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125-422: John Francis Welch Jr. (November 19, 1935 – March 1, 2020) was an American business executive, chemical engineer , and writer. He was Chairman and CEO of General Electric (GE) between 1981 and 2001. When Welch retired from GE, he received a severance payment of $ 417 million, the largest such payment in business history up to that point. In 2006, Welch's net worth was estimated at $ 720 million. Jack Welch

250-637: A Bachelor of Science degree in chemical engineering, turning down offers from several companies in order to attend graduate school at the University of Illinois at Urbana-Champaign . He graduated from the University of Illinois, in 1960, with a master's and a PhD in chemical engineering. Jack later received an honorary Doctor of Science from University of Massachusetts Amherst in 1982 and honorary doctorate from University of California, Los Angeles in 2009. Welch joined General Electric in 1960. He worked as

375-430: A Republican . He stated that global warming is "the attack on capitalism that socialism couldn't bring", and that it is a form of "mass neurosis ". Yet he said that every business must embrace green products and green ways of doing business, "whether you believe in global warming or not ... because the world wants these products". Regarding shareholder value , Welch said in a Financial Times interview on

500-490: A Securities and Exchange Commission investigation of the then-retired Welch's employment contracts with GE. In 1996, Welch and GE had agreed to a "retention package" worth $ 2.5 million, and which promised continued access after Welch's retirement to benefits he had received as CEO—including an apartment in New York, baseball tickets and the use of a private jet and chauffeured car. Welch stated that he did not want more money, nor

625-496: A business sells sub-standard products to reduce cost and make a quick profit, it damages its reputation and therefore destroys competitive advantage in the future. The same holds true for businesses that neglect research or investment in motivated and well-trained employees. Shareholders, analysts and the media will usually find out about these issues and therefore reduce the price they are prepared to pay for shares of this business. This more detailed concept therefore gets rid of some of

750-550: A company has no social responsibility to the public or society; its only responsibility is to its shareholders . The Friedman doctrine was amplified after the publication of an influential 1976 business paper by finance professors Michael C. Jensen and William Meckling, "Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure", which provided a quantitative economic rationale for maximizing shareholder value. On August 12, 1981, Jack Welch made

875-422: A company's worth. When all of a company's focus and strategy is concentrated on increasing share prices, the practice and ethics of the firm can become lost because of the following problems with the shareholder value model. In the shareholder value model, companies often take on much more risk than they otherwise would. The acquisition of debt makes the company unstable and at risk of bankruptcy . Plentiful debt

1000-410: A critical article in 2017, noting GE's stock price as overvalued under Welch because of the growth of the financial services sector, as well as describing the amalgamated corporation's decline in 16 years under Immelt, who likewise was one of the country's highest-paid managers and eventually sold off two of Welch's largest acquisitions, NBCUniversal and GE Capital . Under Welch's leadership, GE waged

1125-403: A function of the changing political economy throughout the late 20th century. The crux of their argument is based upon one main idea. The rise in prominence of institutional investors can be credited to three significant forces, namely organized labor, the state and the banks. The roles of these three forces shifted, or were abdicated, in an effort to keep corporate abuse in check. However, "without

1250-502: A junior chemical engineer in Pittsfield, Massachusetts , at a salary of $ 10,500, which would be equivalent to approximately $ 90,000 in 2018 dollars. In 1961, Welch planned to quit his job as junior engineer because he was dissatisfied with the raise offered to him and was unhappy with the bureaucracy he observed at GE. Welch was persuaded to remain at GE by Reuben Gutoff, an executive at the company, who promised him that he would help create

1375-551: A more traditional stock package, but instead preferred to retain the lifestyle he had enjoyed as GE's CEO. According to a 2008 interview with Welch, he had filed the agreement with the SEC, and addressed the media attention and accusations of being "greedy" by renouncing those benefits. In 2012, Welch and his third wife, Suzy Welch, quit their business associations with Fortune magazine and Reuters news service after Fortune published an article which criticized Welch's tweet, shortly before

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1500-543: A policy of informality at the work place, allowing all employees to have a small-business experience at a large corporation. Welch worked to eradicate perceived inefficiency by trimming inventories and dismantling the bureaucracy that had almost led him to leave GE in the past. He closed factories, reduced payrolls and cut lackluster units. Welch valued surprise and made unexpected visits to GE's plants and offices. Welch popularized so-called " rank and yank " policies used now by other corporate entities. Each year, Welch would fire

1625-416: A position he held until 1979 when he became the vice chairman of GE. In 1981, Welch became GE's youngest chairman and CEO, succeeding Reginald H. Jones . By 1982, Welch had dismantled much of the earlier management put together by Jones with aggressive simplification and consolidation. One of his primary leadership directives was that GE had to be No. 1 or No. 2 in the industries it participated in. Through

1750-461: A publicly traded company, shareholder value is the part of its capitalization which is equity as opposed to long-term debt . In the case of only one type of stock , this would roughly be the number of outstanding shares times current shareprice. Things like dividends augment shareholder value while issuing of shares ( stock options ) lower it. This shareholder value added should be compared to average/required increase in value, making reference to

1875-468: A share price) invest about half as much as privately held companies in the United States. Even shareholders have had disappointing results with poor returns on investment and a reduction in the population of publicly traded companies by 40%. In addition to reduced growth, critics also point to reduced productivity. Shareholder value can have a negative effect on employee morale as the entire mission of

2000-401: A special relationship to the corporation.  The corporation is permanent, the share-holder is transitory. It might even be said without much exaggeration that the corporation is really socially and politically a priori, whereas the share-holder's position is derivative and exists only in contemplation of law". Drucker's argument is expanded upon by anthropologist Karen Ho , who notes that in

