[00:04:26] William Cohan: So here I’m embarking on this book. I have one of my friends who is, you know, by then the former CEO. I happened to have a house on Nantucket, which of course is where a lot of GE people live, including Jack Welch and others.

[00:04:44] William Cohan: And so I found that this network was opening up in a good way for me to write this book, to get insights into it. I, when I was at Columbia Journalism School, which was a few years before I went to Columbia Business School, which is a year-long program, out of the blue, one day I got asked to go on a GE trip to visit GE’s lighting facility in Cleveland, where they made the light bulbs, and on the same day go to Louisville, Kentucky to their major appliance facilities. 

[00:05:21] William Cohan: I have no idea how this came about. I have no idea why I was selected. I have no idea what was going on. But I did spend a day on a GE private jet going from New York to Cleveland and then to Louisville and then back with about a couple of GE executives and some Columbia J School classmates. So that was obviously quite revelatory to me and I’d never seen anything like that before. Never been on a private jet, obviously before.

[00:05:55] William Cohan: So that sort of left a curious and positive taste in my mouth. And then worked there, and in that there were ups and downs, like any job but. I found it sort of paternalistic in a nice way. There were probably these crazy trips that they would take you on even if you weren’t like the top performer. You still gotta go on a trip. They noticed some golf resorts for a few days, they got me a car to commute from New York to Stanford and it was like a BMW. They got me. 

[00:06:35] William Cohan: So I’m thinking, okay, I’m sort of working tangentially to Wall Street. I’m working on interesting things. Wall Street had blown up in October of 1987 and GE Capital sort of got stronger and stronger even though the rest of Wall Street was suffering. So it was all looking pretty good for me, and I think I got a good  sense of the culture. That helped me tremendously when I was thinking of what to write in this book and what to say because, again, as you said, there are so many myths that are created about Jack and GE and a lot of it promulgated by the company itself. It was just helpful for me to sort of be able to cut through that and know, have a sense of what I was really writing about and reporting about.

[00:07:31] Trey Lockerbie: At one point, Jack Welch was so revered that GE was known as the house that Jack built, but Jack began working at GE nearly 70 years after it was founded. The origin story of GEs fascinating and involves legends like JP Morgan, the man, Thomas Edison, who you know has over something like a thousand patents, Charles Coffin and others.

[00:07:53] Trey Lockerbie: How did they all come together to create what ultimately became a company synonymous with America itself? 

[00:08:01] William Cohan: Well, again especially as I was researching the early history of the company, which of course I didn’t know much about, there were, there were a number of interesting revelations, one of which was GE liked to promote the idea that Thomas Edison was the founder of the company which is great.

[00:08:22] William Cohan: I mean, who wouldn’t want to have Thomas Edison be a key part of a company? It immediately implies great technological innovation and creativity, I think. Thomas Edison is obviously one of the great entrepreneurs slash inventors in our country’s history, so no doubt that was useful.

[00:08:42] William Cohan: If you go to the research lab in MIS in New York as soon as you walk into this huge lobby, it’s all Thomas Edison all the time. Well, what I discovered was that that actually wasn’t really true. It was part of the mythology. Thomas Edison, yes, had created a company called Edison General Electric to sort of capitalize on his creation of perfection of the light bulb and the generation of electricity, both of which were of course, incredible innovations.

[00:09:12] William Cohan: He wasn’t a great businessman. He did that with the help of financing from JP Morgan, the man. And others. And at the same time that Edison General Electric was around, and by the way, at this point in the early 1890s Henry Valard was the CEO of Edison, general Electric. Not even Thomas Edison.

[00:09:33] William Cohan: Thomas Edison was just a shareholder. And there was another competitor named the Thomson Houston Company that had gone into bankruptcy and had taken over by this fellow Charles Coffin that you mentioned, who’s up in Lynn, Massachusetts. And he was backed by Boston Venture Capitalists Henry Higginson among others.

[00:09:52] William Cohan: And basically the venture capitalists decided these two companies should be put together, merged to form what became GE General Electric. Thomas Edison was very much against this merger. He did not want it to happen. He threatened to quit. He tried to block it on several occasions, but of course, the money Man prevailed.

