Power Failure: The Rise and Fall of an American Icon

by William D. Cohan

distressing fall is not just the story of a power company or a jet engine company or a TV network or a finance behemoth. It’s a cautionary tale about hype, hubris, blind ambition, and the limits of believing—and trying to live up continuously to—a flawed corporate mythology.

Charles Albert Coffin, whose visionary thinking and aggressive acquisitions drove the company forward in its early years.

Broadly speaking, there were few customers for an electrical power company in 1883. It’s hard to imagine today, but there were no grids to deliver electricity to homes and businesses; there were few, if any, electric appliances and it was a serious challenge to convince consumers that electric light was preferable to whale oil or candles.

Business was booming in part because of a decision to use electricity to power streetcars. The horse-driven commuter systems had to go, and the electric streetcar system that the company built connecting Boston to Lynn, some ten miles away, helped put it on the map by 1888.

And in 1888, Coffin bought the majority of Fort Wayne Electric Light Company, which had been selling dynamos in the Midwest and South.

The prize that Edison had his eyes on at the moment was lighting Lower Manhattan, or more explicitly the geographic area bounded by Wall Street on the south, Fulton Street on the north, and Pearl and Nassau Streets on the east and west, respectively.

In 1882, Edison introduced the first electrical grid connected to his Pearl Street station in Lower Manhattan. The breakthrough made gas lighting nearly obsolete. On September 4, 1882, New York’s high society turned out in droves to witness the first illumination of buildings in Lower Manhattan, thanks to Edison.

In 1887, Edison moved his operations to Schenectady, New York, near Albany.

Before making the move to Schenectady, Edison needed to get control of his disparate operations and clean up his keiretsu of businesses.

Finally, in 1889, with the help of Henry Villard, J. P. Morgan, Deutsche Bank, and what is now Siemens, the big German conglomerate, Edison agreed to merge Edison Machine Works—comprising Edison Lamp Company, Electric Tube Company, and Bergmann & Company—with Edison Electric Light Company to form the Edison General Electric Company.

shareholders of Thomson-Houston, and its management, would be the dominant forces in the merged company

said the proposed name of the combined company was likely to be the General Electric Company, removing references to any of the three founders—Edison, Thomson, and Houston—although that had not yet been agreed.

In 1893, Edison sold his stake in GE for a reported $1.5 million (around $430 million in today’s dollars). He was over the whole electricity thing.

Squabbling and disagreements aside, on April 15, 1892, the General Electric Company was incorporated in New York City as a holding company of sorts for the two companies, one operating in Schenectady, New York, the other operating in Lynn, Massachusetts (both of which factories remain open), with Schenectady being the corporate headquarters at that time.

The business was predominantly comprised of six thousand customers providing local electric lighting and operating electric streetcars.

Panic of 1893—had

Speculation in railroads was at the heart of the panic.

But before world domination, GE first had to survive another financial crisis—the Panic of 1907.

Recall that this was an era without financial regulations. There was no Federal Reserve Board or system of Federal Reserve banks. There was no Securities and Exchange Commission. There were very few laws indeed governing financial transactions and disclosures. There literally was a Wild West feel to Wall Street, even

though it was still mostly located in Lower Manhattan.

GE’s executives were not mere businessmen any longer. They were beginning to take roles in the government and laying the groundwork for what President Dwight D. Eisenhower would call the military-industrial complex.

In 1901, the ability to communicate across the ocean, from ship to shore, had been introduced. One of the leading corporate practitioners of the new communications technology was the British Marconi Company and its publicly traded U.S. counterpart, American Marconi.

But GE was still hoping to get a royalty payment from Marconi based on each word broadcast using the alternator.

America “keeping control” of the Alexanderson alternator,

GE agreed not to sell to Marconi, and to make up for the lost sales, Bullard and Hooper, the navy men, had a solution for GE: it should form a new American company, under the auspices of GE, to control the various radio assets and patents that had been developed during the past decade or so and to serve as a bulwark against

the British.

For GE to start a competitor from scratch would be foolish at best. American Marconi had to be brought under GE’s tent for Wilson’s plan to work. American Marconi had to be made an offer it couldn’t refuse. The postwar power of the U.S. government was brought to bear. It played hardball.

