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Introduction: Gain insights from both achievements and setbacks.

If someone had approached GE CEO Ralph Cordiner during the 1950s with doubts about the company’s survival, he might have chuckled at the idea. Questioning the future of a company that had been one of the most successful in American history would have sounded absurd.

General Electric once exuded the same confidence now seen in tech giants like Amazon or Microsoft. It stood at the forefront of technological advancements, leading the charge in the electrical revolution, pioneering radio, achieving breakthroughs in aviation, and even contributing to the development of CAT scans. If you examined the “idea” lightbulb from cartoons closely enough, you’d probably find a GE logo on it.

However, this grandeur eventually crumbled, with events like the 2007-08 financial crisis revealing profound flaws within the unwieldy corporate giant. It’s a captivating tale of talent, luck, ambition, and hubris, offering valuable lessons for anyone embarking on their entrepreneurial journey or assuming a leadership role. This sprawling narrative serves as both an inspiration and a cautionary tale.

“Power Failure” spans over 700 pages, so in this brief overview, we won’t delve into all the intricate details of its history. Instead, we’ll explore some key highlights and the valuable insights they offer for aspiring leaders and anyone seeking to glean wisdom from the triumphs and missteps of others.

Chapter One: Be Flexible

While General Electric eventually morphed into a complex, almost sentient entity resembling a colossal sci-fi financial behemoth, it didn’t always bear this character. The company underwent numerous transformations over the years in response to shifting circumstances.

It originated from the fierce competition in the nascent electrical industry, rapidly expanding as Thomas Edison’s light bulb enterprise merged with a rival, adapting to evolving markets. World War I prompted GE to diversify, developing innovations like submarine detection, which laid the groundwork for its later industrial endeavors. Subsequently, one of its scientists devised an improved radio transmitter, propelling GE into the radio sector, leading to the creation of RCA and the successful promotion of this innovative product.

The 1930s, marked by stricter oversight, compelled GE to divest RCA due to monopoly concerns (later reacquiring it when regulatory concerns subsided). By the 1940s, GE had become a corporate giant, with its core identity shifting; Fortune magazine even described it as an investment trust that happened to manufacture things. GE displayed a remarkable ability to identify profitable opportunities, yet its executives occasionally disagreed on strategic planning for the future.

Over time, however, the once nimble market leader transformed into a cumbersome corporate entity, excessively reliant on its capital business. The early 2000s brought formidable challenges, commencing with the devastating impact of 9/11, where GE bore the financial burden not only for the Twin Towers but also the aircraft involved. It navigated through a volatile post-9/11 market.

As the corporate landscape evolved, regulatory scrutiny increased, curtailing companies like GE from unchecked expansion. Public sentiment turned against GE due to its lack of transparency and questionable accounting practices that had long bolstered its image.

While numerous factors contributed to GE’s downfall, entrepreneurs and others can draw a vivid lesson: Pursuing substantial profits at the cost of flexibility and reliance on risky ventures should prompt reconsideration of alternative profit-making strategies.

Chapter Two: Stick to your values

During its early and peak phases, General Electric held financial prudence in high regard, a practice that contributed to its survival and growth in its formative years. However, the allure of greed and ambition eventually eroded this ethos.

One of the early leaders at GE, Charles Albert Coffin, distinguished himself as a shrewd financial steward. He adeptly navigated turbulent waters, effectively plugging financial gaps and steering the company through the 1893 financial panic, when demand for GE’s products and services plummeted. This experience left an indelible mark on the company’s culture. Post-crisis, Coffin insisted on meticulous financial management, eschewing unwarranted optimism or the inflation of the company’s asset values.

Following this prudent path, when the next financial crisis struck in 1907, GE found itself so financially robust that it easily weathered the tempest, even extending loans to assist others in need.

