GE should have applied their corporate social responsibility duty as stated by General Robert E. Wood in the Sears Annual report for 1936; he said “the chief constituencies of the company—customers, the public, employees, sources of merchandise supply, and stockholders. Stockholders being last as they could not attain their “full measure of reward” unless the other groups were satisfied first. ” Ironically, after Welch’s retirement, he stated in an interview with the Financial Times on the Global financial crisis of 2008-2009, “On the face of it, shareholder value is the dumbest idea in the world.
Shareholder value is a result, not a strategy… your main constituencies are your employees, your customers and your products. ” However, during the Welch era, this did not occur. Welch established a major reconstruction structure to eliminate bureaucracy and geared management towards a performance goal culture. He introduced a new doctrine of weeding out poor performance and discovering an “all-star” management. With this tactic it was clear that Welch did not care or underestimated the welfare of the society that impacted this decision. During his last 15 years with GE, at least 150,000 jobs were eliminated.
He even stated in his memoir that “I never underestimated the human cost of those layoffs or the hardship they might cause people and communities”. When Welch ranked employees on the vitality curve, instead of dismissing the bottom 10%, and coached the middle 70%, he should have offered training initiatives to help improve the bottom’s work performance to suit its job description. A lot could have been offered to these individuals for improvement. Motivation is one key example to offer, it would have help to achieve the organization’s objectives while also working to achieve personal objectives.
Instead scare tactics were used and Welch was cutthroat with managers to enforce identifying the bottom 10% by refusing to carry out stock options and salary recommendation, thus forcing managers to comply. Making this vitality curve approach flawed. Friedman’s argument was that “managers are the employees of a corporation’s owners and are directly responsible to them. ” Which was synonymous to Welch’s belief that “managers must confront reality and adapt to the world as it is, not as they wish it to be. ” He was also convinced that the cause of a successful business is having the “right people in management positions”.
Contradictory, this idealism were of little value to him since within the next five years of being CEO, he executed a strategy of obliterating businesses that fell outside high profit margins and thus eliminated 132,000 workers without respite and conscious about the welfare of society impacted by this decision. His forced ranking using the vitality curve affected employee morale and teamwork by turning employees against each other. Welch was also discriminatory against overweight individuals believing that they were undisciplined. One manager even went through the process of stapling his colon to lose weight to prevent being fired.
Working long hours to sustain these expected performance goals also affected marriages. These disadvantages in social responsibilities do show that GE had a narrower view of Freidman’s ideology. General Principles of Corporate Social Responsibility with GE under Welch were hit and miss. As far as having the greatest responsibility to create economic benefit it surpassed with little exceptions. GE shifted from a manufacturing to a service business allowed profits to surged under the Welch era, by 2000, after almost 20 years of being CEO, earnings per share rose from $.
46 to $1. 07 and total return on GE shares averaged 21. 5% and reported a net operating margin of 19% and earned 27% on invested capital and worth about $460 billion in equity value. However, as far as economic responsibilities, with the layoffs being underestimated the consequences on society were futile. As for following multiple bodies of law, GE during Welch’s era, created a long rap sheet of civil and criminal transgressions of “39 law violations, court-ordered remedies, and fines in the 1990’s alone”.
Many of these violations include pollution hazards from GE facilities, consumer fraud for deceptive advertising and unfair debt-collection practices, defense contracting fraud for diverting fighter contract funds to other purposes and overcharging. Relentless performance pressures from managers may have transpired these transgressions. Thus, questioning how manager’s social responsibility to must act ethically. Although GE fulfilled General Principles of Corporate Social Responsibility to society there were consequences of GE’s performance goal culture. There are pros and cons of ranking shareholders over employees.
It is wrong to see employees as cost of production and GE should have rebalanced its priorities. Reshaping GE’s organizational structure to fit the bottom line without regards to the impact of the human social responsibilities it affected is I believe inhumane. Welch even stated that he underestimated this impact presented. During Welch’s tenure, wealth was shifted from workers to shareholders. He even rationalized this by saying that what he did was for the greater good. I doubt he thought about the greater good on how this affected the families and the society as a whole.
Major advantages were that committed into a broad range of humanitarianism contributions. “GE foundation made $40 million in grants to colleges, universities, and nonprofit groups in the US and worldwide. There were also disadvantages, in treating shareholders over employees and employees as cost of production. There were thousands of jobs lost, hurting employee morale and teamwork, unethical decisions by managers that created civil and criminal transgression, and withholding pension funds for retirees within the community.
Welch should never have underestimated his disregard for his fellow colleagues. After all his beginnings were originally humble, regardless of being an enigmatic, tough-minded, iconoclastic, and controversial character, he lost that mindset when seeking out the bottom line. — 1. Guerrera, Francesco (2009-03-12). “Welch rues short-term profit ‘obsession’”. Financial Times. http://www. ft. com/cms/s/0/294ff1f2-0f27-11de-ba10-0000779fd2ac. html.