[00:10:13] William Cohan: They went around him and announced the merger of the company. Reducing Thomas Edison’s role in management completely, and then making him a relatively small shareholder, he quickly sold out of those shares and went off to New Jersey to try to perfect some sort of limestone mine or something, which didn’t really work out.

[00:10:34] William Cohan: And that was 1892. And then one just quick note in 1893 there was a financial crisis, the panic of 1893. And if it hadn’t been for some clever engineering financial engineer, GE would’ve gone down the tubes in 1893 because it had 10 million of debt, which was a lot of debt at that time, and they’ve ended up buying back the debt at a discount thanks to JP Morgan, the man.

[00:10:57] William Cohan: And so right off the bat, you have a merger that takes place over the objection of the quote founder. And you then have the company in perilous financial situation only to be resolved through some clever financial engineering. And so those two strands of the DNA of GE are very important and sort of play out through the next hundred 30 years.

[00:11:19] Trey Lockerbie: And Charles Coffin is a name that’s often overlooked or overshadowed by some of the other names we mentioned. Researcher Jim Collins once claimed that Coffin, not Welch, was actually the greatest CEOof all time. And in his words, Edison was essentially a genius with a thousand helpers. And Coffin created a system of genius that did not depend on him.

[00:11:42] Trey Lockerbie: And while he struggled in the early years after the big merger, which like you mentioned, Edison was very much opposed to, he then became a major innovator in a lot of different ways. From your research, how do you view Coffin and, and how he fits into this whole story? 

[00:11:56] William Cohan: Absolutely. He’s definitely one of the more  interesting characters, completely overlooked.

[00:12:03] William Cohan: Which is a shame. He deserves a serious treatment, which of course I tried to give him, but I wasn’t writing a biography of him. He grew up in Maine and with his family, he went to work for his uncle’s shoe manufacturing company outside of Boston. And again, I just see so many parallels to today.

[00:12:25] William Cohan: Shing manufacturing was competitive, not particularly sexy or profitable, but there was this other business called the generation of electricity, which was new and exciting and innovative and had the potentials like say the internet no, a hundred years later to really. Fast forward to be a quantum leap forward in the way people live their lives.

[00:12:49] William Cohan: I mean, if you can imagine, Trey, if you’re used to lighting your home with a wood fire or candles or with whale oil, comes along.  Electricity and the electric grid and electric power, which you know, seems utterly mysterious, right? I mean, there’s a total black box. You, whenever you did you flipped a switch or whatever you did, and next thing you know, you had a light bulb that lighted up.

[00:13:15] William Cohan: I mean, that had to be a mystery. Like in the same way that you turn the key in a car and the engine goes on and next thing you can drive yourself away. I mean that this obviously was a huge innovation, a huge leap forward, but also scary for people. And often people would reluctantly hook up to Coffin’s, GEs electric grid and then their fire would result and their business would turn down.

[00:13:41] William Cohan: So adoption of this took a lot of time and didn’t happen overnight. And I think Charles Coffin really saw the way to do this and by merging his company with Edison General Electric and becoming GE and basically having kind of a monopoly on this business in the the population Centers of America at that time, the New York City and the Northeast Thomson Houston company was a lot more profitable than Innocent General Electric.

[00:14:05] William Cohan: And I think JP Morgan, the man and Charles Coffin’s backers saw that too. And that’s how this is. Merger occurred and, and after the near fiasco of 1893, he resolved of course to have a fortress balance sheet to never have much debt at all if he could avoid it. And then he just became a great leader of men.

[00:14:25] William Cohan: He selected a smart successor. He really was. I have to agree with Jim Collins on this. Definitely the right man at the right time, who’s unfortunately often overlooked 

[00:14:39] Trey Lockerbie: GE became so large that Ralph Corer, if I’m saying that correctly, was its newly appointed CEO. And he chose to decentralize it.

[00:14:48] Trey Lockerbie: And given my bias towards companies like Berkshire Hathaway and Constellation Software and, and others, I found it surprising to hear the issues that GE endured as a decentralized company. So talk to  us about how this change led to executives breaking the law using circuit breakers and just the general idea that sometimes decentralizing something isn’t the best way to go.