2125-493: A speech at The Pierre Hotel in New York City called "Growing Fast in a Slow-Growth Economy", which is often acknowledged as the "dawn of the shareholder-value movement". Welch did not mention the term "shareholder value", but outlined his beliefs in selling underperforming businesses and cutting costs to increase profits faster than global economic growth. In 1983, Brian Pitman became CEO of Lloyds Bank and sought to clarify

2250-496: A starting salary for a graduate averaging £28,350. Chemical engineering in the USA is one of the engineering disciplines with the highest participation of women, with 35% of students compared with 20% in engineering. In the UK in 2014, students starting degrees were 25% female, compared with 15% in engineering. US graduates who responded to a 2015 salary survey were 18.8% female. According to

2375-482: A ten-year time limit to its applicability, and thus she was able to leave the marriage reportedly with around $ 180 million. Welch's third wife, Suzy Wetlaufer (née Spring), co-authored his 2005 book Winning as Suzy Welch. She served briefly as the editor-in-chief of the Harvard Business Review . Welch's wife at the time, Jane Beasley, found out about an affair between Wetlaufer and Welch. Beasley informed

2500-582: A twenty-year battle with the Environmental Protection Agency and New York State over polychlorinated biphenyls (PCBs) that the company dumped into the Hudson River at its capacitor products division plant in Hudson Falls, New York . Welch disputed scientists who classified PCBs as forever chemicals that can cause negative health consequences. The chemicals contaminated the aquifer beneath

2625-401: Is conducive to increasing share value because the company has greater potential to increase value when starting at a lower baseline. This however is a detrimental to the stability of the company. Debt financing, or the purposeful acquisition of debt, causes the debt to equity ratio of the company to rise. Without shareholder value, this would normally be considered negative because it means that

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2750-455: Is contrasted by the attitude adopted by management of modern-day corporations, which according to former WebTV CEO Randy Komisar see themselves not as institutional stewards but rather as investors themselves. Critics such as Ho believe that the shift of management attitude towards treating corporations as investments has led to the decline of the corporation as a social entity, and allows corporate management to make decisions that may be against

2875-511: Is difficult to implement in practice because of the difficulty of determining equivalent measures for usefulness to society and satisfaction of employees. For instance, how much additional "usefulness to society" should shareholders expect if they were to give up $ 100 million in shareholder return? In response to this criticism, defenders of the stakeholder value concept argue that employee satisfaction and usefulness to society will ultimately translate into shareholder value. Another related criticism

3000-426: Is difficult to influence directly by any manager, it is usually broken down in components, so called value drivers. A widely used model comprises 7 drivers of shareholder value, giving some guidance to managers: Looking at some of these elements also makes it clear that short term profit maximization does not necessarily increase shareholder value. Most notably, the competitive advantage period takes care of this: if

3125-406: Is more concentrated and less dynamic. He pioneered " financialization ", changing GE from a manufacturing company into, effectively, an unregulated bank, which harmed GE over the long term. As of late 2021, General Electric planned to break into three public companies and effectively cease to exist. The companies would separately operate in the aviation, health care and energy markets. As of 2021, GE

3250-485: Is negligible strong evidence that shareholder value theory has produced better results for businesses (studies that did provide evidence of shareholder value being beneficial generally were not able to be replicated; Stout). Since the inception and widespread application of shareholder value theory, returns on invested capital have steadily decreased. One explanation for this trend is reduced investment in innovation. Studies have shown that publicly traded companies (who have

3375-544: Is often intertwined with biology and biomedical engineering . Many chemical engineers work on biological projects such as understanding biopolymers ( proteins ) and mapping the human genome . According to a 2015 salary survey by the American Institute of Chemical Engineers, the median annual salary for a chemical engineer was approximately $ 127,000. The survey was repeated in 2017 and the median annual salary dropped slightly to $ 124,000. The decrease in median salary

3500-448: Is prevalent in regions where limited liability laws are not strong. Some companies, choosing to prioritize social responsibility, elect to prioritize the social and financial welfare of employees and suppliers over shareholders; this, in turn, shields shareholders, the owners of the company, from liability when the law would not be lenient should the company engage in poor behavior. Despite its high potential social benefit, this concept

3625-537: Is that it is difficult to determine how to equitably distribute value to stakeholders. The question of "who deserves what and how much" is a difficult one to answer. A company may choose to disregard shareholders completely. A social enterprise instead focuses its objectives on goals other than the profitability of its owners; indeed, the constitution of a social enterprise often precludes issuing dividends to shareholders. Social enterprises require significant investment in financial stability and long-term profitability, in

3750-461: Is that the compensation of executives and managers is increasingly tied to stock value through executive bonuses and stock options. Corporations use several gimmicks to increase stock price, perhaps the most infamous being the mass layoffs of employees which creates the appealing image of increased efficiency and lower operating costs, in turn driving up stock price. However, this and other such gimmicks have several negative consequences. Oftentimes, in

3875-427: Is the growth of financialization . The financial industry has ballooned in size following the use of shareholder value, largely due to the outsized importance placed upon shareholders by corporations. The large financial sector is a drain on the entire United States economy, costing roughly 300 billion dollars per year. This is because the financial sector does not engage in actual production. While shareholder value

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4000-458: Is the most common framework for measuring a company's success and financial viability, a number of alternatives have been proposed. Indeed, maximizing shareholder value is not always the goal of successful companies. The broad idea of "stakeholder value" is the most common basis of alternative frameworks. The intrinsic or extrinsic worth of a business measured by a combination of financial success, usefulness to society, and satisfaction of employees,

