"Fix it, close it, or sell it" was Mr. Welch's favorite slogan as GE departed businesses in which GE could not be a market leader. Welch was a pioneer in one respect. Before the start of Reagan's two terms in office, it was acceptable for people to make a good living while employing mainly Americans. But Welch and other parasites demanded to live like royalty so things had to change. The Internet was the vehicle for that change. Before the Internet, companies located plants overseas, but they could not easily manage production from the home office. With the onset of the Internet, however, production could be monitored via PCs. Call centers were some of the first businesses to be outsourced because telephone service could be achieved via VOIP. Software engineering and IT were two more industries to be outsourced because the Internet allowed operations to be split between the U.S. and other countries, but mainly India due to the abuse of H-1B visas.
Welch's "vitality curve" was another evil invention. It required managers to identity the top 20% and bottom 10% of workers. The former was to be nurtured while the latter was to be dismissed, social Darwinism at work.
Outsourcing explains why jobs are not being created in the U.S. even though the general economy is improving. With respect to factories, things used to work like this. A downturn would occur, factories would lay-off workers, people would continue to buy products albeit more slowly than before, warehouses would eventually empty and call for more products, factories would rehire workers, and voila, the downturn would end. But now those factories are located overseas, so an improving economy no longer translates to created jobs in the U.S.
GE calculated that it cost 33% more to make its own appliances than to buy them from a foreign manufacturer. "The thinking at the time was that, given our brand recognition, it wouldn't matter if it was made in the U.S. or in Korea," said Lou Lenzi, general manager of design for GE Appliances.
But that isn't a problem as long as you don't award your CEO a king's ransom. Welch's golden parachute was worth just under $420 million. During his reign, his "perquisites were valued at $2.5 million a year, and included luxuries such as the use of an $80,000-per-month Manhattan apartment owned by the company, court-side seats to the New York Knicks and U.S. Open, seating at Wimbledon, box seats at Red Sox and Yankees baseball games, country club fees, security services and restaurant bills."
The Big Picture's Barry Ritholtz opined that Welch was one of the "luckier, more wildly over-compensated CEOs around" who cooked GE's books to magically always have earnings come within pennies of estimates quarter after quarter.
Welch essentially transferred the salary of 100,000 Americans to himself.
An indirect protégé of Welch's is Gregg Steinhafel who walked away from Target with a golden parachute of $61 million even though he presided over one of the largest cyber-breaches in history, losing 110 million customer records to Russian cyber-thieves. So much for pay-for-performance.
We cannot solely blame Welch for it, but the reason CEO pay is out of control is that corporate boards are composed of CEOs from other companies who all believe that they deserve outrageous fortunes. They award each other stupendous salaries in a scratch-my-back arrangement, sometimes advised by extremely well-paid compensation consultants. And they defend their territory by quashing shareholder revolts, even though shareholders actually own the company and realize that the compensation of pampered executives comes out of their pockets.
"The problem is that you can see now in looking back, once you move your manufacturing offshore, you're training your supplier to become your competitor," said Lenzi in a corporate come-to-Jesus moment.
He's mainly speaking of China, which has elevated the theft of intellectual property to an art form. The West has cut its own throat.
GE has been trying to sell its appliance business since 2008 at least. Given GE's pollution problems at its former Appliance Park East, one wonders if there is a toxic landmine at Appliance Park, GE's mammoth manufacturing center in Louisville, Kentucky. The recent fire did not help matters.
The most recent potential suitor was Swedish Electrolux AB which appeared to be right up Welch's alley, given that its U.S. wages are not exactly "the solid middle-class wages that lifted factory workers a generation ago." In the past twelve years, Electrolux has closed a refrigerator plant in Greenville, Michigan, a washer and dryer plant in Webster City, Iowa, and a smaller plant in Jefferson, Iowa, with all functions then outsourced to Mexico. However, U.S. anti-trust regulators squelched the deal.
GE then entertained a sale to Samsung, but the anti-trust regulators did not see the forest for the trees. One wonders if they were not confused because there are actually two South Korean companies in the appliance business, Samsung and LG.
It's a shame Warren Buffett did not buy GE's appliance business and make it an independent company, retaining a large number of American jobs in the bargain, but then again he's just another ruthless capitalist.
Now GE Appliances is being sold to Haier, a Chinese company. The percentage of Chinese government ownership can only be speculated. There is a substantial difference in the price Electrolux and Haier offered, $3.3 billion and $5.4 billion, respectively. Haier held less than 5% of the U.S. market in 2015, but now it will dramatically increase that market share given that GE trails only Whirlpool. Haier will also take possession of GE Appliances' 48.4% stake in Mabe, a Mexican appliance company. GE Appliances and Mabe have had a joint venture and sourcing relationship for 28 years.
Haier became the top home appliance brand in the world in 2009, making one wonder if U.S. regulators understand their job. It will retain the highly automated manufacturing facilities in Appliance Park only as long as they offer a competitive advantage. It won't be too long before Haier starts shifting manufacturing to China, using the trusted GE name as leverage with U.S. consumers who typically differentiate solely by price. Haier forms its employees into communist-style work teams which regularly get together to discuss quotas and performance, but also to dole out praise and criticism, making them sound like a perfect fit for Walmart culture.
Haier's chairman, Zhang Ruimin, led a typical life for a Chinese person. During the Cultural Revolution, when anywhere from 1/2 million to three million people were killed by crazed Red Guards, Zhang enthusiastically joined them and even made a pilgrimage to Mao's birthplace.
Americans might think of the Red Guards as China's answer to the soldiers of the Civil War, but today's Chinese view them as something closer to China's answer to Elvis. Young couples about to be married will dress up as Red Guards for their wedding photos.
Mao created the Red Guards to be his little executioners. They killed teachers, school staff, doctors, and pretty much every educated person, throwing some of them into "cow pens."
"They set a bunch of high school students, Red Guards, to beat to death 1,772 ordinary Beijing residents with their fists and bludgeons," said U.S.-based Cultural Revolution expert Wang Youqin.
The most famous of the Red Guards who killed the first teacher is named Song Binbin, which means "properly raised" or "polite." She pinned a Red Guards armband on her idol, Mao, who asked her name. Mao thought she had a terrible name and ordered her to "Be violent!" She changed her first name to Yaowu, which means "Be violent."
"Song Binbin is a 'glorious alumna,' and her Red Guard armband is in a [Beijing Normal College Girls' High School] display case," said Wang. The armband is soaked with the blood of the teacher she and others murdered, even though she denies it today.
Zhang is a perfect replacement for Welch.