Power Failure: The Rise and Fall of an American Icon

by William D. Cohan

The Sun Also Rises, “How did you go bankrupt? Two ways. Gradually, and then suddenly.”

After the Gross tempest passed, GE took some steps to reduce its dependence on the commercial-paper market.

One of the requirements for keeping the AAA credit rating was that GE’s commercial paper could not be above a certain percentage of its overall debt.

Moody’s had sent Bunt a letter “months earlier” warning him that if GE didn’t improve its “liquidity,” then GE would lose its AAA credit rating. “Our Treasury department never responded,” Jeff wrote.

Gretchen Morgenson, then the assistant business and financial editor at The New York Times, wrote a technical but devastating piece for the Sunday business section in April 2002, asking the question “What devils lurk in GE’s details?”

Summing up Immelt’s style of leadership, Nayden remarked that Jeff was just “a salesman” who didn’t listen to others or take their advice. “He always made up his own mind,” Nayden added. “He decided what he wanted to do, regardless of what anybody else said.”

The absolute size of the retirement package and its quirky details were shocking enough—especially for a man already worth around $900 million. But the fact that GE had failed to make the extent of the agreement public in 1996, the year the GE board and Jack agreed that he would extend his stay atop the company until he was sixty-five, was further distressing.

“including access to company aircraft, cars, office, apartments and financial-planning services,” as well as reimbursement for “reasonable” travel and living expenses.

In a separate affidavit, as part of the divorce proceedings, Jack confirmed that he was raking it in, and that he was fabulously wealthy. His annual pretax pension from GE was $7.4 million, netting him $4.3 million in cash per year. From his various consulting and self-employment schemes, Jack was getting another $8.2 million a year, or $4.5 million a year after taxes. His annual dividend payments were $2.6 million a year. His taxable interest income was $354,000 per year; his nontaxable interest income was $6.7 million per year. His director’s fees were $41,000 per year. He was also entitled to Social Security payments of $18,000 per year. Jack helpfully shared that his annual after-tax income was just about $17 million. Jack also revealed that his annual living expenses were about $4.4 million, the majority of which, $2.4 million, was to reimburse GE for the personal use of the benefits that GE provided for him (after he had decided to give them back in the wake of Jane’s filing). His monthly expenses for his homes were more than $50,000. He spent $20,000 a month on accounting services and

$5,500 a month on country club memberships. He paid $14,000 a month in life insurance premiums and $2,500 a month in property insurance. He spent nearly $9,000 a month on food and beverages but only around $1,900 a month on clothing. His personal charitable giving was only around $600 per month, but his affidavit explained that the John F. Welch Jr. Foundation donated $3.1 million in 2001. Things got more interesting when Jack shared the value of his assets. His homes in Fairfield, Connecticut, and in Nantucket were valued at $10 million each. His home in Lost Tree, Florida (just north of Palm Beach), was valued at $3.5 million—Suzy Welch sold it for $21 million in April 2020—and his home in Southport, still being built, was valued at $6.75 million. (It sold in 2007 for $10.75 million.) In sum, Jack valued his real estate at $30.6 million, including two parcels of land in Palm Beach and the one in the Berkshires he had bought when he left Pittsfield for Fairfield. As of September 2002, Jack had nearly $250,000 in cash. He had nearly $250 million invested in bond and equity funds, as well as $14.2 million invested in limited partnerships—essentially private-equity funds. The net present value of Jack’s GE options was $73 million. The net present value of his after-tax deferred compensation from GE was about $30 million and of his “executive salary” another $22 million. A grantor trust he set up in 2001 was worth, net of taxes, $36.5 million.

Jack fought back. He told the Journal that Jane’s filing and the subsequent New York Times story were taken out of context.

He agreed to rescind all of the perks except for the office space and administrative help that former GE chairmen and top executives traditionally received upon retirement.

He thought GE was benefiting disproportionately by having a finance company attached to an industrial company.

The main point of Suria’s presentation was that, by 2002, GE was little more than a huge unregulated bank—in

referred to GE’s financial services business as “a rapidly growing black box.”

he quoted GE’s slogan “We bring good things to life” and added, “We bury the bad ones.”

One of Suria’s main concerns about GE was the way Jack, and then Jeff, had mesmerized people about the company. They had convinced Wall Street research analysts—who by and large were industrial analysts, not financial analysts—that GE Capital was only 40 percent of GE’s earnings. Or 45 percent of GE’s earnings. And then 50 percent of GE’s earnings. But that was the wrong way to think about it, Suria argued. Given that GE Capital was nearly 90 percent of GE’s assets and that those assets were leveraged eight to one, there was a gargantuan unappreciated risk on GE Capital’s balance sheet.

Jack’s greatest trick, Suria conveyed in his presentation, was to find the right messengers and to speak to them in their language. Jack spoke to the industrial research analysts; if GE’s Wall Street analysts had had a financial focus instead, they theoretically would have been less likely to fall so consistently head over heels with what Jack and Jeff were feeding them. That would change.

Jeff’s vision for GE was becoming apparent. His GE would be “mining the growth in the old, core industrial business,” he said, that “bore the brunt” of Jack’s cutting; selling more GE products globally; and investing in GE’s research and development centers. Focusing on manufacturing and innovation, the argument went, would help to dispel investors’ concerns that GE was a black box.