[00:15:10] William Cohan: Yeah, I mean, obviously when a company has got sort of like a command and control approach, there can often be more accountability. It’s clear where the lines are and where the lines that you can’t break or you can’t ignore or violate. But also that can sort of stifle innovation, stifle creativity, and stifle management development.

[00:15:39] William Cohan: And I think what happened in the case of GE was getting to become a bigger and bigger company, more bureaucratic, sort of stagnating in terms of growth. And so I think the idea that Ralph Cooner had was to try to push down responsibility into the organization and to pull back a little bit on the  command and control nature of GEs business with this very powerful central office.

[00:16:05] William Cohan: And that backfired big time during this electric conspiracy scandal where basically the manufacturers of its electric equipment basically started colluding on the price. That they would charge customers. And they had this crazy, I mean, when I came across this, I couldn’t believe it either. I mean this elaborate way of signaling each other and codes that they created.

[00:16:29] William Cohan: And they would meet at these industry offsites and instead of learning industrial wisdom, they colluded with each other on how to set the prices for these various technical electrical equipment that they were pricing and trying to sell to customers. And this was sort of, they got caught and then they’d decide not to do it anymore.

[00:16:50] William Cohan: And then they’d have a down year and then they’d resume the conspiracy. And, and this just went on for a decade until all sorts of GE executives and others got put in jail. And the whole thing kind of. And then they went back to command and control again. And ironically, fast forwarding way far till to now, my friend John Flannery, who became the CEO, brought Larry Culp onto the GE board, who was the former CEO  of  Danaher, which is, I’m sure a company that is famously like Berkshire Hathaway and sort of an glomerate, but without having a very small central authority.

[00:17:30] William Cohan: And John was thinking that GE needed to go back to that to sort of begin to dismantle GE’s big corporate apparatus, which was spending billions a year, sort of, some people thought wastefully. And so he brought Larry Kaban to the board to try to get from Larry his wisdom about his experience at Danaher.

[00:17:52] William Cohan: Unfortunately, what happened was that with the help of. Nelson Peltz founded hedge fund Tri Partners, which had invested in GE at that point, and was a big fan of Larry Culp. They basically engineered a coup that got rid of John Flannery after 15 months and brought on Larry Culp, who in fact dismantled the whole company.

[00:18:14] William Cohan: Hello, in the central office. So what I found repeatedly in the researching and writing of this book was that a lot of themes that were there at the beginning of May we talked about what happened in 1892 and 1893 got repeated later on in its history. Like, one thing I didn’t know either was that after World War I, Withrow Wilson basically insisted that GE create what became RCA Radio Corporation of America inside GE to hold.

[00:18:46] William Cohan: GEs patents in the radio business and its technology that it had discovered in the radio industry, so that after World War I, the British wouldn’t get ahold of that technology and try to one up us  in this new technology of radio. And then in the 1930s the Justice Department forced GE to divest RCA, becoming a public company on its own.

[00:19:10] William Cohan: And then one of Jack Welch’s biggest successes in his 20 year tenure at GE was buying back, well it turned out he was buying it back. By then I was about to go to Wall Street and study this stuff very carefully. And the fact that GE was buying RCA was front page news in the New York Times at that time.

[00:19:31] William Cohan: And it was the largest m and e deal in history at that time, at about six. 4 billion and everybody sort of hailed jack as a hero which of course it was a great deal and smart and clever. They got N B C, but Jack was just buying back a business that GE had started and owned and was forced to divest.

[00:19:52] William Cohan: I don’t think anybody realized that. 

[00:19:54] Trey Lockerbie: Well, let’s talk about Jack because he was a master at m and a. It seems from your book here, the market cap of GE when he started as CEO, was around 12 billion. And when he left 20 years later, it was something around 400 billion. So clearly he did a lot of things right 

[00:20:09] William Cohan: at one point, getting his eyes 650 billion.

[00:20:12] Trey Lockerbie: Oh my goodness. Yes. So yeah, you’re right. So clearly he did a lot right and he was heralded for it. That said, there were some major issues with Jack and his leadership styles. Jeff Immelt nowadays has kind of referred to him as almost like a scoundrel or a villain. And when you read business books growing up, I mean, I think all of us are, at least me personally, I was only really aware of him being just this amazing CEOand he’s sort of like the pinnacle of what you wanna reach for if you’re running a company.

