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William D. Cohan is the bestselling author of The Last Tycoons, the winner of the 2007 FT/Goldman Sachs Business Book of the Year Award; House of Cards; Money and Power; The Price of Silence; and Why Wall Street Matters. He is a special correspondent at Vanity Fair and also writes regularly for The toon meer New York Times, the Financial Times, and The Nation, among others, and is an on-air contributor to CNBC. toon minder

Bevat de naam: William Cohan

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Power Failure is among the first — and I think not the last — comprehensive histories of General Electric, the company traditionally understood as the offspring of the mind and successes of Thomas Edison, following the death of the company’s most famous leader in the modern era: Jack Welch.

Technically, the company is no more. It was broken up under its latest leadership following a series of financial catastrophes, including the 9/11 attacks and the 2008 financial meltdown after the collapse of Lehman Brothers.

Welch ended his 20 year regime in 2001 and lived long enough to blame his successor, Jeffrey Immelt, for tanking the conglomerate. Immelt swung back with a personal memoir called “Hot Seat: What I Learned Leading a Great American Company.”

From his perspective, Immelt blamed Welch for failing to reign in the lending practices of GE Financial, the world’s largest unregulated financial institution until 2008 forced the US government to finally take notice that the subsidiary posed an existential risk to the American economy.

Author Cohan straddles both camps: he sees the built-in problems Immelt inherited while blaming Immelt equally for very poor decision making.

To stay with this theme for a moment, let me say after reading this book that I think the author gives more credit to the individuals than they deserve, both positive and negative.

America and American business changed quite dramatically between the Welch and Immelt years at GE. The 1980’s grossly rewarded business executives for building conglomerates and pummelled those same executives for carrying bloated balance sheets in the 1990’s and beyond.

Jack Welch played his role in the earlier period but there were many other moving parts to the Wall Street culture that took over, including the laissez-faire attitudes of the neocons who captured The White House under Ronald Reagan.

The rise of the vulture capitalists and private equity later sunk big companies and rewarded great risky plays in the tech sector after 2001. Neither Immelt nor many other people could foresee the meteoric rise of Apple, Facebook, Google, or Amazon stock prices, a trend that made virtually all other enterprises look like weak sisters.

But the seeds of change were there long before Immelt and Welch.

For example, the pace of change at the beginning of the 20th century was much more dramatic than at the end.

The young GE had advantages that had an expiry date. It was given license to collude with British Marconi to control and protect hugely valuable patents in the US market. It was permitted to collude with competitors over supplies for building out the electric power infrastructure.

And it had the inside track on a lot of government contracts.

GE didn’t get “Great” by being great. In my opinion, it got great by being useful. To a lot of interests.

And it was given a AAA credit rating which allowed it to borrow money at obscenely low interest rates and loan it out to its customers. This gave it a unique and some would say devastating competitive advantage. Why couldn’t/wouldn’t the banks compete with GE? We don’t find out in this book, although I think we can guess why: at that stage the banks weren’t big enough to satisfy all comers and GE had an incentive to underbid the banks.

GE’s early rise was abetted by an insecure American government. The navy realized early on that Britain’s control over the manufacturing and management of undersea cables and early radio challenged American sovereignty in the lead up to WWI. (See “Nexus: Stratgeic Communications and American Security in World War I,” by Jonathan Reed Winkler.)

It was help from the navy that entrenched GE in the communications industry and the creation of its very profitable and monopolistic subsidiary Radio Corporation of America (RCA).

Cohan speeds through this part of the GE story. He also skates through the rise of activist shareholders during the go-go years of tech, a context which explains much of how Immelt reacted to the pressures of the stock market.

But to return to the Welch years, how much did the Jack Welch way of doing things affect the outcome of the company? This is an important theme of the book. Based on Cohan’s analysis, the reader must conclude that only a Jack Welch-like character could have rescued the company.

Jack Welch could be a bully, a frat boy, but most of all he was a captive of the bias toward bigness. Mining, manufacturing, communications, computers, financial services, construction and on and on and on. One of Welch’s big talents, as told in this story, was to let the data tell him who to keep and who to let go.

