The next twenty years General Electric: what the Manager of the Century built that no one could safely undo

In 1999, Fortune named Jack Welch the “Manager of the Century.” That same year, he said his success would be determined by how well his successor grew GE over the next twenty years.

At its peak in August 2000, General Electric was worth about $594 billion. For a time it was the most valuable company on Earth. By the end of 2018, it was worth less than $70 billion.

So let’s use his test. What did the world’s most celebrated manager build into GE that the people after him could not safely undo? To answer that, we have to start with what GE was built to do in the first place.

The invention machine (1892–1980)

General Electric begins with Thomas Edison, but it was never really Edison’s company. In 1892, the banker J.P. Morgan merged Edison’s company with a rival, Thomson-Houston, and put Thomson-Houston’s chief, Charles Coffin, a former shoe salesman, in charge. Edison’s name disappeared from the company, and within a few years he had sold his shares.

The decision that shaped GE’s next century came from an engineer, Charles Steinmetz, who argued that GE needed a place for scientists to do research that might not pay off for years. Coffin backed him. In 1900, GE opened a research laboratory in Schenectady, New York, one of the first of its kind in America. Its first director, the chemist Willis Whitney, gave researchers something rare: time.

The lab made light bulbs last longer and X-ray tubes more reliable. Irving Langmuir won the Nobel Prize in Chemistry in 1932 while working there. During the Second World War, a GE team built America’s first jet engines, the start of a business that still powers a huge share of the world’s airliners.

That was GE’s real advantage: patient engineering. Hard problems, solved over decades, by people who stayed long enough to master them. Keep that in mind, because the next era would reward something much faster.

Neutron Jack and the vitality curve (1981–2001)

By the late 1970s GE was big, slow and bureaucratic. In 1981 the board handed it to Jack Welch, a 45-year-old chemical engineer from the plastics business and the youngest CEO in the company’s history.

To be fair, GE needed shaking up. Welch cut layers of management, pushed decisions closer to the work and kept investing in businesses like jet engines. But he also set a rule that shaped everything after it: every GE business had to be number one or number two in its market, or be fixed, sold or closed. In his first two years, according to Fortune, GE made more than a hundred acquisitions, joint ventures and launches, and more than seventy divestitures. By his own count, the workforce shrank by more than a hundred thousand people in five years. The press called him Neutron Jack.

Then came the system that defined his culture, the vitality curve. Managers ranked their people; the top twenty percent were rewarded and the bottom ten percent pushed out. Welch said forced ranking made GE honest about performance. But when you are measured against the people around you every year, admitting that something in your area is going wrong becomes risky. Welch built a company superb at delivering results. The open question was what happens to bad news in a place like that.

The bank inside the factory

Cutting costs made GE leaner. What made it enormous was money. GE had a finance arm since the 1930s, to help customers pay for its products. Welch turned GE Capital into one of the biggest financial companies in America, financing aircraft and real estate, issuing credit cards and buying insurance businesses. By 1999 it produced about 41 percent of GE’s earnings.

Finance had one big advantage over factories: speed. A turbine takes years to design and build. A loan can be written in an afternoon.

The research lab felt the shift. Before Welch, roughly two-thirds of its budget was allocated centrally, so the lab decided much of its own work. By the later 1980s that share was about a quarter, and researchers increasingly had to win projects from GE’s operating businesses, like contractors pitching to clients. GE still invested heavily in technology and built the GE90, one of the most powerful jet engines ever made. What narrowed was the room for exploration without an immediate customer.

Three deals, three sides of Welch’s dealmaking

• RCA. In 1985 GE agreed to buy RCA, owner of NBC, for about $6.3 billion. Welch wanted NBC and got it. Much of the rest of RCA was broken up and sold, and in 1987 GE handed its television business to France’s Thomson.
• Kidder, Peabody. In 1986 GE bought the Wall Street firm. In 1994 one trader was found to have booked roughly $350 million in profits that did not exist. GE sold most of Kidder that year.
• Montgomery Ward. In 1988 GE Capital helped finance a buyout of the century-old retailer. Ward went bankrupt in 1997, emerged in 1999 controlled by GE Capital, and in December 2000 announced it would close all its stores.

GE also pushed deep into insurance, including reinsurance for long-term care policies: promises to help pay for nursing homes decades into the future. Almost nobody paid attention to them. They would matter enormously later.

