The business headlines over the past few weeks have centered on former General Electric Chief Executive Officer Jack Welch. In years past, this would not have been odd, because Welch was generally considered one of the great CEOs in American business history. But all of the recent news involves his retirement package, which seems to many to be excessive. Welch is being mentioned in the same sentence with disgraced executives from Enron and WorldCom. This is unfair.
Jack Welch earned his company and its shareholders billions of dollars during his tenure. But with the recent allegations of corruption and mismanagement at companies such as Enron, WorldCom and Tyco, market watchers are on the lookout for excessive corporate enrichment at the expense of shareholders. Critics believe that they have found the perfect example in Welch and his retirement package.
According to a column in The Washington Post ("Jack Welch and 'class envy,'" Sept. 17), Welch's package included a free apartment in New York, satellite TV in all four of his homes, tickets to the U.S. Open and Knicks games, meals, laundry, flowers and a host of other things. Anyone will recognize that this is an example of overindulgence, considering that Welch is worth hundreds of millions.
Because of the negative publicity that the retirement package has gotten, Welch announced last week that he had renegotiated the package. He has given up all of the benefits and perks described above and will settle for funding for an office and administrative support ("Welch cuts back perks," The Washington Post, Sept.17).
While Welch was right to renegotiate his retirement package to avoid criticism for the company
-- which he had worked so hard to make prosper-- the outcry over the original retirement package was unjustified.
His retirement package was certainly excessive, and Management Prof. Thomas S. Bateman of the McIntire School of Commerce -- a specialist in organization -- said as much in an e-mail interview. Bateman said, "The retirement package was over the top exorbitant and now embarrassing, but at the time it was agreed to, [1996] business conditions were different; there was success everywhere, including exceptional success at GE."
Bateman adds that the main points of the scandal are that the retirement package was not illegal and the issue was that shareholders did not know about the extent of the benefits.
Welch and the GE Board of Directors certainly overdid the retirement package. But it did occur in the booming 1990s before the market went down and corporate corruption became nightly news. Welch and GE were wrong to agree to the retirement package and then not to fully disclose it to GE stockholders, but this was simply bad judgement, not bad ethics.
Details of the retirement package came out during Welch's current divorce proceedings, which followed his very public affair with former Harvard Business Review Editor Suzy Wetlaufer ("Jack Welch in unlikely company," The New York Times, Sept. 16).
But the main issue is that as CEO of GE, Welch performed very well. According to The New York Times, "He made many people rich, not only himself. During his tenure, GE grew from a hodgepodge of businesses with $25 billion in revenue to a much more profitable machine with $130 billion in revenue. Its shares rose 2,876 percent in the same period."
But times change, and it is understandable why current GE stockholders were not happy when details of the retirement package became public. The company has been performing badly and, according to the New York Times, its stock has fallen 32 percent since Jan. 1. But current stockholders should realize that the reason why General Electric stock ever got as high as it did was because of Welch.
Amid the scrutiny over Welch in recent weeks have also come allegations that the accounting department at GE may have overstated the company's earnings during Welch's tenure. If this turns out to be true, then Welch will deserve to be lumped together with the corrupt executives of corporate America. But this is a big "if," and there has not been significant evidence as of yet to back this up.
Welch probably has more money than he knows what to do with. But he made this money for himself -- and not only for himself, but also for his company and its stockholders.
In our zeal to point out corporate wrongdoing, we should not use a man as a scapegoat simply because -- after making billions for his corporation -- his company wanted to give him something back in retirement benefits and went overboard. The shareholders of GE made a very handsome profit during Welch's tenure. If only the shareholders of Enron and WorldCom had been so lucky.
(Harris Freier's column appears Fridays in The Cavalier Daily. He can be reached at hfreier@cavalierdaily.com.)
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