Briana Santaniello 09/28/13 Jack Welch at General Electric Case Notes Week 3
1. During the Jack Welch era, GE partially fulfilled the duty of social responsibility. As defined, corporate social responsibility is “the corporate duty to create wealth by using means that avoid harm to, protect, or enhance societal assets” (Steiner & Steiner, 2012). Certainly Welch’s management created wealth, as seen by Steiner’s statement, “If you had invested $100 in GE stock when Welch took the reins and held it for 20 years, it would have been work $6,749” (Steiner & Steiner, 2012). Welch’s management also seemed to protect and enhance societal assets. Welch bought and sold both small and large business and “during his last four years alone he made more than 400 acquisitions” (Steiner & Steiner, 2012). Welch acquired these businesses to improve them and reap the profits in the process.
However the portion of definition regarding avoiding harm to society is where Welch seems to fall short. To achieve the goals of maximizing profit and creating wealth, Welch took all the steps he deemed necessary and many of these steps caused a great deal of harm to others. Welch eliminated many jobs in the attempt to save money, enhance overall efficiency, and to motivate employees to work harder. In doing so, many employees lost their jobs because Welch deemed either the position or the employee unnecessary or unfit for GE’s business activities.
The employees who remained were not safe however. Each year Welch made additional cuts and even ranked employees based on their performance and abilities. Employees were now competing against one another, resulting not only in an uncomfortable work environment, but also in a company which lacked diversity among management. Critics took note of the absence of diversity; however Welch defended this lack of differentiation by stating, “Winning companies are meritocracies…[that] practice differentiation,” and “this is the most effective way for an organization to field the best team” (Steiner & Steiner, 2012). This seems almost contradictory of protecting or enhancing societal assets, as diversity or differentiation can be seen as a societal asset. In this case, Welch’s management would fail to fulfill any part of the definition of corporate social responsibility, save the act of creating wealth.
2. Milton Friedman stated, “There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception or fraud” (Steiner & Steiner, 2012). GE under Welch seemed to operate in a manner very similar to what Friedman described. At-will employment permits the dismissal of employees by employers for any reason and without warning. Although controversial, none Welch’s decisions to terminate employees seem to have broken any rules, nor did they contribute to a diverse work environment in which coworkers could comfortably engage one another or work in harmony. It seemed that Welch’s management created competition within GE in addition to competition with other businesses. Competition within the work environment can be healthy when harnessed, but Welch’s management seemed to use the self-created competition to aid in budget-cuts rather than in the enhancement of workplace skills.
3. The “General Principles of Corporate Social Responsibility” mention a variety of principles, including, “corporations are economic institutions run for profit, all firms must follow multiple bodies of law, managers must act ethically, corporations have a duty to correct adverse social impacts they cause, social responsibility varies with company characteristics, managers should try to meet legitimate needs of multiple stakeholders, corporate behavior must comply with an underlying social contract, and corporations should be transparent and accountable” (Steiner & Steiner, 2012).Among these principles, GE fails to meet some of the principles but excels in meeting others.
The first principle regarding corporations being economic institutions run for profit is one in which GE excels. Nearly all business activities carried out under Welch’s management were aimed at seeking profit. For the most part, the second principle of following multiple bodies of law was also met by GE. However civil and criminal transgressions were committed during Welch’s management years and the Multinational Monitor released a document “listing 39 law violations, court-ordered remedies, and fines in the 1990s alone,” (Steiner & Steiner, 2012) indicating that GE did not always follow multiple bodies of the law.
The third principle regarding managers acting ethically is where Welch struggled. Welch stressed the importance of integrity at all business meetings; however the manner in which he terminated employment for so many individuals seemed excessive and far from ethical. The third principle is regarding corporations’ duties to correct adverse social impacts they cause. Steiner mentions the GE manufacturing plans in New York which released polychlorinated biphenyls into the Hudson River for 35 years. The Environmental Protection Agency studied the river and determined that GE was liable for the cost of dredging the river in order to remove the dangerous deposits; however Welch objected, campaigned, and hired lobbyists to fight against having to pay for the clean-up. It was not until after Welch retired that GE paid for the societal impact they caused.
