Amanpour and Company

>>> AND UP NEXT, THE RUTHLESS WORLD OF CORPORATE AMERICA IS BEING TRACED BACK TO ONE BUSINESSMAN, FORMER GENERAL ELECTRIC CEO JACK WELCH IS THE MAN WHO BROKE CAPITALISM. WE JOIN DAVID TO DISCUSS THE LEGACY OF AMERICA'S FIRST CELEBRITY CEO. >> WELCOME TO THE SHOW. >> THANKS SO MUCH FOR HAVING ME. >> YOUR BOOK IS ABOUT JACK WELCH, THE LEGENDARY CEO OF GENERAL ELECTRIC FOR TWO DECADES. BUT IT IS ALSO ABOUT SOMETHING LARGER, AND I WANT TO TALK ABOUT THAT, WHICH IS IT IS ABOUT THE DESTRUCTION OF AMERICAN CAPITALISM. EXPLAIN THAT TO ME. >> WELL, FOR THE DECADES, REALLY, AFTER WORLD WAR II, COMPANIES WENT ABOUT THEIR BUSINESS WITH A REAL SENSE OF CIVIC ENGAGEMENT, A REAL SENSE THAT WHEN A COMPANY LIKE JOHNSON & JOHNSON, FOR EXAMPLE, WAS MAKING ITS PRODUCTS AND DELIVERING ITS SERVICES, IT WAS DOING SO, YES, IN THE INTEREST OF ITS STOCKHOLDERS BUT ALSO FOR SO MANY OTHER STAKEHOLDERS, WHICH MEN LIKE THOSE WHO RAN JOHNSON & JOHNSON AND GENERAL ELECTRIC AT THE TIME IDENTIFIED AND CALLED OUT IN THEIR ANNUAL REPORT SAYING THEY RAN FOR THEIR EMPLOYEES OR THEIR CONSUMERS, FOR THE MEN AND WOMEN WORKING THEIR SUPPLY CHAIN AND EVEN FOR THE GOVERNMENT. THEY WERE PROUD TO PAY THEIR TAXES AT THE TIME. SOMETHING CHANGED RIGHT AROUND 1981. AND THIS CHANGE WAS EMBODIED BY MEN LIKE JACK WELCH. AND IT LED TO A WORLD IN WHICH VERY FEW OF THOSE STAKEHOLDERS ARE GETTING THE ATTENTION THAT THEY NEED AND THE WEALTH FROM THE COMPANIES THAT FOR SO LONG FLOWED TO THAT LARGE GROUP OF STAKE HOLDER IS LARGELY CONCENTRATED NOW IN THE SHAREHOLDERS AND THE EXECUTIVES. SO I IDENTIFY WELCH AS THE MAN WHO HELPED TRANSFORM THIS ARRANGEMENT AND GAVE US THE WORLD WE HAVE TODAY. >> YOU SAY IN THE 1950s CORPORATIONS CARED MORE ABOUT OTHER STAKEHOLDERS. I WAS STRUCK IN YOUR BOOK THAT I THINK IT'S 1953 YOU QUOTE THE GE ANNUAL REPORT. AND WHAT DOES IT SAY THE MISSION OF GE IS? >> WELL, GE WAS AMONG MANY COMPANIES DURING THIS ERA THAT, AGAIN, PROUDLY IDENTIFIED THE FACT THAT THEY WERE RUNNING THEIR CORPORATION, YES, IT IS FOR INVESTORS, AND THEY WERE PROUD TO DELIVER A MODEST RETURN, BUT, REALLY, THEY SAW THEIR SUCCESS AS THE COUNTRY'S SUCCESS, THEIR SUCCESS AS THE SUCCESS OF THE MEN AND WOMEN WORKING IN THEIR FACTORIES. AND THEY WERE EVEN PROUD. THEY ANNOUNCED THAT YEAR THAT IT WAS THEIR BIGGEST PAYDAY EVER. THEY WERE SPENDING MORE ON THE COST THAN EVER BEFORE. AND THAT WAS A GOOD THING TO THEM. AND I DON'T NEED TO TELL YOU THAT'S NOT THE WORLD WE