Welch Case Study
This particular case discusses whether General Electric fulfilled its Corporate Social Responsibility under the leadership of Jack Welsh or if it just met basic obligations - Welch Case Study introduction. It also displays the evolving idea of social responsibility in a corporation by contrasting the corporation’s actions during Welsh’s leadership and after Welsh retired. It is shown that Welsh had a classical economic view of social responsibility. General Electric followed a traditional business model while Welsh was working and a progressive business model after he retired. He used a cutthroat ranking system based off of social Darwinism in order to sort out the “best” of his employees. Lastly, it displays that norms and principles are always changing according to corporate social responsibility and that corporations should act in response to those changes.
1. I do not believe that GE in the Welch era fulfilled their duty of corporate social responsibility. They did not avoid harming the environment because they dumped toxins into the Hudson River. During the Welch era, GE did not make any efforts to enhance any societal assets; they only supplied the minimum of what they needed to create wealth for the company. They did not try to protect their employees or go beyond what is necessary. Many pressures, including the vitality curve evaluation system, were purely performance driven. Though job cuts are necessary for the survival for a business, it seemed like they treated their employees as a resource instead of human beings. For example, the GE Pension Fund could have provided retirees and their unions with more benefits but instead Welch wanted to leave the pension plan overfunded to benefit the corporation. He failed to attribute any credit to GE’s former employees for the company’s success.
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General Electric’s corporate social responsibility could have been done in a much better way. First, they could aim to prevent environmental damage caused by their company. If they could not prevent environmental damage entirely then they could at least perform actions to decrease any harm previously done. Then they change the evaluation system by “loosening the reigns” and making the system less callous. This would prevent any unnecessary pressure from being forced onto employees. This change would improve teamwork and decrease backstabbing. It will also allow for more diversity at the top and would help prevent any once middle range managers from being cut. GE could have evaluated employees and then restructured their hierarchy by placing the more talented managers at the top instead of solely using a “firing” system. Finally, Welsh should have also kept his personal opinions separate from his business world. Though Welsh could have disliked overweight people, he should not have treated overweight people differently in the workplace.
2. Yes, I think that GE under Welsh displays a view of corporate social responsibility that is closer to Friedman’s view. Welsh shared Friedman’s view that spending corporate funds on social projects diverts shareholder’s dollars to programs they may not even favor. Welsh consistently gave back to GE’s shareholders but neglected to create any funds for social projects. GE under Welsh’s era only focused solely on the first inner circle of responsibilities. The inner circle includes responsibility for efficient execution of the economic function resulting in products, jobs, and economic growth. GE clearly executed this inner circle of responsibility by being extremely profitable, paying taxes, enriching shareholders, and making many of its directors and managers multimillionaires in GE stock. In GE Welsh did not practice an intermediate circle of responsibility because it did not exercise its economic function with a sensitive awareness of changing values and priorities, especially in relation to environmental damage. During this time there were many changing values of incorporating diversity in the workplace, protecting the environment and preventing damage, and the change of business ethics. The view of corporate social responsibility was changing to a model more similar to the progressive business model yet Welsh adhered to a strict traditional business model. GE especially ignored the outer circle of social responsibility because it did not try to improve the social environment by any means.
3.Overall, Welsh’s GE met less than half of the general principles of corporate social responsibility. GE religiously followed the principle that corporations are economic institutions run for profit. Welsh’s highest concern was economic and he was not afraid to suffer short run costs to society if they promised long-term benefits. The only aspect they did not meet for this principal is that they did not seek ways to solve social problems at a profit. They simply did not seek to solve any social problems at all. The only principle that was generally highlighted by GE was that managers should try to meet legitimate needs of multiple stakeholders. The corporation always tried to bring in the largest gains for their shareholders.
Welsh’s GE failed to follow the principles of multiple bodies of law, act ethically, to correct adverse social impacts they caused, to vary social responsibility according to company characteristics, to comply with a social contract, or to be transparent and accountable. GE encountered a pattern of criminal cases during this time and therefore did not follow multiple bodies of law, act ethically, or be transparent and accountable. Since GE caused the pollution to the Hudson River and Welch refused to fund the dredging, they did not correct adverse social impacts they caused. Welsh neglected to comply with the social contract because he did not treat retirees or employees fairly and acted as if they were a disposable component of the corporation used solely to bring in profits. Lastly, GE did not vary its social responsibilities with the company characteristics. GE was a very large corporation and because of that they should have rewarded their retirees and employees generously with benefits. Because they were a very large corporation that can affect the environment, they should have tried to prevent any damage done to the earth.
4.The pros of ranking shareholders over employees and other stakeholders would be that there is more money and profits. Because Welsh had a classical economic view of corporate social responsibility, the shareholders were his primary concern. The cons would be that employees and other stakeholders would become discouraged due to the shareholders being put first and ultimately they would not want to be associated with that company. If the employees feel worthless to the company then they could become unmotivated and hurt GE’s profits. Another con would be that they are not fulfilling their underlying social contract and could lose the public’s support. I do not think that it is specifically wrong to view employees as costs of production, because technically they are a resource to the company and are contributing human and physical capital. On the other hand, I believe that “these sources of capital” should be handled with care and that the employees should be seen as human beings as well. Ignoring the fact that employees are human beings could lead to unethical acts and violation of GE’s social contract. Overall, it is okay to view employees as costs of production, but acting unethically because of this belief is wrong. I think that GE should have rebalanced some of its priorities. They should have viewed their shareholders, employees, and other stakeholders with equal importance. Their employees and other stakeholders should not be viewed as less significant in the company because they represent a large portion of it. Even though they do not directly bring in as much money as GE’s shareholders, they deserve to be treated fairly and ultimately help create profits in the long run.
5.GE was much more socially responsible in the Immelt aftermath. The Immelt era offered more benefits to society. Immelt benefitted the environment enormously in comparison to Welch by agreeing to a clean up of the Hudson River, by cutting GE’s emissions, and by launching GE’s “eco-imagination” initiative.
Immelt also benefitted his employees and society much more than Welsh. He loosened Welch’s guidelines for the ranking process, putting less unnecessary pressure and stress on employees. He also showed appreciation for diversity in the top management positions by promoting the progress of women in management through research on sexism. He was more responsive to GE’s social and environmental impacts and the company became the second most socially responsible company under his leadership. One advantage that Welch had over Immelt was his popularity with the shareholders. Though shareholders viewed Immelt’s leadership negatively at first, in the end they still gained on their investments throughout the course of 9 years. It was not a large amount of growth but it was 82 percent better than GE’s return alone. This showed that GE could be lead differently, without the use of Welch’s harsh tactics, and still continue to profit.