The Jack Welch Era at General Electric

Jack Welch was the CEO of General Electric (GE) for 20 years from 1981 to 2001. Jack transformed GE, taking a solidly profitable manufacturing company and turning it into an exceptionally profitable conglomerate dominated by service business. As such a big company who was running businesses for decades, GE has a lot of social responsibilities. Corporate social responsibility is the duty of a corporation to create wealth in ways that avoid harm to, protect, or enhance societal assets. I will analysis the social responsibilities of GE from the following aspects. First of all, GE had economic responsibilities to society and GE did well on it.

GE paid taxes—5. 7 billion in 2000. Taxes can be considered as the major income of government. Only if the government has enough money, the government can improve the basic needs of our society. Everyone could benefit from it. Since GE paid a lot taxes, it contributed our society. From the view of economic responsibilities, GE clearly fulfilled it. Secondly, GE clearly fulfilled a range of voluntary actions. The Elfun Society, a group of GE employees and retirees, undertook community projects, including tutoring, playground construction, repairing school equipment and recording machines for the blind, blood drivers, and Special Olympics.

In 2000 current and former GE employees volunteered 1 million hours of community service. GE contributed a lot in the society construction which is really nice of GE. In some part GE fulfilled the definition of corporate social responsibility, because at least GE enhanced societal assets. However, there were a few things that GE has been done which were not quite fulfilling social responsibilities. Firstly, the pollution in the Hudson Rivers was really bad for our society, and it also proved that GE did not do well in complying general principles of corporate social responsibilities.

In 1983, the Environmental Protection Agency (EPA) made the Hudson River a Superfund because more than 100,000 pounds of PCBs released by GE still lay on the river bed. Although the biggest deposits were covered by new sediments, slowing their release into the river, fish were unsafe to eat and the chemicals gradually spread downstream from hot spots of contamination. The EPA concluding that dredging the bottom was necessary to remove the dangerous deposits. It would be extremely expensive, and GE was liable for the cost. GE objected. After many years of delay, the EPA finally ordered dredging in 2001.

The cost to GE was estimated at $460 million. Although GE paid for their pollution eventually, the damages were already happen. According to General Principles of Social responsibility, corporations have a duty to correct the adverse social impacts they cause. They should try to internalize external costs, or costs of production borne by society. A factory dumping toxic effluent into a stream creates costs such as human and animal disease imposed on innocents, not on the company or its customers. From the example above, we can see that GE did not comply well with the General Principles of Corporate Social Responsibility.

The best solution to deal with pollution issue was avoid pollution. Secondly, GE followed an unscientific argument. GE under Welch illustrates a narrower view of corporate social responsibility closer to Friedman’s view that the only social responsibility is to increase profits while obeying the law. Corporation has duties that do more than their basic economic function in a lawful manner because performance of a firm must benefit society. Take the loss of jobs in the case as an example. When Welch took over there were 404,000 GE employees; when he left there were 313,000.

Union leaders estimate that in his last 15 years GE eliminated 150,000 jobs in USA through layoffs, subcontracting, and outsourcing to foreign countries. In 1985 the electrical worker’s union had 46,000 members working at GE, but by 2001 the number had declined to 16,000. Ed Fire estimates that two- thirds of the 30,000 lost jobs were simply transferred to low-wage countries. GE has rights that to layoffs its employees, but what did such huge number of employees can do after they lose their jobs. For the people who lost their job, they might have hard time to survive.

Maybe they will become homeless, even worse they might become yegg. Although GE layoff such amount employees did not obey any laws, GE definitely did not consider well about the impact to our society. Obviously, layoff employee has nothing to do with benefits society. What is more, the ranking shareholders over employees and other stakeholders were not good enough. Every year each GE business was forced to evaluate its managers and rank them on a vitality curve that differentiated among As, Bs, Cs. The As were committed people, filled with passion for their jobs.

Cs were not worth wasting time on and were dismissed. Bs were considered vital to the success of the company and were coached so that some would become As. On one hand, the defective evaluation system is really harmful. The reasons are: firstly, forced ranking hurts the moral of employees who are not placed on top. Secondly, its inflexibility produces unfair results when high-performing and low-performing units must classify managers the same way. Thirdly, finding objective performance criteria for comparisons may be impossible if managers in the evaluation pool do not have identical jobs.

What is more, the system also hurts team work by pitting people against each other. Finally, the employee who failed to land in the top category was demoralized. On the other hand, this system can more or less help the GE because everyone wants to be top 10%, so it will motivates employees working harder. It was not a good idea to see employees as costs of production because a successful firm was based on hard working, innovative ideas and the enthusiasm of the employees. It is a good choice that GE rebalance it priorities such as not only get max profits, but also benefits society.