LIVE IN TODAY. THESE DAYS EXECUTIVES AT SO MANY COMPANIES ARE FOCUSSED ON REDUCING LABOR COSTS, ON REDUCING THE AMOUNT OF MONEY THEY PAY IN TAXES AND AMPLIFYING PROFITS FOR EXECUTIVES WHO, OF COURSE, ARE COMPENSATED IN STOCK THESE DAYS. >> SO JACK WELCH PRETTY MUCH FOCUSSED ONLY ON SHAREHOLDER VALUE. WAS THAT THE MAIN TRANSFORMATION? >> WELL, IT'S NOT JUST THE FOCUS, BUT IT WAS HOW HE DID IT. WHEN HE ARRIVED AT GE IN 1981 AS CEO, HE UNLEASED A WAVE OF FACTORY CLOSURES AND MASS LAYOFFS THAT FUNDAMENTALLY DESTABILIZED THE AMERICAN MIDDLE CLASS. UP UNTIL THAT POINT, YOU COULDN'T POINT TO A MAJOR AMERICAN EMPLOYERS USING LAYOFFS AS A TOOL TO IMPROVE GOVERNMENT MARGINS. THE NORM AT GE. WHAT WAS SO IMPORTANT TO RECOGNIZE IS THAT GE WAS REALLY THE STANDARD BEARER FOR CORPORATE AMERICA. SO WHAT HE DID AT GE BECAME COMMON PRACTICE EVERYWHERE ELSE. SO HE DID IT WITH DOWNSIZING. HE DID IT WITH FINANCIALIZATION AS WELL. HE TURNED GE FROM AN INDUSTRIAL COMPANY THAT OF COURSE MADE LIGHTBULBS AND AIRCRAFT ENGINES TO A FINANCIAL COMPANY THAT WAS MAKING MOST OF ITS MONEY TOWARDS THE END OF ITS CAREER FROM FINANCIAL PRODUCTS, THINGS LIKE HIGH-INTEREST CREDIT CARDS, COMMERCIAL REAL ESTATE DEALS. AND THAT MIRRORED AND HELP FUEL THE TRANSFORMATION OF THE AMERICAN ECONOMY. AND DURING HIS TENURE, WE SAW WALL STREET BECOME A BIGGER AND BIGGER PART OF THE AMERICAN ECONOMY. >> IT GETS TO THE HEART OF A DEBATE WE STILL HAVE, WHICH IS IS A CORPORATION SUPPOSED TO FOCUS REALLY JUST ON MAKING A PROFIT, RETURN ON INVESTMENT? IT COMES OUT OF THE MILTON FREEDMAN SCHOOL AS YOU DISCUSSED IN YOUR BOOK. OR IS A CORPORATION SUPPOSED TO DO THAT BUT ALSO LOOK AFTER OTHER STAKEHOLDERS LIKE ITS COMMUNITY, ITS COUNTRY, ITS WORKERS, ITS CUSTOMERS. HOW DID JACK WELCH HELP CHANGE THE WAY WE LOOK AT THAT DIVIDE? >> YOU ARE ABSOLUTELY RIGHT TO CALL OUT MILTON FRIEDMAN WHO IN 1970 WROTE THAT THE SOCIAL RESPONSIBILITY OF BUSINESS IS TO INCREASE ITS PROFITS. BUT THAT WAS REALLY THEORY. NOT ONLY IN 1970 BUT RIGHT UP UNTIL 1981. NO ONE UNTIL WELCH HAD THE COMMAND OF A LARGE ENOUGH ECONOMY, THE GUMPTION AND FRANKLY JUST THE WILL TO MAKE THAT A REALITY AND JUST SUCH A DIFFERENCE AS YOU KNOW, WALTER, BETWEEN THEORY AND PRACTICE. AND JACK WAS THE ONE THAT PUT IT INTO PRACTICE. MORE BROADLY, YOU ARE RIGHT TO NOTE THAT THERE HAS BEEN THIS LONG RUNNING DEBATE. AND I THINK OF IT AS A PENDULUM SWINGING BACK AND FORTH. IN THE YEARS AFTER WORLD WAR II IN THAT GOLDEN AGE OF CAPITOLISM