4125-416: Is the mystification surrounding its legal validity. It is often espoused that shareholders are the owners. This status as a shareholder comes with an assumed legal claim of all profits after contractual obligations have been fulfilled and that they have the ability to decide the structure of the corporation on the board level however they want. Yet, none of these are rooted in any law because shareholder value

4250-430: Is the study of problems characterized by disconnects between two cooperating parties: a principal and an agent. Agency problems arise in situations where there is a division of labor, a physical or temporal disconnect separating the two parties, or when the principal hires an agent for specialized expertise. In these circumstances, the principal takes on the agent to delegate responsibility to him. Theorists have described

4375-437: Is ultimately a management decision, not a legal requirement. Corporations are their own legal entity and shareholders simply hold shares, making them equal stakeholders to employees, suppliers, and more. They only get guaranteed full access to residual funds in the case of liquidation. Otherwise, the firm has all control of how to do things as they please like investing into the company, raising salaries, etc. And when it comes to

4500-432: The 2007–2008 financial crisis . While a focus on shareholder value can benefit the owners of a corporation financially, it does not provide a clear measure of social issues like employment , environmental issues, or ethical business practices. A management decision can maximize shareholder value while lowering the welfare of third parties . Shareholder value coupled with short-termism has also been criticized as lowering

4625-507: The 2012 election , which alleged that the Obama administration manipulated certain economic statistics, as well as another article which elucidated the 100,000 jobs GE lost during his tenure as CEO. Following Welch's retirement from General Electric, he became an adviser to private equity firm Clayton, Dubilier & Rice and to the chief executive of IAC , Barry Diller . In addition to his consulting and advisory roles, Welch had been active on

4750-529: The Federal Reserve . The retired Welch publicly praised his former firm's "slim-down" and return to being an industrial company. In 2018 Welch discussed the different financial culture in Kidder, Peabody & Co., whose acquisition he arranged during his tenure at GE, and whose ethos was based on short-term bonus calculations. Shortly before the settlement was announced, GE Capital renamed itself as Synchrony Bank ;

4875-454: The Institution of Chemical Engineers said in his presidential address "I believe most of us would be willing to regard Edward Charles Howard (1774–1816) as the first chemical engineer of any eminence". Others have suggested Johann Rudolf Glauber (1604–1670) for his development of processes for the manufacture of the major industrial acids. The term appeared in print in 1839, though from

5000-514: The Jack Welch Management Institute (JWMI), a program at Chancellor University that offered an online executive Master of Business Administration . The institute was acquired by Strayer University in 2011. Welch had been very actively involved with the curriculum, faculty and students since the beginning of the institution. JWMI's MBA program was recently named the number one most influential education brand on Linkedin and one of

5125-545: The NBC sitcom 30 Rock , appearing in the season four episode " Future Husband ". In the episode, Welch confronts Alec Baldwin 's character, Jack Donaghy , to confirm the sale of NBC Universal to a fictional Philadelphia -based cable company called Kabletown. The sale is a satirical reference to the real-world acquisition of NBCUniversal from General Electric by Comcast in November 2009. Chemical engineer The president of

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5250-584: The RCA Corporation for $ 6.28 billion, the largest non-oil company merger in history up to that time.Welch and GE subsequently took up an office in the iconic RCA Building , later renamed the GE Building at 30 Rockefeller Plaza. The RCA acquisition resulted in GE liquidating or selling off virtually all of RCA's divisions and assets to other companies and maintaining NBC as part of the GE portfolio of businesses. During

5375-696: The Review and Wetlaufer was forced to resign in early 2002 after admitting to the affair with Welch while preparing an interview with him for the magazine. They married on April 24, 2004. Starting in January 2012, Welch and Suzy Welch wrote a biweekly column for Reuters and Fortune , which they both left on October 9, 2012, after an article critical of Welch and his GE career was published by Fortune . Welch died from kidney failure at his home in New York City on March 1, 2020, at age 84. Welch identified politically as

5500-452: The global financial crisis of 2008–2009 , "On the face of it, shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy...your main constituencies are your employees, your customers and your products." Welch was widely criticized for his views on the job numbers from September 2012. After the Bureau of Labor Statistics released employment data stating that

5625-559: The welfare of shareholders, broadly construed, not just their financial interests. Many shareholders are prosocial , and maximizing shareholder value may sometimes mean making business decisions that prioritize the social issues that investors care about, even at the expense of profits. Likewise, Lynn A. Stout writes that shareholder value is not a singular objective, because "different shareholders have different values. Some are long-term investors planning to hold stock for years or decades; others are short-term speculators." Agency theory

5750-419: The 1820s. The article stated that: The objective of our company is to increase the intrinsic value of our common stock. We are not in business to grow bigger for the sake of size, not to become more diversified, not to make the most or best of anything, not to provide jobs, have the most modern plants, the happiest customers, lead in new product development, or to achieve any other status which has no relation to

5875-415: The 1970s, there was an economic crisis caused by stagflation . The stock market had been flat for nearly 12 years and inflation levels had reached double-digits. The Japanese had taken the top spot as the dominant force in auto and high technology manufacturing, a title historically held by American companies. This, coupled with the economic changes noted by Mark Mizruchi and Howard Kimeldorf, brought about

6000-485: The 1980s based on the academic work of Joel Stern , Dr. Bill Alberts, and Professor Alfred Rappaport . In "Creating Shareholder Value: The New Standard for Business Performance", published in 1986, Rappaport argued that "the ultimate test of corporate strategy, indeed the only reliable measure, is whether it creates economic value for shareholders". Other consulting firms including McKinsey and BCG developed VBM approaches. Value-based management became prominent during