The fifth principle states that social responsibility varies with company characteristics (i.e., size, industry, products, strategies, marketing methods, locations, internal cultures, and external demands). Given this statement and taking into account GE’s enormous size, as well as additional factors, GE would have a large social responsibility. However Welch did not share in this view and seemed to mainly focus on the first principle of creating profits. It was not until Jeffrey Immelt took over that social responsibility seemed to come to the forefront and social and environmental impacts were taken into consideration and acted upon.
The sixth principle of managers meeting legitimate needs of multiple stakeholders is another principle Welch failed to meet. Stakeholders include employees and Welch seemed to disregard their needs surrounding job security and a harmonious work environment. He also disregarded secondary stakeholders, specifically the environment, as noted previously in the Hudson River example. It seemed as if Welch cared more about himself and the shareholders than he did the stakeholders and for this he was criticized harshly.
The seventh principle of corporate behavior complying with an underlying social contract was given little, if any, mention in this case and will be disregarded to discuss the eighth principle regarding corporations’ transparency and accountability. Many companies today, including Union Bank, N.A. and Hershey’s release annual or biannual corporate social responsibility reports, which can easily be found on each company’s website. Union Bank, N.A. publishes information regarding community commitment, environmental stewardship, and talent investment (Union Bank, N.A., 2013). Hershey’s released information regarding performance indicators, engagement priorities, facility efficiencies, and commitment to the environment (The Hershey Company, 2012). In contrast, GE did not self-report their civil and criminal transgressions; this was done by the Multinational Monitor. Some of their transgressions were in reference to pollution hazards and consumer fraud, which most certainly represent issues that have societal impacts. Overall it seems that GE failed to meet nearly all the principles of corporate responsibility, save the first principle.
4. Ranking shareholders over employees and over stakeholders seems to have more cons than pros. The pros certainly included financial success, but this came at a cost to employees’ happiness and well-being, as well as at a cost to the community, consumers, and the environment. Pros also included Welch being well-respected by those who shared the same values as he did and by those who were able to perform up to his standards and keep their positions. However there are a large number of cons. These included harming the environment, contributing to the unemployment rate, diminishing employees’ levels of job satisfaction, eliminating feelings of job security, creating an environment in which employees felt inadequate to and in competition with their coworkers, and deceiving consumers with advertising.
Seeing employees as costs of production is wrong if this is the only way employees are viewed. Employees are much more than costs of production when the work force is made up of diverse employees. When there is lack of diversity there is nothing to differentiate one employee from the next and in this case employees may be viewed as costs of production. Welch did not value diversity in the work place and did not find that diversity contributed to success, which contributed to his view of employees as costs of production.
5. GE was most certainly a more socially responsible corporation in the Immelt aftermath compared to the Welch era. Immelt had different values than Welch and he remedied the Hudson River problem by agreeing to pay for the cleanup, made the ranking of employees less rigid, promoted progress in the area of females in the workplace, and appointed a new vice president for corporate citizenship. In addition he pledged to cut GE’s emissions, launched an eco-imagination initiative, and placed the corporation’s focus on energy-saving, less-polluting technologies. In doing so, Immelt took into consideration both primary and secondary stakeholders, as well as shareholders.
As seen on the current GE corporate social responsibility website, “sustainability is embedded in our culture and our business strategy. Working to solve some of the world’s biggest challenges inspires our thinking and drives our actions. We are committed to finding sustainable solutions to benefit the planet, its people and the economy” (General Electric Company, 2013). This statement never would have been made by Welch during his era.
Immelt’s era gave the most benefit to society; however it was not as successfully financially. This is not directly attributable to Immelt’s take-over, as the September 11th attacks occurred shortly after and a global recession began. Welch had better financial success but disregarded almost all groups except the shareholders. Immelt’s management seems to be more respected and more socially responsible and despite the unfortunate terrorist attacks, his management still resulted in a modest return.
General Electric Company (2013). GE Citizenship. Retrieved from www.gecitizenship.com.
Steiner, G., & Steiner, J. (2012). Business. government, and society: A managerial perspective, text and cases. (13 ed., pp. 183-193). New York, NY: McGraw-Hill Irwin.
The Hershey Company (2012). 2012 Corporate Social Responsibility Scorecard. Retrieved from http://www.thehersheycompany.com/assets/pdfs/hersheycompany/scorecard2012.pdf.
Union Bank, N.A.(2012). Inside the Heart and Soul of Union Bank: CSR 12. Retrieved from https://www.unionbank.com/Images/CSR-Annual-Report-2012.pdf.