WHICH IS WHAT SOME PEOPLE CALL IT, THERE WAS A STAKE HOLDER FOCUS, EVEN IF WE DIDN'T CALL IT STAKE HOLDER CAPITALISM. BUT IT HAS SWUNG SO FAR IN THIS OTHER DIRECTION OF SHAREHOLDER PRIVACY. WE ARE IN THE WE BEGINNING OF A REASSESSMENT, A RE-ENGAGEMENT WITH THAT DEBATE OF WHAT IS THE PURPOSE OF A CORPORATION. >> WELL, EXPLAIN TO ME WHY JACK WELCH AND FOR THAT MATTER MILTON FRIEDMAN ARE WRONGED. ISN'T IT MAINLY THE RESPONSIBILITY OF A COMPANY TO SAY, YOU INVEST IN US AND WE WILL GIVE YOU THE BIGGEST PROFIT POSSIBLE? >> WELL, IT IS IMPORTANT TO KNOW THAT THERE IS NO LAW THAT SPECIFICALLY OUTLINES WHAT THE PURPOSE OF A COMPANY IS. THERE IS NO LAW IN THE CONSTITUTION, THE SEC DOESN'T SAY THAT COMPANIES HAVE TO MAXIMIZE PROFIT. >> BUT CAN SHAREHOLDERS SUE IF YOU ARE VIOLATING A DUTY TO GIVE THEM AS MUCH PROFIT AS POSSIBLE? >> NO. THERE IS A HUGE MISCONCEPTION THAT THERE IS A LAW TO MAXIMIZE PROFITS. THERE IS A FIDUCIARY DUTY, OF COURSE. THEY DON'T SAY WHAT FORM THAT TAKES AND ON WHAT TIME HORIZONS. JACK WAS NO DOUBT WAS A MASTER OF MAXIMIZING SHORT-TERM RETURNS. AND HE DID SO SO EFFECTIVELY THAT GE BECAME THE LARGEST, MOST VALUABLE COMPANY IN THE WORLD DURING HIS TENURE. WE CAN'T TAKE THAT AWAY FROM HIM. BUT HE DID IT TO AN EXTREME. AND IN DOING SO, IN BEING SO MIE YOPICALLY FOCUSSED ON QUARTERLY RESULTS, ON SHORT-TERM RESULTS HE HALLOWED OUT THE COMPANY. RESEARCH AND DEVELOPMENT WITHERED. THEY STARTED TO GET INTO SHORT-TERM FINANCIAL INSTRUMENTS THAT CAME BACK TO HAUNT THEM WHEN THE FINANCIAL CRISIS HIT. THIS IS WHAT SO MUCH OF OUR ECONOMY LOOKS LIKE. DECISION AFTER DECISION TO MAXIMIZE SHORT-TERM QUARTERLY PROFITS AT THE EXPENSE OF THE LONG-TERM WELL-BEING NOT ONLY OF THE CORPORATION BUT OF COMMUNITIES, OF INDIVIDUAL EMPLOYEES AND OF, I WOULD ARGUE, OUR SOCIETY. I THINK THEY HAVE HAD A CASCADING LONG-TERM EFFECT NOT ONLY ON THE COMPANIES THEMSELVES BUT REALLY THE FABRIC OF OUR NATION, WHICH IS IN PRETTY SORRY SHAPE THESE DAYS. >> UNDERLYING JOBS WITH THE NOTION OF A PROSPEROUS MIDDLE CLASS IN THIS COUNTRY. IN SOME WAYS IT LEADS TO DONALD TRUMP AND OTHER THINGS. >> WHEN YOU LOOK AT SOME OF THE DISAFFECTED POCKETS ACROSS THE MIDDLE OF THE UNITED STATES OF AMERICA, THESE ARE TOWNS WHERE FACTORIES AND GE FACTORIES IN PARTICULAR ONCE THRIVED. ONE OF THE THINGS WELCH DID WAS NOT JUST GO ABOUT DOWNSIZING WITH LAYOFFS, BUT HE EMBRACED OFFSHORING AND OUTSOURCING TO THE EXTREME. HE WAS REALLY ONE OF THE FIRST CEOs TO FAMOUSLY