very good shape and we’re doing very well. When I was at the Stern School of Business at N.Y.U., I asked the students how many had jobs. They all raised their hands. They’re all excited. Now they’re concerned about ethics, O.K.? But they also understand that business is the engine of this society.
Q. So is the image of executive after executive being forced to resign reflective of what’s really happening in business?
A. There have been some high-profile disasters, O.K.? But millions of people get up every day to go to work. And all these kids are thrilled to go to work. They can hardly wait to get their hands in it.
Q. Did you worry about ethics when you joined GE Plastics?
A. No. I thought G.E. was a great company with a great reputation. I thought they would be absolutely straight up. G.E. hasn’t done everything perfectly, but how can you expect 300,000 people to be perfect? When something goes wrong, we fix it. That is what great companies do.