Jeff’s determination to remake GE began to be seen in 2003. Whether he was driven by a desire to undo what Jack had done or by the slow return of investor confidence in the company almost didn’t matter. After a tough eighteen months, he decided the time had come to do some big, transformative deals in an effort to remake GE with his bright ideas.

After his rough education in the credit markets, he also remained determined, if he could, to reduce GE Capital’s outsize weight on the conglomerate’s balance sheet. He needed to dilute what Jack had called “the Blob.”

“And this is one thing that I know as a leader: if you want your team’s respect, you’ve got to read their work. I think Jeff lost most of us in the first meeting. We all turned to each other and said, ‘He didn’t read the deck.’ ” There would be consequences.

(But, Jeff later conceded, the effort was “a mistake.” GE overpaid for each business and found itself unable to create a differentiated product. The business was sold to Suez in 2017 for a gain.)

“GE Wind went from a money loser to a tremendous winner. By improving both the technology and the business model, we created a $12 billion renewable wind business” that brought together the many components of GE’s unique expertise to make it possible, from the power and locomotive businesses to aircraft engines and GE Capital.

At the same time Jeff was selling, he was also buying commercial and consumer finance businesses.

The year before, he had rejected the idea of growing NBC but then changed his mind.

In one of our first interviews, Jeff was blunter. The Universal deal and the Amersham deal were part of his drive to revitalize GE’s industrial businesses. Jack, he

He explained to me that at most of his meetings early on his tenure with Wall Street M&A bankers, their advice was to sell NBC. “You’re not doing anything with it,” he was told. “It’s a wasted asset. You’re not investing in it.”

in my private executive dining room.”

Despite extensive oversight, none of us saw then, or over the intervening years, how toxic the investments GE had made in the late 1990s”—take that, Jack!—“would eventually become.”

After all, what trouble could two little stub businesses—Union Fidelity and ERAC—cause the mighty GE?

It would take years to play out fully, but Jack, for one, counted the failure to include the long-term health care liabilities into Genworth as one of Jeff’s major blunders.

which long-term care is the biggest example—that could kill the company.”

The biggest thing he didn’t have that Jack had in spades was people skills.”

GE let the problems at Union Fidelity and ERAC fester in an office park in Kansas City.

nobody was saying, ‘Get rid of this thing because in ten years it’ll be toxic.’ ”

And then there was Jeff’s decision to buy WMC, a subprime mortgage broker that GE Capital bought for $500 million in April 2004.

At first, the Wall Street investment banks bought the mortgages from the mortgage brokers and packaged them up into securities and then sold them off for big fees. The manufacture and sale of mortgage-backed securities was very, very big business on Wall Street in the years leading up to 2008. As demand rose for the securities and the supply of new mortgages began to dwindle, the quality of the mortgages packaged into securities began to slip, meaning that mortgages made to people who might not be able to pay them back were finding their way into mortgage-backed securities. To try to guarantee a steady supply of mortgages—the raw material of the mortgage-backed security—Wall Street banks began buying up mortgage brokers.

by the mid-2000s it was doing pretty much everything banks do for corporations and for small and medium-sized businesses, making loans in nearly every imaginable configuration to nearly every imaginable industry.

The problem for GE was that, as with the other mortgage originators, the quality of

WMC’s mortgages was deteriorating rapidly in the years after GE Capital bought it.

But in truth, Jeff was beefing up GE Capital in new and different ways. He started rebranding GE’s more than three thousand banking and consumer lending offices around the world—in forty-one countries, though not the U.S. or the UK, which he believed to be too competitive—as “GE Money,” a kinder and gentler way to bank.

“He talked down to the board. He had this attitude of superiority. And the board let him have it, including me. . . . This fucking guy lied.”

Jeff was always coming up with new ideas, new initiatives. He wanted to out-initiative Jack. To help him pull this off, Jeff leaned heavily on Beth Comstock, a former NBC senior vice president of corporate communications whom Jack had promoted to be head of GE’s communications effort.

had been written many times, investors believed GE was akin to a black box. In the face of demands for more transparency, Jack had told people that if he had to give people more transparency, “then it’s over,” with the implication, according to someone who heard him say it, that GE is “a black box and we like it that way.”

BBDO came back and said that GE and Coca-Cola were the two most recognized brands. “Your slogan is fantastic,” the admen told Jeff. “Don’t change it.”

Like many of these initiatives, one Jeff pushed for, “Ecomagination,” was plenty controversial inside GE.

presented Comstock with “half an idea” about how GE could implement Jeff’s inchoate thoughts about an environmental strategy across many, if not all, of the company’s product lines. “Comstock knew I always had my eye out for internal innovations that could be implemented horizontally,” he continued. Jeff wanted to grow GE’s revenues, which was not an easy thing for a company with revenue of around $150 billion already, in 2004. He also wanted GE, then 112 years old, to “look and act younger.”

In late 2004, under Jeff’s stewardship, Comstock presented “Ecomagination” to the Corporate Executive Council, the top thirty executives, in Crotonville. “I think we’re on to something,”

“There were only two people in the room who wanted to give Ecomagination a chance: Comstock and me,” Jeff said.