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
Welchs management created wealth, as seen by Steiners 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). Welchs 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 GEs 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, Welchs 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
Welchs 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 Welchs management created competition within GE in
addition to competition with other businesses. Competition within the work environment can be
healthy when harnessed, but Welchs 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 Welchs 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
Welchs 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 GEs 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 Hersheys release annual or biannual corporate social
responsibility reports, which can easily be found on each companys website. Union Bank, N.A.
publishes information regarding community commitment, environmental stewardship, and talent
investment (Union Bank, N.A., 2013). Hersheys 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 GEs emissions, launched an eco-
imagination initiative, and placed the corporations 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 worlds 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.
Immelts era gave the most benefit to society; however it was not as successfully
financially. This is not directly attributable to Immelts 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. Immelts management seems to be more
respected and more socially responsible and despite the unfortunate terrorist attacks, his
management still resulted in a modest return.
Works Cited:
1. General Electric Company (2013). GE Citizenship. Retrieved from
www.gecitizenship.com.
2. 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.
3. The Hershey Company (2012). 2012 Corporate Social Responsibility Scorecard.
Retrieved from
http://www.thehersheycompany.com/assets/pdfs/hersheycompany/scorecard2012.pdf.
4. 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.