6125-403: The 1980s, Welch sought to streamline GE. In 1981, he made a speech in New York City called "Growing fast in a slow-growth economy", which is often acknowledged as the "dawn" of the shareholder-value movement. Under Welch's leadership, GE increased market value from $ 12 billion in 1981 to $ 410 billion when he retired, making 600 acquisitions while shifting into emerging markets . Welch pioneered

6250-476: The 1990s, Welch shifted GE's business from manufacturing to financial services through numerous other acquisitions. Welch adopted Motorola 's Six Sigma quality program in late 1995. In 1980, the year before Welch became CEO, GE recorded revenues of roughly $ 26.8 billion and in 2000, the year before he left, they were nearly $ 130 billion. By 1999 he was named "Manager of the Century" by Fortune magazine . There

6375-403: The 80's and 90's, numerous companies faced lawsuits from current and former employees alike for reducing or withholding workers from accessing benefits in the present or during retirement. The SV model has led to reduced pension support as a means of maximizing profits at the cost of the employees. Some companies have switched matching pension plans monthly to once a year. Critics remain alarmed at

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6500-562: The CEO and for the board to be independently chosen. An independent board can best objectively monitor CEO undertakings and risk. Shareholder value also argues in favor of increased financial transparency. By making firms' finances available to scrutiny, shareholders become more aware of the agent's behavior and can make informed choices about with whom to invest. As a management principle, value-based management (VBM), or managing for value (MFV), states that management should first and foremost consider

6625-427: The U.S. unemployment rate had dropped from 8.1% to 7.8%, Welch tweeted , "Unbelievable jobs numbers ... these Chicago guys will do anything ... can't debate so change numbers". Welch stood by his tweet, stating if he could write it again, he would add question marks at the end to make it clear that his intention was to raise a question over the legitimacy of the numbers. A subsequent New York Post article on

6750-472: The admissions process. He also said that he would like better leadership training for MBA students. Welch had four children with his first wife, Carolyn. They divorced amicably in 1987 after 28 years of marriage. His second wife, Jane Beasley, was a former mergers-and-acquisitions lawyer. She married Welch in April 1989, and they divorced in 2003. While Welch had crafted a prenuptial agreement , Beasley insisted on

6875-558: The argument that the business of business is its business. Friedman's postulation suggests that if social responsibility and profit run counterintuitive, pick the latter. By prioritizing the accumulation of wealth by all means, it uncomplicated other responsibilities that may have a hindrance to achieving this goal. Some responsibilities include, but are not limited to: community development, employee investment, worker benefits, research and development, and more. These responsibilities are attributed to being long term and do not immediately satisfy

7000-400: The bottom 10% of his managers, regardless of absolute performance. He earned a reputation for brutal candor. He rewarded those in the top 20% with bonuses and employee stock options . He also broadened the stock options program at GE, extending availability from top executives to nearly one third of all employees. Welch is also known for abolishing the nine-layer management hierarchy. During

7125-557: The change in number of shares. The short-term nature of shareholder value theory is one of the features focused on by critics. They argue that this fixation on the short term leads to neglect of more profitable long-term strategies. In this way, shareholder value fails to attain the level of overall capital growth that might otherwise be expected. Given the emphasis on stock price inherent to shareholder value, incentives are created for corporations to inflate their stock price before its value becomes critical for assessment. One such incentive

7250-448: The company in danger of bankruptcy and collapse. In order to facilitate an incentive structure that supports shareholder value, the method of executive compensation has changed toward making a large portion of C-suite pay come from stock. The reasoning behind this decision was that it would bring the interests of CEOs in line with those of shareholders. As a result of this decision, executive compensation has skyrocketed, quadrupling from

7375-399: The company is not making money. In the shareholder value system, high debt to equity ratios are considered an indicator that the company has confidence to make money in the future. Therefore, debt is not something to avoid but rather something to embrace and having debt will actually gain the company investors. Taking on large risk attracts investors and increases potential value gain, but puts

7500-416: The context it suggests a person with mechanical engineering knowledge working in the chemical industry . In 1880, George E. Davis wrote in a letter to Chemical News "A Chemical Engineer is a person who possesses chemical and mechanical knowledge, and who applies that knowledge to the utilisation, on a manufacturing scale, of chemical action." He proposed the name Society of Chemical Engineers, for what

7625-401: The corporation as a whole. Though Ashan and Kimeldorf (1990) admit that their analysis of what historically led to the shareholder value model is speculative, their work is well regarded and is built upon the works of some of the premier scholars in the field, namely Frank Dobbin and Dirk Zorn. As a result of the political and economic changes of the late 20th century, the balance of power in

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7750-514: The corporation becomes the generation of wealth for shareholders. Because of this reduction of motivation, corporations need to engage in more top-down and control-oriented management strategies, one such example being the massive rise in the use of non-compete agreements . Despite such efforts (or because of them), low employee morale has negative effects on business. Less motivated employees are less energetic and produce less and are less likely to innovate. A further inefficiency of shareholder value

7875-431: The cost and delivery goals and get people to reach consensus". Welch has been criticized for practices that have harmed workers and the company: he eliminated thousands of jobs at GE, contributing to a reduction of the U.S. manufacturing base. He eliminated 10% of employees every year , a practice adopted by many other companies. He was a leading proponent of mergers and acquisitions, helping to give rise to an economy that