Out of the stalemate was born, inside GE, the legendary Radio Corporation of America, which would unleash years of American technological ingenuity and the creation of what we now know to be radio and television broadcasting.

Young told Nally if American Marconi was sold to GE, American Marconi’s executives would be the ones running the new subsidiary—Radio Corporation of America—because GE had no expertise in the radio business, only in the manufacture of a component part of the business. GE wanted only to be able to keep selling the parts to its new subsidiary.

American Marconi was “doomed” if it tried to go it alone after the war and that GE “offered the only means of salvation.” In June 1919, Young’s representative and Nally set sail for London to try to persuade the executives at British Marconi to sell their stake in American Marconi to GE. It was an arduous negotiation. And was all about who would begin to control the post–World War I world: the British or the Americans. The spoils were nothing less than the ability to communicate instantly across borders.

The fight was about power and who would own the vital and still emerging radio technology.

On October 17, 1919, RCA was incorporated in Delaware as a wholly owned subsidiary of GE.

Admiral Bullard, who served on the board for the next eleven years. Nally wrote to Wilson that Bullard would have the “right of discussion and presentation of the Government’s views and interest concerning matters coming before the directors and stockholders.”

At its start, RCA was the largest radio communications company in America. It not only manufactured radio equipment but also controlled the nation’s first network of radio broadcasters, known as the National Broadcasting Corporation, or NBC. At the time of the creation of RCA, David Sarnoff was American Marconi’s “commercial manager.” He would come to have the same job at RCA and play a pivotal role in its future, eventually rising to become the president of RCA. He was also the founder of NBC.

As it did with electricity, GE would need to create a new industry, a business for the new technology of radio, creating programming and building radios for home use.

the end of 1920, he continued, RCA had “demonstrated that a program of entertainment, education and information could be regularly broadcast to the home by radio.”

1921, the retail value of radios sold in the United States was $5 million; seven years later it was $650 million. In 1921, the radio audience in the U.S. was 75,000 people; at the beginning of 1929, it was 40 million.

1942, President Roosevelt seconded GE’s president, Charles Edward Wilson—known as “Electric” Charlie Wilson so as not to be confused with Charles Erwin Wilson, the CEO of General Motors, who was known as “Engine” Charlie Wilson—to Washington to serve as the executive vice-chairman of the War Production Board,

had laboratories where more than twenty thousand scientists and engineers worked on cutting-edge technologies.

Cordiner wasted little time in laying out his plan for massive decentralization as a way to empower a greater number of GE executives to run their own businesses. He split the behemoth that GE had become into twenty-seven independent

divisions comprising 110 small companies, each the perfect size “for one man to get his arms around.”

Cordiner said. “A committee moves at the speed of its least informed member and too often is used as a way of sharing irresponsibility.”

Cordiner’s plan was so radical—and so upsetting to the GE rank and file—that it was nearly stillborn.

GE’s appliance division—the makers of refrigerators and ranges, among other things—couldn’t seem to become a market leader or to be particularly profitable. The problem, or so it seemed at the time, was that engineers were designing these products, not marketers or style leaders.

He landed on the plan of pushing as much authority as possible down to the operating levels, empowering division chiefs and the general managers of business units to make the important decisions, with directional oversight from the corporate headquarters on Lexington Avenue.

knew it would be controversial and unpleasant and disruptive. But he decided not to wait. He got the board’s approval during his first board meeting as CEO in January 1951.

individual business managers were given the responsibility to make their own decisions, empowering and frightening them at the same time.

In the new world of GE, there were now one hundred independent operating units, combined into twenty-two divisions that were further consolidated into four operating groups and one distribution group. The four operating groups were comprised of large electrical components, industrial products and lamps, appliances and electronics, and atomic energy and defense products.

To oversee the sprawling operation, Cordiner created the Office of the President, a fancy name for a group of top GE executives who continued to pull the strings from high above Lexington Avenue.

Appliance Park, in Louisville. It was the largest major-appliance plant in the world when it opened in 1952, at a cost of about $200 million.