SAY, IF HE COULD, HE WOULD HAVE EVERY FACTORY ON A BARGE. SO IT WOULD JUST BE A FLOATING STATELESS ENTITY THAT COULD CHASE CHEAP LABOR AND FAVORABLE EXCHANGE RATES ALL OVER THE WORLD, WHEREVER HE COULD GO. THAT SPEAKS TO HIS REAL LACK OF INTEREST IN THE COMMUNITIES IN WHICH GE OPERATED ITS FACTORIES. AND WHEN YOU LOOK ACROSS THE COUNTRY AND SEE THE EROSION OF GOOD, HIGH-QUALITY JOBS IN TOWN AFTER TOWN, THE EROSION OF THE TAX BASE THAT THOSE KIND OF FACTORIES SUPPORTED, IT IS NOT HARD TO UNDERSTAND JUST HOW DAMAGING THIS HAS BEEN OVER THE LONG-TERM. I EVEN ASKED JEFF, JACK WELCH'S SUCCESSOR ABOUT THIS WHEN I INTERVIEWED HIM FOR THE BOOK. HE UNDERSTOOD IT. HE SAID, LISTEN, I GET IT. WHEN SOMEONE IS MAKING $35 AN HOUR AT A GE FACTORY AND THEY LOSE THEIR JOB FOR WHATEVER REASON AND THEY WIND UP MAKING $13 AN HOUR AT A CONTRACTOR, THAT NOT ONLY HAS A DAMAGING EFFECT ON THAT INDIVIDUAL AND THAT INDIVIDUAL'S FAMILY AND COMMUNITY, BUT IT ERODES A SENSE OF TRUST IN BUSINESS. AND, SO, WHEN PEOPLE ASK, WHY DOESN'T BUSINESS HAVE MORE CREDIBILITY WITH EVERY DAY AMERICANS THESE DAYS? IT IS DECISIONS LIKE THIS COMPOUNDED OVER DECADES THAT I THINK WE CAN FAIRLY POINT TO AND SAY, THIS IS A PART OF THE PROBLEM. >> AFTER JACK WELCH LEFT, GE COLLAPSED PRETTY MUCH. WAS IT BECAUSE JACK WELCH LEFT OR WAS IT BECAUSE OF WHAT HE DID BEFORE HE LEFT? >> A LOT OF THINGS HAPPENED RIGHT WHEN JACK WELCH LEFT, AND IT WAS A COMBINATION OF I WOULD ARGUE UNDERINVESTMENT IN SOME OF THE CORE RESEARCH AND DEVELOPMENT THAT MADE GE GREAT FOR SO MUCH OF THE 20th CENTURY, BUT ALSO IT IS IMPORTANT TO KNOW HIS LAST DAY ON THE JOB WAS SEPTEMBER 8, 2001. THREE DAYS LATER THE WORLD CHANGED IN ALL SORTS OF WAYS WE KNOW AND HAD A CASCADING EFFECT ON GE THAT HIS SUCCESSOR HAD TO DEAL WITH. BUT IT IS IMPORTANT TO NOTE THAT JEFF HIMSELF SEVERAL YEARS AFTER TAKING OVER CANDIDLY REFLECTED AND TOOK A HARD LOOK AT THE COMPANY HE HAD INHERITED. AND I CAN'T USE THE WORDS HE USED ON THIS PROGRAM, BUT HE SAID HE DID NOT LIKE WHAT HE SAW AT ALL AND UNDERSTOOD THAT THE COMPANY WAS NOT AS STRONG AS IT APPEARED FROM THOSE QUARTER AFTER QUARTER RESULTS. IN FACT, IT WAS A LOT OF SHORT-TERM FOCUS THAT WAS MAKING THE STOCK LOOK REALLY GOOD BUT IN THE LONG RUN AS JEFF IMMEL FOUND OUT THE COMPANY HAD REAL FATALE PROBLEMS THAT HE HAD TO DEAL WITH AND THAT A SUCCESSION OF CEOs TRIED TO FIX SINCE. IT WAS ANNOUNCED THAT GENERAL ELECTRIC, FOUNDED IN THE 1800s, WAS FINALLY GOING TO BE BROKEN UP ONCE