8000-493: The data. Still, in an opinion piece in The Wall Street Journal , Welch wrote that the debate led to people looking at unemployment data more carefully and skeptically. Referencing his original tweet, he stated "Thank God I did", in a Squawk Box appearance, and also wrote, "The coming election is too important to be decided on a number. Especially when that number seems so wrong". Welch has been described as "perhaps

8125-610: The development and production of a diverse range of products, as well as in commodity and specialty chemicals . These products include high-performance materials needed for aerospace , automotive , biomedical , electronic , environmental and military applications. Examples include ultra-strong fibers, fabrics , adhesives and composites for vehicles, bio-compatible materials for implants and prosthetics, gels for medical applications, pharmaceuticals , and films with special dielectric, optical or spectroscopic properties for opto-electronic devices. Additionally, chemical engineering

8250-616: The early 1980s he was dubbed "Neutron Jack" (in reference to the neutron bomb ) for eliminating employees while leaving buildings intact. In Jack: Straight from the Gut , Welch stated GE had 411,000 employees at the end of 1980, and 299,000 at the end of 1985. Of the 112,000 who left the payroll, 37,000 were in businesses which GE sold off, and 81,000 were reduced in continuing businesses. In return, GE had tremendously increased its market capitalization . Welch reduced basic research, and closed or sold off under-performing businesses. In 1986, GE acquired

8375-529: The economic use of capital. Any or all of these may be, from time to time, a means to our objective, but means and ends must never be confused. We are in business solely to improve the inherent value of the common stockholders' equity in the company. Economist Milton Friedman introduced the Friedman doctrine in a 1970 essay for The New York Times , entitled "A Friedman Doctrine: The Social Responsibility of Business Is to Increase Its Profits". In it, he argued that

8500-456: The economy began to shift. Today, "...power depends on the capacity of one group of business experts to alter the incentives of another, and on the capacity of one group to define the interests of another". As stated earlier, what made the shift to the shareholder value model unique was the ability of those outside the firm to influence the perceived interests of corporate managers and shareholders. However, Dobbin and Zorn argue that those outside

8625-471: The employment data suggested manipulation of some of the survey responses by an individual employee in 2010, but that article was widely debunked, including the fact that the employee had not worked at the Bureau since 2011. No proof of the political manipulation of the job numbers from September 2012 has been presented. The Census Bureau later released a statement denying the possibility of systematic manipulation of

8750-517: The eventual consequence when this bubble will burst, the majority of Americans will face the consequence, not the ones leading the firms. Peter Drucker , author of "The Concept of the Corporation", makes the argument that shareholder value in fact serves to underplay the important social role which corporations occupy in contemporary society. Drucker states "In the social reality of today, shareholders are but one of several groups of people who stand in

8875-437: The expense of gimmicks that briefly boost a stocks value can have negative impacts on its long term value. Marc Benioff , CEO of Salesforce , said that "[...] the obsession with maximizing profits for shareholders has brought us: terrible economic, racial and health inequalities; the catastrophe of climate change." According to critics, oversimplifying the corporation's role has neglected the imperfect world we live in. Within

9000-496: The expense of shareholders. Examples of this include acquisitions which are dilutive to shareholders, that is, they may cause the combined company to have twice the profits for example but these might have to be split amongst three times the shareholders. Although the legal premise of a publicly traded company is that the executives are obligated to maximize the company's profit, this does not imply that executives are legally obligated to maximize shareholder value. As shareholder value

9125-415: The face of it, shareholder value is the dumbest idea in the world," he said. "Shareholder value is a result, not a strategy . . . Your main constituencies are your employees, your customers and your products." Welch later elaborated on this, clarifying that "my point is, increasing the value of your company in both the short and long term is an outcome of the implementation of successful strategies." During

9250-432: The firm were not operating with malicious intentions. "They conned themselves first and foremost. Takeover specialists convinced themselves that they were ousting inept CEOs. Institutional investors convinced themselves that CEOs should be paid for performance. Analysts convinced themselves that forecasts were a better metric for judging stock price than current profits". Overall, it was the political and economic landscape of

9375-648: The firm's stock price is in the interest of managers that receive stock compensation and may therefore cause them to focus on speculating on the stock price rather than maximizing real production. Management experts also cite another criticism of shareholder value's short-term view, namely that it creates a corporate culture more concerned with maximizing revenue than with maintaining relationships with employees, customers, or their surrounding communities. Business experts have criticized shareholder value for failing to materialize economic growth and increased productivity. Despite decades of research and dozens of studies, there

9500-412: The globe. "More than 35 CEOs at today's top companies [were] trained under Jack Welch". JWMI students had direct access to Welch and he hosted quarterly video conferences with his students. It is known that along with his video conferences, Welch created many video responses to messages on bulletin boards and answered individual emails. His investment in the university was also reflected in his interest in

9625-407: The governing objective for the company. The following year, he set return on equity as the key measure of financial performance and set a target for every business within the bank to achieve a return that exceeded its cost of equity. The management consulting firms Stern Stewart, Marakon Associates , and Alcar pioneered value-based management (VBM), also known as managing for value (MFV), in

9750-461: The hockey team and became second lieutenant right after graduating Late in his senior year, Welch was accepted to University of Massachusetts Amherst , where he studied chemical engineering . Welch worked in chemical engineering at Sunoco and PPG Industries during his college summers. In his sophomore year, he became a member of the Phi Sigma Kappa fraternity. Welch graduated in 1957 with

9875-448: The immediate period following the second world war, the corporation existed primarily as a social institution which largely accepted its responsibilities to those involved in its operations outside of shareholders, concerning itself with the longevity and well-being of the corporation as an institution even if this meant undertaking actions that may run counter to the immediate concerns of the corporation's shareholders. This post-war outlook

