Few events change minds more profoundly than the imminent possibility of being sacked.
Between 19, financial entrepreneurs mounted more than 2,000 leveraged buyouts, in which they bought out shareholders with borrowed money, each buyout exceeding $250 million.Īs a result, CEOs across America, facing the possibility of being replaced by a CEO who would maximize shareholder value, began to view their responsibilities differently. The raiders pushed shareholders to vote out directors who wouldn’t make these sorts of changes and vote in directors who would (or else sell their shares to the raiders, who’d do the dirty work).ĭuring the whole of the 1970s, there were only 13 hostile takeovers of big companies valued at $1 billion or more. The raiders targeted companies that could deliver higher returns to their shareholders if they abandoned their other stakeholders - by fighting unions, cutting workers’ pay or firing them, automating as many jobs as possible, outsourcing other jobs, and abandoning their original communities by shuttering factories and moving jobs to states with lower labor costs or abroad. Starting in the 1980s, though, as a result of the corporate takeovers mounted by raiders such as Michael Milken, Ivan Boesky, and Carl Icahn, a wholly different understanding of the corporation emerged.
They even argued that unions “serve the common good.” In the 1960s, many of these CEOs lobbied for stronger environmental protections and for passage of the Environmental Protection Act. In the 1940s and 1950s, CEOs of major corporations like GE, General Motors, Coca-Cola, and Eastman Kodak joined together in the Committee for Economic Development, to lobby for measures to expand jobs. The raiders made fortunes, Wall Street became the most powerful force in the economy, and CEOs began to devote themselves entirely and obsessively to maximizing the short-term value of shares of stock - whatever it took.īefore then, it was assumed that large corporations had responsibilities to all their “stakeholders”- not just their shareholders, but also their employees, the communities where their operations were located, their customers, and the public at large. His reign epitomized a chain reaction that started in the 1980s, when “corporate raiders” mounted hostile takeovers of corporations, financed by risky bonds. JACK WELSH became the most admired CEO in America - at least in the business press, on Wall Street, and within rarified precincts like Harvard Business School. As GE opened facilities abroad, staffed by foreign workers costing a small fraction of what GE had paid its American employees, the corporation all but abandoned upstate New York.īetween the mid-1980s and the late 1990s, GE slashed its American workforce by half (to about 160,000) while nearly doubling its foreign workforce (to 130,000). Welch encouraged his senior managers to replace 10 percent of their subordinates every year in order to keep GE competitive. But between 19, a quarter of these GE workers - 100,000 in all - lost their jobs, earning Welch the moniker “Neutron Jack,” along with the glowing admiration of the business community. If we really want to understand the decline of the common good over the last four or five decades, we need to understand this change - and no one better illustrates it than Welch.īefore Welch became CEO of GE, most GE employees had spent their entire careers with the company, typically at one of its facilities in upstate New York. I want to focus on Jack Welch today because Welch represents a stunning change that occurred in American capitalism in the 1980s, whose repercussions lead all the way to Donald Trump. Welch accomplished this largely by slashing American jobs. Between 1981, when Jack Welch took the helm at GE, and 2001, when he retired, GE’s stock value soared from $14 billion to $400 billion.
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