AND MORE ALL. >> THERE ARE HALF AS MANY MANUFACTURING JOBS IN AMERICA AS THERE WERE WHEN JACK WELCH TOOK OVER GE. TO WHAT EXTENT DOES HE BEAR SOME RESPONSIBILITY FOR THAT AND FOR THE TYPE OF CEO THAT IS DOING THINGS LIKE THAT? >> WELL, GLOBALIZATION WAS COMING FOR THE UNITED STATES NO DOUBT ABOUT IT, RIGHT? WHETHER JACK WENT ON HIS TEAR OF DOWNSIZING AND OFFSHORING THAT GAVE HIM THE NAME NEUTRON JACK, THIS WAS A MOMENT WHEN THE INDUSTRIALIZED ECONOMIES OF JAPAN AND GERMANY WERE COMING BACK, YOU KNOW, ROARING BACK AFTER WORLD WAR II IN THEIR REBUILDING PROCESS. SO THERE WAS GOING TO BE MORE COMPETITION ON THE GLOBAL STAGE NO DOUBT ABOUT IT. WELCH, HOWEVER, REACTED IN THE EXTREME. IT IS COUNTER FACTUAL TO IMAGINE WHAT IT WOULD HAVE LOOKED LIKE HAD HE FOUND WAYS TO DOUBLE DOWN ON AMERICAN MANUFACTURING, TO RESIST THE TEMPTATION TO CHASE CHEAP LABOR. WHAT'S CLEAR IS THERE ARE PLENTY OF OTHER PROSPEROUS COUNTRIES THAT HAD STRONG MANUFACTURING BASISES. SO IT IS IMPOSSIBLE TO KNOW EXACTLY TO WHAT EXTENT HE COULD HAVE DONE THINGS DIFFERENTLY. BUT THERE IS NO DOUBT IN MY MIND AND NO DOUBT IN THE DATA THAT HE WAS A DRIVING FORCE IN LETTING AMERICAN JOBS MOVE OVERSEAS ESPECIALLY IN THE 1980s. TO YOUR SECOND QUESTION, TO WHAT EXTENT IS HE RESPONSIBLE FOR OTHER CEOs BEHAVIOR? I THINK IT'S IMPOSSIBLE TO UNDERESTIMATE HIS INFLUENCE ON OTHER CEOs. AS I MENTIONED, GE WAS ONE OF THE MOST INFLUENTIAL COMPANIES FOR DECADES. IT WAS THE PLACE OTHER COMPANIES, OTHER BOARDS WENT TO, NOT JUST TO GET A SENSE OF HOW THEY OUGHT TO BEHAVE, BUT IT WAS A PLACE THEY WENT TO RECRUIT OTHER CEOs. AND MORE THAN TWO DOZEN OF JACK WELCH'S DIRECT PROTEGES WENT ON TO RUN OTHER MAJOR AMERICAN COMPANIES. COMPANIES LIKE 3M, BOEING, HOME DEPOT, CHRYSLER AND TIME AND AGAIN WHEN HIS PROTEGES WENT TO THOSE COMPANIES THEY FOLLOWED THE SAME PLAY BOOK OF USING DOWNSIZING, FINANCE AND DEAL MAKING TO PROP UP THE STOCK IN THE SHORT TERM, OFTEN LEAVING THE COUNTRY AND THE COMPANIES POORER FOR IT IN THE LONG RUN. >> WHEN I WORKED AT TIME INCORPORATED, OUR MANDATE CAME FROM THE WILL OF HENRY LOOSE, THE FOUNDER, WHO SAID THE COMPANY SHOULD BE OPERATED BOTH IN THE PUBLIC INTEREST AND IN THE INTEREST OF SHAREHOLDERS. HE SAID THAT GOOD EXECUTIVES WOULD HAVE TO BALANCE THE TENSION THERE. THEN WHEN IT MERGED WITH TIME WARNER, SUDDENLY THEY WERE IMITATING JACK WELCH AND ASKING MANAGERS LIKE ME TO FIRE 10% OF THE WORKFORCE EACH YEAR BY TRYING TO IDENTIFY THE LOWEST PERFORMING 