10000-405: The institute's Net Promoter score (NPS). He administered surveys on satisfaction regularly and scrutinized the results to find scores that needed improvement. In an interview with Wired Academic , Welch explained the overall status of his MBA program, stating that the persistence rate of students continuing on to a second year had grown from 90% to 95%, and that JWMI turns away very few students in

10125-419: The interests of shareholders when making management decisions. Under this principle, senior executives should set performance targets in terms of delivering shareholder returns (stock price and dividends payments) and managing to achieve them. The concept of maximizing shareholder value is usually highlighted in opposition to alleged examples of CEO's and other management actions which enrich themselves at

10250-417: The interests of the corporation's social stakeholders or even longevity of the corporation itself. The failure of the corporation to readily fit within the neo-classical economic model which dominates contemporary economics academia and policy is a frequently-targeted flaw by critics. Anthropologist Karen Ho argues that the concept of shareholders and subsequently shareholder value was developed primarily for

10375-421: The internal discipline provided by the banks and external discipline provided by the state and labor, the corporate world has been left to the professionals who have the ability to manipulate the vital information about corporate performance on which investors depend". This allowed institutional investors and securities analysts from the outside to manipulate information for their own benefit rather than for that of

10500-579: The issues (though not all of them) typically associated with criticism of the shareholder value model. Based on these seven components, all functions of a business plan and show how they influence shareholder value. A prominent tool for any department or function to prove its value are so called shareholder value maps that link their activities to one or several of these seven components. So, one can find "HR shareholder value maps", "R&D shareholder value maps", and so on. The sole concentration on shareholder value has been widely criticized, particularly after

10625-412: The late 1980s and 1990s. In March 2009, Welch criticized parts of the application of this concept, saying he never meant to suggest boosting a company's share price should be the main goal of executives. He said managers and investors should not set share price increases as their overarching goal. He added that short-term profits should be allied with an increase in the long-term value of a company. "On

10750-410: The latest 2023 figures, Bayes Business School graduates get an average of £51,921 within 5 years of graduation, which is the most among UK universities. This was followed by the University of Oxford at £49,086 and the University of Warwick at £47,446. Shareholder value Shareholder value is a business term, sometimes phrased as shareholder value maximization . The term expresses the idea that

10875-428: The limited-input "owner and property" intentions of influential founding figures of neoclassical economics such as Adam Smith , and that the neoclassical economic model hinges on the idea of the owner-entrepreneur being directly involved in the management and operation of their enterprise. As the modern shareholder typically has very limited or no connection to the regular operations of a corporation they have invested in,

11000-642: The most celebrated American boss of recent decades". Yet by Wall Street measures, a $ 100,000 investment in GE shares in the year 2000 (near the end of Welch's tenure) had lost about 80 percent of its value as of the year 2021. Despite this trend, in a 2015 article in Harvard Business Review , business consultant Ron Ashkenas argues that "Jack Welch's approach to breaking down silos still works", citing examples of engineering companies who have discovered for themselves that "fragmented, geographically dispersed" patterns of organization make it "very difficult ... to coordinate efforts across functions, keep everyone focused on

11125-492: The nature of cutting out or underestimating the value of the labor a worker produces for maintaining or raising the value of stock. The reduced benefits are attributed to the trend of the corporate world's reduction in investing in non-shareholder constituents because it is not an immediate money producer—the main goal of SV theory. The aforementioned status of workers faces criticism when looking at how this "reduced pension matching" loophole becomes manipulated. If laid off before

11250-522: The organizations cost of capital . For a privately held company, the value of the firm after debt must be estimated using one of several valuation methods, such as discounted cash flow . The first modern articulation that shareholder wealth creation is the paramount interest of the management of a company was published in Fortune magazine in 1962 in an article by the management of a US textile company, Indian Head Mills, whose history can be traced back to

11375-400: The overall rate of economic growth due to reduced business capital accumulation . It can also disadvantage other stakeholders such as customers. For example, a company may, in the interests of enhancing shareholder value, cease to provide support for old, or even relatively new, products. Additionally, short term focus on shareholder value can be detrimental to long term shareholder value;

11500-423: The partners in a private copartnery frequently watch over their own". Critics such as Ho and Smith believe that failure of the shareholder model to accurately represent the key neoclassical owner-entrepreneur concept is a foundational issue of the neoclassical economic model, leading to an inaccurate assumption that corporate interest remained identical to shareholder interest. A common critique of shareholder value

11625-406: The plant to the point that the water was unusable for human consumption without treatment. New York State's Department of Environmental Consumption also advised people against eating fish from the river near the site. He went on to call the Obama administration's prioritization of addressing climate change "radical behavior". According to BusinessWeek in 1998, Welch's critics questioned whether

11750-696: The pre-pension matching period is complete, there is no compensation. Furthermore, mass layoffs have affected companies in the home headquarters with many jobs either going overseas or being hired out to contractors from similar positions to those that were laid off for lower benefits and protections as critics and experts have noted. According to economic experts and critics alike, the downsize -and-distribute model invoked by SV theory extracts value and then further ingrains employee instability and greater income inequality. In Milton Friedman 's seminal piece advocating for shareholder value titled " The Social Responsibility of Business Is to Increase Its Profits " makes

11875-447: The price-earnings ratios of the financial services sector were lower than that for GE. In 2014, GE Capital (the company's major financial services branch organized during Welch's tenure) agreed to the largest credit card discrimination settlement in history, concerning many years of deceptive marketing as well as discriminatory credit practices. After Welch's tenure, GE Capital had been labeled as "too big to fail" and had become regulated by