[00:20:40] Trey Lockerbie: But were there any traits about Jack you discovered that don’t quite line up with his reputation as, say, the greatest leader of his era?

[00:20:47] William Cohan: Well, of course my interactions with Jack when I was working at GE Capital and when I went on that trip to the lighting and major appliance businesses were minimal too and, but of course when I started running this book, he agreed to, to spend a lot of time with me and tell me his story and answer all my questions.

[00:21:11] William Cohan: And we spent many hours together before he passed away in March of 20. So obviously I learned, I mean, he was incredibly charming and open and on the record. And it was more than I could have asked for. He was not in the best of health then, but his mind was still sharp. And, but I did discover all sorts of things about him that I think that he could be cruel to employees.

[00:21:38] William Cohan: He could be sort of heartless. He was once known in his early years as Neutron Jack. The idea being. He would fire people and leave the building standing. I think he reduced headcount by like a hundred thousand people. And he felt like he had to do that because GE had gotten very bureaucratic and bloated as we were talking about, and I think he was hired, in fact, by his predecessor Greg Jones to do that.

[00:22:04] William Cohan: So he could be cruel, he would make fun of people for their appearance or their weight or what they wore. He was probably a bit of a more than a bit of a womanizer and treated his first two wives very poorly, I would think. Chances are in this day and age, he would’ve been a target for some sort of me too kind of expose, which probably would’ve gotten him removed from the job at some point.

[00:22:35] William Cohan: So but I think by the rules of the era that he was operating in, he was just sort of like a business as usual kind of thing. I don’t think he was necessarily any worse or better than others in, in some of these social regards. He clearly was a great leader of this company. If one is to judge a leader by.

[00:23:02] William Cohan: Various objective measures of increasing market value, increasing reputation, increasing influence, increasing world of respect. Trey, even when I spoke to a lot of former GE executives who had been fired by Jack and who had therefore lost the opportunity to become his successor, they still praised him and they still professed their love for him.

[00:23:31] William Cohan: And many of them were Pallbearers and his funeral at St. Patrick’s Cathedral. So I was quite taken by that because usually my experience, either my own experience on Wall Street or in writing books about Wall Street and other things there’s not a love, a lot of love that people have.

[00:23:49] William Cohan: Their boss is sort of where they’re treated in these situations. But despite Jack being one tough son of a gun, the people who worked for him really admired him, felt that they enhanced their careers and got more out of them than anybody else could have. And by the way, I think there’s a contrast there with what people felt about Jeff.

[00:24:10] Trey Lockerbie: You mentioned him, the nickname Neutron Jack, and as he described, he sort of despised bureaucracy. He would routinely fire 10% or so of the workforce, and at one point I think he cut half of the consumer products division. He wouldn’t quote unquote suffer fools around him. It seemed, and this is like, this was an asset, I think, early on in his career because that’s what got him so far ahead and he would really push people to hit their numbers.

[00:24:33] Trey Lockerbie: But did he soften over time? Like it seemed like at one point maybe his management style needed to change once he kind of became ahead of the company, because people can only take so much of the hardness as you kind of described it. Did you see a change or when you met him, had he softened at all or was he still kind of that same neutron jack?

[00:24:51] William Cohan: Well, of course he hated that label because of what it implied. So at the same time, he could sort of be ruthless about the need to reduce the bloat in the GE bureaucracy, which I honestly think you have to do, even though it means that real people who have devoted themselves and their careers to this company may lose their job.

[00:25:15] William Cohan: And so that’s of course harsh. And I do think at the same time that he could do that and do what needed to be done. There people would tell me stories of, some guy told me a story of how he met him on the beach and Marblehead Massachusetts, north of Boston, and the guy remembered his name and his wife and asked about his kids.

[00:25:36] William Cohan: I mean, Jack just had this real connection with people. There was a certain magnetism there, magnetic pull towards him. And I of course found that myself when I spent time with him, he was incredibly charming and open as I said. And more than that, like I would go to lunch with him or out with him and people would come up to him just to say hello.