10%. IT WAS ALSO A COMPANY THAT GOT FINANCIALIZED, AS YOU SAY. SO DO YOU THINK THIS WAS A TREND COMING AFTER JACK WELCH? >> IT'S JUST SO POWERFUL TO HEAR YOU HAVE HAD YOUR OWN PERSONAL EXPERIENCE. IN THE WEEK OR SO SINCE THIS BOOK HAS BEEN PUBLISHED, I KEEP HEARING STORIES ABOUT THIS OVER AND OVER. I HEARD IT TURNING UP IN TIME WARNER, BUT THERE IT IS. THAT IS ABSOLUTELY THE LEGACY OF JACK WELCH. WHAT YOU JUST MENTIONED, THAT 10% NOTION, THAT WAS AN INNOVATION, A RATHER DARK ONE, THAT HE PIONEERED IN THE 1980s. HE CALLED IT THIS TERM FOR FIRING THE BOTTOM 10% OF YOUR WORKERS EVERY SINGLE YEAR. OTHER PEOPLE CALLED IT STACK RANKING OR I THINK MOST ACCURATELY RANK AND YANK. MANAGERS HAD TO PUT THEIR EMPLOYEES IN THREE CATEGORIES. 20% OF THE TOP. 70% IN THE MIDDLE. 10% IN THE BOTTOM. AND THAT BOTTOM 10% GOT SHOWN THE DOOR RUTHLESSLY AND RELENTLESSLY YEAR AFTER YEAR. BUT IT WASN'T JUST JACK AND IT WASN'T JUST GE. HE STARTED IT, BUT IT DIDN'T END THERE. IT CONTINUED AT SO MANY OTHER COMPANIES INCLUDING MICROSOFT AND EVEN MORE RECENTLY IT WAS SHOWING UP AT PLACES LIKE UBER AND WE WORK IN JUST THE PAST FEW YEARS. >> THE ERA OF JACK WELCH IN THE 1980s AND 1990s COINCIDED WITH THE END OF MANUFACTURING IN THE UNITED STATES AS A MAJOR FORCE, A DE-INDUSTRIALIZATION OF THE UNITED STATES. DO YOU THINK THAT MANUFACTURING AND INDUSTRIAL PRODUCTION CAN COME BACK TO THE UNITED STATES NOW? >> IT'S GOING TO BE DIFFERENT, OF COURSE, BUT WE'RE STARTING TO SEE IT COME BACK. WE'RE SEEING COMPANIES LIKE APPLE INVEST IN REAL MANUFACTURING OPERATIONS IN THE UNITED STATES. AND WHAT'S EXCITING TO ME ABOUT THIS IS THAT THESE ARE NOT LOW QUALITY MANUFACTURING JOBS. THESE ARE INCREDIBLY HIGH-QUALITY, HIGH-TECH SOPHISTICATED MANUFACTURING JOBS. AND IT TELLS ME THAT THERE IS AN OPPORTUNITY RIGHT HERE FOR CEOs WHO WANT TO INVEST IN THEIR PEOPLE, WHO WANT TO INVEST IN THE UNITED STATES AND WHO WANT TO HELP SHARE THE MASSIVE WEALTH CREATED BY THESE CORPORATIONS WITH SOME OF THE PEOPLE OF THIS COUNTRY. THERE IS A GOLDEN OPPORTUNITY TO DO IT RIGHT NOW. AND I THINK GIVEN THE STATE OF THE WORLD, IT'S BECOMING ALL THE MORE CLEAR THAT BETWEEN SUPPLY CHAINS AND RAPIDLY SHIFTING STRATEGIC RELATIONSHIPS THERE IS ALSO JUST A NATIONAL SECURITY IMPERATIVE TO TRY TO MAKE SURE THAT AMERICA CAN BE A STRONG MANUFACTURERING ECONOMY, IN ADDITION TO ALL THE OTHER AMAZING THINGS THAT WE'RE ABLE TO DO. >> DAVID, THANK YOU SO MUCH FOR JOINING US. >> THANK YOU SO MUCH FOR HAVING ME.