The fall from grace of Jack Welch and Percy Barnevik may herald a more modest style of corporate leadership
Ask almost anyone to name the two greatest industrial managers of the 1990s, and they'll mention one American, one European: Jack Welch, who created the modern General Electric , and Percy Barnevik, the cool, cerebral Swede who created the Swiss-Swedish engineering conglomerate ABB.
Both were brainy, dynamic leaders. Both showed a rare ability to revitalise old-fashioned industrial conglomerates that could easily have turned into fodder for the private equity industry.
And both, even more rarely, talked brilliantly. They could articulate what they did in a way few industrialists can.
Yet in the space of a few months, the reputations of both have crashed and burned. Welch is going through a messy divorce at the same time a relationship with a former editor of the Harvard Business Review became public. The press has played up a list of retirement perks from GE, including a New York apartment.
More seriously, GE has been scrutinised for its accounting methods, and has seen its share price slump.
The shares are down from $60 at their 2000 peak to $26 now. It's reinsurance and private investment units have been losing money, and its GE Capital division, once the ace in its pack, has been split up.
Barnevik has suffered an even worse reversal of fortune. After stepping down as chairman of ABB, he was forced to return some of his retirement pay: he and another former chief executive Goeran Lindahl received $138m between them. He was forced to stand down as chairman of Investor AB.
More seriously, ABB, the company on which his reputation rests, is now tottering on the brink of collapse.
Its shares fell as much as 69% as it abandoned its profit target, said it planned to sell units accounting for about a third of sales, and said asbestos claims were rising. The third-quarter loss was $183m, up from a $13m loss in the second quarter.
Barnevik was celebrated by the management theory crowd. Tom Peters, co-author of In Search of Excellence, had this to say about him when naming him in 1993 as his 'visionary boss'' of the year:
'Percy Barnevik has gotten lots of attention from me in the past. He'll keep getting it. Barnevik makes a mockery of other hierarchy flatteners. The Barnevik test of genuine corporate transformation is one that few big firm CEOs can pass.''
Likewise Welch. GE under his control was voted America's most admired company by Fortune. An Amazon search reveals a library of books canonising him.
Consider just a few of the titles: 'Jack Welch & The GE Way: Management insights and leadership secrets of the legendary CEO'', 'The Jack Welch lexicon of leadership'' and 'Business the Jack Welch way: 10 secrets of the world's greatest turnaround King''.
The pulping factories are going to be busy with that lot. What is collapsing here is not just the share prices of two companies, and the reputations of two CEOs. It is a certain style of industrial manager, the CEO as superman.
Welch was superman number one. Barnevik was Welch's mini-me: a smaller version of the original cast in the same mold. The two leaders identified totally with their companies, and ran them as personal fiefdoms.
It is hardly surprising they came to think of themselves as owners rather than managers, which helps explain the rewards they took.
Owners get paid even when they have left; managers collect gold watches and clear their desks for the next guy. Both men crossed that border, at least in their own minds. More significantly, they believed that companies could be modelled on their personalities.
Neither succeeded. When Welch and Barnevik departed, GE and ABB were revealed to be odd collections of business, some in good shape, some not. GE makes jet engines and electronic equipment, runs fund management and insurance businesses, and owns the NBC television network. What without Welch holds it together?
Likewise ABB. It makes electrical engineering equipment, owns oil, gas and petrochemicals businesses, and a financial services unit. In a ten-year period, it acquired more than 200 companies. Now it appears to be unraveling.
Both men rose on the myth that there was an exact science called 'management': a science they had mastered, and which could be applied to any business. That was what allowed them to get away with so many deals. The reversal in their fortunes reminds us we don't really know what makes good managers. Maybe it's the opposite of CEOs as supermen, quiet specialists who know their businesses and exhibit modesty.
The discrediting of the superman myth tells us something else: over-mighty conglomerates with over-mighty leaders are almost inevitably heading for a fall.
Bloomberg newsroom, London
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