One of his most famous talents was to deliver a steady — some would say “managed” — stream of earnings. He gave the illusion that growth was a given even when he himself could see that business was cyclical.

There were good times and not so good times in all businesses, when Welch delivered the illusion that big could always get bigger, and the stock market rewarded him for it. Never, it seems, was the inherent risk in GE Financial’s lending practices ever baked into the price of GE stock…until it was too late.

Welch could have been indicted, on multiple occasions, but in one quite famous incident, District Attorney Rudolph Juliani chose not to. Possibly he saw a major future ally in his political future. This is another subtle way that corruption seeps into American politics.

He used new management techniques to improve productivity. He used loopholes to avoid major tax bills, gifted to GE (and other corporations) by the Reagan Administration.

But he also famously let Roger Ailes escape from CNBC when in 1996 Ailes joined forces with Rupert Murdoch to run Fox News, which became a hugely profitable business.

But stuck in the parallel universe of share prices, management tied their greatly inflated compensation to the performance of securities, not the earnings of the companies, not the risk inherent in their assets, or the buried value in balance sheets.

Early on it was the raiders like T. Boone Pickens who showed that the era of unmanageable conglomerates was coming to an end. The era of private equity splitting off assets, stock buybacks, and lean balance sheets was just revving up.

And now we are into the Amazon era, where a company laser-focussed on growth could mine public markets for really big capital.. where a company like Apple can finance enormous manufacturing with virtually no assets or debt.

Good investment decisions dictate diversification as a balance against the lows of the business cycle. Welchification insisted on being at the top of every business. It is theoretically impossible, but made good sense to the EPS crowd.

Welch was never satisfied with carrying “dogs”. They all had to be champions. And he used the phony profits from the financial industry to manipulate Wall Street. There are no business cycles in this paradigm, and maybe this is why GE missed the Internet Revolution.

One of the weaknesses in this very good book is Cohan’s focus on the horse race, important to Wall Street, but somehow America doesn’t appear much in the story.

Eventually the mantra became “unlocking shareholder value.” We don’t
hear about the new scrutiny of business by Sarbanes-Oxley following the crash and burn of Enron and Bernie Ebbers WorldCom. These were big events.

Sarbanes-Oxley imposed much higher costs to being a public company, replicating governance costs in small business units. Transparency made it difficult to do business the old way. It resulted in lower not higher margins for conglomerates, and helped create a more crowded competitive environment.

Immelt’s transformation of GE didn’t impress the markets because of who it came to be compared against: Microsoft, Apple, Facebook, Google, Netflix, and Amazon.
… (meer)
 
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MylesKesten | 1 andere bespreking | Jan 23, 2024 |
Oh dear. While Cohan writes over 700 pages and has plentiful access to senior GE management, he never addresses my central question - was GE a true industrial powerhouse, worthy of the respect it was accorded in the Jack Welch era, or just a financial house of cards, relying on clever acquisitions and an in-house bank taking increasing levels of risk to keep the machine running? Reading this book, GE is all about acquisitions, until the financial crisis forces the risk at GE Capital out into the open. But what about those industrial businesses we were all supposed to admire? Were they that great? Was six sigma a valuable management tool or just a marketing technique to distract people from the bank lurking in plain sight? If there was rot, as there increasingly appears to be during the Immelt era, what were the sources of the rot? This book forgets why GE was an American icon. Perhaps GE management did too.… (meer)
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as85 | 1 andere bespreking | Feb 16, 2023 |
Unfortunately, the length of the book exceeded my interest in the subject. Still, there was good information here, especially if you were among the unfortunate who held Bear Sterns stock as it plunged from $172 per share to single digit values and wanted to know more about the collapse. But I would have been happier with a shorter book on the subject which omitted some of the endless details.
 
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rsutto22 | 16 andere besprekingen | Jul 15, 2021 |
Too many quotes, not enough analysis.
Flashback structure is hard to handle.
 
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Charles_R._Cowherd | 16 andere besprekingen | Jul 10, 2021 |

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