12000-402: The primary goal for a business is to increase the wealth of its shareholders (owners) by paying dividends and/or causing the company's stock price to increase. It became a prominent idea during the 1980s and 1990s, along with the management principle value-based management or managing for value. The term shareholder value , sometimes abbreviated to SV , can be used to refer to: For

12125-500: The priorities determined by the makeup of the individuals and entities that together own the shares and direct the company. This is sometimes referred to as stakeholder value. Stakeholder value heavily relies on corporate social responsibility and long-term financial stability as a core business strategy. Academic Pete Thomas outlines one response which sees the idea of stakeholder management as "a dangerous and illegitimate challenge to shareholder interests". The stakeholder value model

12250-414: The problem as one of "separation and control": agents cannot be monitored perfectly by the principal, so they may shirk their responsibilities or act out of sync with the principal's goals. The information gap and the misalignment of goals between the two parties results in agency costs, which are the sum of the costs to the principal of monitoring, the costs to the agent of bonding with the principal, and

12375-681: The process industries, or other situations in which complex physical and/or chemical processes are to be managed. The UK journal The Chemical Engineer (began 1956) has a series of biographies available online entitled “Chemical Engineers who Changed the World”, Historically, the chemical engineer has been primarily concerned with process engineering , which can generally be divided into two complementary areas: chemical reaction engineering and separation processes . The modern discipline of chemical engineering, however, encompasses much more than just process engineering. Chemical engineers are now engaged in

12500-737: The public speaking circuit and co-wrote a popular column for BusinessWeek with his wife, Suzy, for four years until November 2009. The column was syndicated by The New York Times . In September 2004, the Central Intelligence Agency published a parody of Welch applying his management skills while serving as imagined Deputy Director of Intelligence. In 2005, he published Winning , a book about management co-written with Suzy Welch, which reached No. 1 on The Wall Street Journal bestseller list, and appeared on New York Times Best Seller list . On January 25, 2006, Welch gave his name to Sacred Heart University 's College of Business, which

12625-430: The public uproar, Welch declared that CEO compensation should continue to be dictated by the " free market ", without interference from government or other outside parties. Welch's income and assets came under particular scrutiny during his divorce from his second wife, Jane Welch, in 2001, for adultery with the woman who became his third wife. Court filings during the divorce described Welch's GE compensation, which led to

12750-424: The purpose of shoehorning the insertion of the corporation into the neoclassical economic model, and ignores that the neoclassical model, which was originally created in eighteenth and nineteenth century prior to the proliferation of corporate organization, was never designed to operate with number of inputs the modern corporation requires. Ho claims that advocates of neoclassical proprietorship ran directly counter to

12875-497: The question as to how to fix the current model of management. Though there were contending solutions to resolve these problems (e.g. Theodore Levitt 's focus on customer value creation and R. Edward Feeman's stakeholder management framework), the winner was the Agency Theory developed by Jensen and Meckling. Mizruchi and Kimeldorf offer an explanation of the rise in prominence of institutional investors and securities analysts as

13000-422: The rate of compensation in the early 1970s. This change has also shifted the motivations of C-suite managers in the direction of increasing share price over everything else, leaving other goals like long-term growth and stakeholders like employees and customers behind. Share repurchasing might cause misaligned incentives between market capitalization and executive compensation connected to share price due to

13125-399: The residual loss due to the disconnect between the principal's interests and agent's decisions. Lastly, the shareholder value theory seeks to reform the governance of publicly owned firms in order to decrease the principal-agent information gap. The model calls for firms' boards to be independent from their corporate executives, specifically, for the head of the board to be someone other than

13250-497: The shareholder and tying executive pay, the stock price became intrinsically tied with success as critics note. One notable effect of this practice includes reduced investment. From 2003 to 2012, of the 449 firms in the S&;P 500 , 54% of earnings went to stock buyback and 37% to dividends. This leaves 9% of earnings to go elsewhere, a reduction from the previous rates of investment in past decades. Economists like Lenore Palladino point out

13375-435: The shareholder does not fit within the owner-entrepreneur role required by the neoclassical economic model. Adam Smith himself noted his belief that managed corporations were not viable due to this issue, stating "The directors of [joint stock] companies, however, being the managers rather of other people's money than of their own, it cannot well be expected that they should watch over it with the same anxious vigilance with which

13500-400: The shareholder supremacy over structure, the ability is flimsy and hard to use. The few cases in which legal action can be taken is when a director is explicitly stealing. In spite of the reality of shareholder obligation and abilities, corporate America has convinced itself, according to legal critiques, that there is a legal duty to their shareholders. Shareholder value may be detrimental to

13625-700: The short term -- and mainstream -- interpretation of shareholder value. Stock buyback is criticized for its extractive nature which takes profit and uses it to make stocks look more profitable than they might be in the name of shareholder value. In 1982, the U.S. Securities and Exchange Commission ( SEC ) implemented Rule 10b-18 of the Securities Exchange Act , thus allowing for corporations to buy back stock under certain thresholds and circumstances. With low investigation and consequence rates for breaches, as well as loopholes, this opened up opportunity to legal stock price manipulation. With SV theory incentivizing

13750-507: The short-term performance pressure he placed on employees may have led them to "cut corners", thus contributing to subsequent scandals over defense-contracting, and/or the Kidder, Peabody & Co. bond-trading scheme in the early 1990s. The following year, CEO Welch took issue with reclassification of GE in the Fortune 500 as a "diversified financial services company" rather than an "electrical equipment company", and by 2005 many had noted that