However, the trajectory shifted in subsequent years. The renowned CEO Jack Welch, who assumed leadership in the early 1980s, executed numerous astute maneuvers. Yet, he also made the company’s stock price a primary source of pride, overseeing an accounting department that consistently delivered quarterly profits by strategically leveraging the company’s extensive assets. Welch heavily relied on GE Capital, a division specializing in loans, which generated substantial and seemingly effortless wealth. However, this was achieved by assuming inexpensive short-term debt to finance lucrative long-term loans—a classic banking misstep repeated throughout history, with severe consequences when conditions change, as they did with the 9/11 attacks.

Though Welch and others were cognizant of the vulnerabilities inherent in these practices, they continued to engage in risky asset dealings. Had they adhered to the company’s earlier creed of sound financial principles and conservative fiscal management, the course of GE’s history might have taken a vastly different turn.

Chapter Three: Recognize the significant impact of an effective leader.

Similar to sports team managers, CEOs often receive undue credit during prosperous times and unjust blame when circumstances turn unfavorable. Therefore, it’s not logical to attribute all the fluctuations in a company’s performance or its long-term success solely to one individual’s actions.

Nevertheless, despite this caveat, the modern CEO wields significant influence, and their decisions and interpersonal skills can profoundly impact the destiny of large corporations. Jack Welch, the final CEO of GE during its peak, has become an integral part of the company’s legacy. This is partly due to his team’s adeptness at managing the business to enhance GE’s financial metrics and partly due to his exceptional decision-making acumen and leadership prowess.

One of Welch’s standout qualities was his unwavering self-confidence. Upon assuming the CEO role in 1980, he didn’t opt for a risk-averse approach adhering to tradition to avoid upsetting the status quo. Despite the company’s already positive performance, he immediately implemented changes distinct from his predecessors.

Welch’s comprehensive understanding of the business and his meticulous preparation were also notable. His deputies knew that when they presented, Welch expected them to be well-prepared and ready to field probing questions. Negligence was not tolerated.

Although Welch occasionally erred in deals, he was renowned for his astute negotiations and knack for identifying winners. However, his handpicked successor, Jeff Immelt, might have been one of his misjudgments, a view that Welch eventually adopted. As one of the nation’s most esteemed companies faltered, Immelt received blame for a series of calamitous decisions and missteps.

Critics argued that Immelt lacked the ability to perceive the holistic interplay of different business facets. His diligence did not match Welch’s, and he seemed to struggle in building team loyalty. One pivotal blunder was investing in a subprime mortgage business, a move that proved ill-conceived when the 2007-2008 financial crisis, fueled largely by bad debt and irresponsible loans, struck. Additionally, as the crisis unfolded, Immelt resisted advice to divest GE’s real estate interests, opting to persist in taking risks and reaping potential rewards.

While Immelt weathered the initial crisis, GE’s fortunes did not rebound in the subsequent years, ultimately leading to his dismissal. In fairness to Immelt, the September 11 attacks and financial crises were monumental disruptions that posed threats to numerous companies. Immelt believed that Welch had left him with substantial challenges to address, a viewpoint supported by evidence. Nevertheless, it’s apparent that Immelt lacked Welch’s aptitude for sound decisions and effective leadership, which hindered the company’s resilience in the face of adversity.

Selecting the right leader or nurturing the skills required to become one is undeniably a pivotal component of achieving success.

Chapter Four: Listen, even when people disagree

Jeff Immelt had a tendency to resist pushback and dissenting opinions, unlike his predecessor, Jack Welch. Welch was known for his candid critique but also for fostering intense debates over policies and decisions. He possessed the self-assuredness to allow himself to be swayed when presented with compelling arguments.

In contrast, Immelt’s management team leaned more towards flattery than productive conflict. He was less inclined than Welch to engage in rigorous discussions that evaluated the merits and drawbacks of decisions or to subject subordinates to in-depth scrutiny of their proposals. Immelt also seemed averse to hearing unfavorable feedback about his ideas, which hindered open communication.