And the results looked flawless. According to the SEC, from 1995 until it filed its 2004 annual report, GE met or beat Wall Street’s profit forecasts every single quarter. As early as 1994, The Wall Street Journal described how a financial arm that large gave GE gains it could time and assets it could sell. GE’s value grew from about $14 billion to more than $400 billion by the time Welch retired in 2001. Who was going to tell the Manager of the Century that his machine had a weak spot?

The inheritance: Jeff Immelt (2001–2017)

Jeff Immelt became CEO on September 7th, 2001. Four days later, the September 11th attacks hit the insurance and aviation businesses at the heart of GE. He inherited the brand, the dividend and the perfect streak, and the enlarged finance arm underneath.

GE Capital kept growing, and it paid for much of its long-term lending with short-term borrowing, over a hundred billion dollars of it in 2008, that had to be renewed constantly. When the financial crisis froze lending markets, the bank inside the factory became the most dangerous part of GE. Berkshire Hathaway invested $3 billion on terms paying a ten percent dividend, GE sold at least $12 billion of new shares, and GE Capital joined a government program guaranteeing its new debt. In early 2009 GE cut its quarterly dividend from 31 cents to 10, the first cut since 1938. That August it paid $50 million to settle SEC charges over accounting from 2002 and 2003, without admitting or denying them.

Immelt spent years trying to escape: he sold NBCUniversal, sold appliances to Haier and in 2015 announced GE would sell most of GE Capital. He also made his own bets, and several went badly. GE bought the subprime lender WMC in 2004 and later agreed to pay a $1.5 billion civil penalty over it, without admitting liability. It completed a $10.6 billion purchase of Alstom’s power businesses in 2015 just as demand weakened; three years later came a $22 billion goodwill write-down at GE Power. The 2017 Baker Hughes merger led to billions in losses as GE sold down its stake.

In June 2017, under pressure from the activist investor Trian and disappointing results, GE announced Immelt would step down. GE called it a long-planned succession. Investors treated it as good news: the stock rose about three and a half percent.

The cash came from tomorrow

The pressure for smooth numbers did not disappear with Welch. According to the SEC, it showed up in GE Power, the business Immelt had just doubled down on.

Picture a company selling ten-year maintenance contracts and booking profit as the work gets done, based on its best guess of total cost. If it later decides the remaining repairs will cost less, the higher margin also applies to work already done, so extra profit appears right away, even though the customer has not paid an extra dollar. According to the SEC, lowering those estimates added more than $1.4 billion to GE Power’s profit in 2016, about 29 percent of the division’s profit.

Cash was the other problem. When analysts asked why GE’s cash was not keeping up with revenue, GE Power sold the right to collect some future customer payments, mostly to GE Capital. GE Power’s cash went up; GE as a whole got no extra money from customers. Inside GE, according to the SEC, the practice was described as a “drug.” By May 2017 GE Power’s own leaders called it “not sustainable.”

The last insider, and an outsider (2017–2018)

John Flannery, a thirty-year GE veteran, took over in August 2017. He called the results “completely unacceptable,” grounded the corporate jets, halved the dividend and abandoned the old two-dollar earnings target. Then came the bill for those old insurance promises: in January 2018, GE announced a $9.5 billion pre-tax charge on long-term care reinsurance and said it would need to put about $15 billion more into the business over seven years.

In June 2018 GE was removed from the Dow Jones Industrial Average, which it had joined as an original member in 1896. In October, after about fourteen months, the board removed Flannery. For the first time, GE picked a CEO from outside the company: Larry Culp, formerly of Danaher. Four weeks later came the $22 billion Power write-down and a dividend cut to a penny.

For generations, GE had been the company that trained America’s CEOs. To lead its turnaround, it chose an outsider.

The record is in

Jack Welch died in March 2020. In 2021, GE announced it would split into three companies, and by 2024 the conglomerate was gone. Its aviation, healthcare and energy businesses carried on separately. GE’s machines still mattered. But even a strong engineering business could not absorb every financial promise, acquisition mistake and reporting failure of the empire built around it.

In 2009, Welch himself said that shareholder value as a strategy was “the dumbest idea in the world,” and that it should be a result of serving customers, employees and products. GE’s story asks whether its incentives and decisions ever lived up to that distinction.

He asked to be judged by the next twenty years. The record is in.