13875-478: The small-company atmosphere Welch desired. In 1963, an explosion blew the roof off the factory under Welch's management, and he was almost fired. By 1968, Welch became the vice president and head of GE's plastics division, which at the time was a $ 26 million operation for GE. Welch oversaw production as well as the marketing for the GE-developed plastics Lexan and Noryl . Not long after, in 1971, Welch also became

14000-459: The spin-off took two years. Welch also often received criticism for a lack of compassion for the middle class and working class . When asked about excessive CEO pay compared to ordinary workers (including backdating stock options , golden parachutes for nonperformance, and extravagant retirement packages), Welch labeled such allegations "outrageous" and vehemently opposed proposed SEC regulations affecting executive compensation . Countering

14125-411: The time that offered the perfect opportunity for professionals outside of firms to gain power and exert their influence in order to drastically change corporate strategy. The conflation of shareholder value maximization with profit maximization has been criticized by some economists and legal scholars. For example, Oliver Hart and Luigi Zingales argue that corporate directors have a duty to maximize

14250-538: The top business schools to watch in 2016. The program has also been named one of the Top 25 Online MBA Programs four years in a row (2017, 2018, 2019, 2020) by The Princeton Review . Its goal is not to make money, but to build over time focusing on the quality of the program and increasing the number of students enrolled year after year. At GE, Welch became known for his teaching and growing leaders. He had taught at MIT Sloan School of Management and taught seminars to CEOs all over

14375-477: The vice president of GE's metallurgical and chemical divisions. By 1973, Welch was named group executive, managing chemical, metallurgical, medical systems, appliance components and electronic components businesses. He held that position until 1979, which involved him working with the corporate headquarters, exposing him to many of the "big fish" he would one day be among. In 1977 Welch was named senior vice president and head of Consumer Products and Services Division,

14500-442: The wake of mass layoffs, corporations have to refill some of the positions now vacant. This leads to a longer term inefficiency as new employees must be trained and the resources invested into the original employee (provided they were not rehired) are permanently lost. A related criticism of shareholder value is the reliance on the process of assessing stock, which is itself vulnerable to manipulation and speculation . Speculating on

14625-468: Was a lengthy and publicized succession planning saga prior to his retirement among James McNerney , Robert Nardelli , and Jeff Immelt , with Immelt eventually selected to succeed Welch as chairman and CEO. His successor plan had always been a priority, as noted in his 1991 speech "From now on, [choosing my successor] is the most important decision I'll make. It occupies a considerable amount of thought almost every day." Welch's "walk-away" package from GE

14750-578: Was born in Peabody, Massachusetts , the only child of Grace (Andrews), a homemaker, and John Francis Welch Sr., a Boston & Maine Railroad conductor. Welch was Irish American and Catholic . His paternal and maternal grandparents were both Irish. Throughout his early life in middle school and high school, Welch found work in the summers as a golf caddie, newspaper delivery boy , shoe salesman, and drill press operator. Welch attended Salem High School , where he participated in baseball, football, and captained

14875-401: Was established. In 1924 the Institution of Chemical Engineers adopted the following definition: "A chemical engineer is a professional man experienced in the design, construction and operation of plant and works in which matter undergoes a change of state and composition." As can be seen from the later definition, the occupation is not limited to the chemical industry , but more generally

15000-548: Was headed by H. Lawrence Culp Jr. who was named in 2018 as its fourth CEO since Welch's departure. Welch's practices and legacy were criticized as ultimately self-destructive and a bad influence on corporate America by author David Gelles in his 2022 book The Man Who Broke Capitalism: How Jack Welch Gutted the Heartland and Crushed the Soul of Corporate America―and How to Undo His Legacy . On March 11, 2010, Welch cameoed as himself in

15125-625: Was in fact constituted as the Society of Chemical Industry . At the first General Meeting of the Society in 1882, some 15 of the 300 members described themselves as chemical engineers, but the Society's formation of a Chemical Engineering Group in 1918 attracted about 400 members. In 1905 a publication called The Chemical Engineer was founded in the US, and in 1908 the American Institute of Chemical Engineers

15250-476: Was in financial services. Twenty years later, the company's market capitalization was only $ 200 billion, a decrease of ~55%, and Welch refused to discuss its decline, other than noting much of the decline had resulted from investments in real estate, and that his immediate, handpicked successor Jeff Immelt had to deal with the after effects of the September 11, 2001 terrorist attack. The New York Times published

15375-561: Was known as the "John F. Welch College of Business" until 2016, when it began using the name the "Jack Welch College of Business". Since September 2006, Welch had been teaching a class at the MIT Sloan School of Management to a hand-picked group of 30 MBA students with a demonstrated career interest in leadership . In December 2016, Welch joined a business forum assembled by then president-elect Donald Trump to provide strategic and policy advice on economic issues. In 2009, Welch founded

15500-450: Was not valued at the time of his retirement, but GMI Ratings estimates its worth at $ 420 million. He served as Chairman of The Business Council in 1991 and 1992. Upon his retirement from GE in 2001, Welch had stated that his effectiveness as its CEO for two decades would be measured by the company's performance for a comparable period under his successors. Welch had grown GE to over $ 450 billion in market capitalization, of which about 40%

15625-495: Was unexpected. A factor contributing to the decline may be that 2017’s survey was conducted by a different research and analysis firm. Median salaries ranged from $ 70,450 for chemical engineers with fewer than three years of experience to $ 156,000 for those with more than 40 years in the workforce. In the UK , the IChemE 2016 Salary Survey reported a median salary of approximately £57,000, with

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