Furthermore, Immelt faced criticism for not being an attentive listener, even in routine conversations. While it’s essential for CEOs to garner support and loyalty from their teams, it’s equally crucial to strike a balance between leadership and tolerating dissenting views, a skill at which Welch reportedly excelled. This balance was reflected in his results and decision-making.

Dave Calhoun, a high-ranking executive under Immelt who later assumed a leadership position at another company, believed that the issues leading to GE’s downfall could have been addressed but weren’t. He pointed out that Immelt, unlike Welch, failed to leverage dissent and pushback to identify and rectify problems. Consequently, individuals who could have identified issues were unable to do so.

Effective leaders exhibit confidence and the ability to embrace dissent without feeling threatened. This quality enhances their leadership effectiveness and fosters a more receptive following.

Chapter Five: Keep in mind the role of incentives and human behavior.

For those with memories stretching back to General Electric‘s heyday, the company likely evokes images of refrigerators and stoves. During the mid-20th century, GE established itself as a dominant force in the appliance industry under the leadership of CEO Ralph Cordiner, who undertook a substantial restructuring effort, decentralizing the company’s operations. This move yielded substantial profits and success.

However, Cordiner’s approach also imposed immense pressure on the various divisions to achieve numerical targets. Regrettably, this environment fostered corruption within the company. While GE advocated for ethical conduct at the highest levels, the intense pressure on top managers provided them with incentives to engage in dishonest practices. This included illegal collusion with competitors to inflate prices and manipulate bid outcomes, particularly notable in the utility sector, where consistently meeting financial targets proved challenging in a volatile market.

Cordiner’s system effectively met performance goals but inadvertently encouraged achieving these goals through any means, irrespective of the ethical principles preached at the organizational summit. In this pressure-filled atmosphere, corruption took root, leading some ethically inclined managers to seek employment elsewhere. Due to Cordiner’s decentralization strategy, practices diverged across the company, and ethical leaders at the top (if there were many) struggled to enforce their values downward.

Around 1960, the rigged system began to unravel when a federal investigation was initiated. GE terminated several executives who were indicted on charges of price fixing. Cordiner publicly denounced corruption, although Senate testimony implicated him and other top executives as being aware of these practices for years.

Regardless of the specifics, Cordiner didn’t actively promote corruption; he merely created an environment where it thrived. This underscores the importance of incentives and the need to consider human nature when designing them, as misaligned incentives can yield counterproductive results.

Conclusion

Within their sophisticated corporate offices, high-ranking GE executives thrived in an aura of impregnability. They embodied the mighty GE brand. What could possibly breach their defenses?

One notable critic of the company attributed part of its downfall to this hubris. GE, buoyed by its name, history, size, and past triumphs, failed to implement appropriate safeguards—a glaring misstep to avoid. Regardless of your scale and resilience, invincibility is an illusion.

However, in spite of possibly enduring one of the most significant corporate downturns in history, GE’s narrative is far from concluded. The company persists in pioneering innovations within the aviation sector, producing remarkable new jet engines, and exploring sustainable ways to power aircraft, moving away from fossil fuels. Additionally, it’s directing its efforts toward harnessing the potential of 3D printing for industrial applications.

This optimistic note offers a hopeful conclusion. Despite its array of errors and a narrative marred by arrogance leading to downfall, GE may yet bestow substantial contributions to both the business world and society at large. It’s actively engaged in the process of picking up the pieces and rebuilding—a course of action available to us all when confronting the consequences of our mistakes.

About the author

William D. Cohan, an industry stalwart with deep roots in finance and a former member of the General Electric workforce, has an impressive track record of New York Times bestselling books. His notable works include “The Last Tycoons: The Secret History of Lazard Frères and Co. (2007),” “House of Cards: A Tale of Hubris and Excess on Wall Street (2009),” “Money and Power: How Goldman Sachs Came to Rule the World (2011),” and “The Price of Silence: The Duke Lacrosse Scandal, the Influence of the Elite, and the Erosion of Our Esteemed Universities (2014).”

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