[00:25:58] William Cohan: I mean, he was  just like, this had a magnetic pull. Even in his later years when he was far much no longer the CEOof ge, he was a legendary figure, unlike almost anyone else I’ve really ever encountered or, or written about or spent time with. So sort of in, in JFK jr. Kind of sphere, it was somebody I knew growing up.

[00:26:23] William Cohan: And so Jack was like that. And I think you’re right. Over time I think he softened, he became less zealous, less doctrinaire, or like he would still. Go into a meeting where they were considering some deal or some strategic decision. And Jack probably would’ve made up his mind early on.

[00:26:44] William Cohan: But he was also capable of having his mind changed and being open-minded enough to entertain a clever and reasonable argument about why whatever is being proposed should actually happen as opposed to not happen. I mean, this is the guy who you know started CNBC. Who started MSNBC, we may be sorry we have those now.

[00:27:04] William Cohan: But nevertheless, he and his team led by Bob Wright and David Zaslav and Tom Rogers and others, created what now are two very important cable networks and had the ability to, or listen to the people who had the ability to see that, say just owning NBCA linear TV network was not going to be enough in the future.

[00:27:30] William Cohan: And so early on within the first few years after acquiring NBC, He was already doing acquisitions for cable businesses and starting these cable channels that other people were way, way behind. And he just had this ability to see around corners, which is incredibly valuable in a leader.

[00:27:52] William Cohan: Now that doesn’t mean he did everything right. I mean, obviously we talked about his personal behavior, which wasn’t so admirable, but you know, after he did the RCA deal, Was so sort of high on his own stash that he decided to buy Kid or Peabody of all things, which was a, a venerable old investment bank that GE and GE Capital had no business merging with it.

[00:28:16] William Cohan: And I was actually there during that time period and that was an unmitigated disaster. But even that, there were scandals and there wasn’t the synergy that he thought. And the GE Capital people were getting paid much less than the kidder Peabody people. And that created a lot of tension.

[00:28:33] William Cohan: But even then, he did manage to get out of it despite everything when he sold what he could of Kidder Peabody to pay Weber and then Pay Weber got bought for 10 billion by UBS, the big Swiss bank. And GE had bought Kitter for like 600 million and obviously put hundreds of millions more into it and absorbed hundreds of millions of losses, but got 2 billion back when UBS bought.

[00:28:59] William Cohan: Pain Weber.  So, I mean, sometimes it’s better to be lucky than good. And Jack’s I have to say Dave Calhoun told me who was a longtime GE executive, who’s now the CEO of Boeing told me it’s a great and incredibly perceptive observation about Jack and Jeff Immelt. Whenever Jack had a major decision to make, he tended to make the right decision.

[00:29:24] William Cohan: Whenever Jeff had a major decision to make, he tended to make the wrong decision. And I think if you look objectively at the facts, that’s pretty accurate. 

[00:29:34] Trey Lockerbie: And that’s what Jack told you first thing when you met him right off the bat. And, and I think you had to do a lot of work there to justify if that was actually case to get it around

[00:29:43] Trey Lockerbie: Yeah. The elephant in the room though, around Jack is this concept of managing earnings, which to me, I read as sort of manipulating earnings. And under his leadership at GE, GE was consistently growing 15% or so year, over year, over year. And the earnings were just so reliable. But that point about Kidder Peabody, I mean, I think at one point they were down 2 billion or something trying to write off, and they, they kind of pulled some money over from the insurance reserves or the reinsurance reserves.

[00:30:08] Trey Lockerbie: So what did you uncover from the research around whether or not Jack knowingly participated in acts of managing earning. 

[00:30:16] William Cohan: Talk about the point that Jack made when I first sat down with him. He would make his points early and then reiterate them every time we would meet. And this was another one of them, like, don’t fall for the people who say, I manage earnings.

[00:30:30] William Cohan: Or in your words, I’m manipulating earnings. Look, even in Jack’s own book, straight from the Gut, particularly around the first kidder Which going to cause GE to miss some earnings that Jack had told the analyst he was gonna make. It writes in the book that he then asked his senior leaders to see if they could find some earnings somewhere quickly, which people have looked at and they did.

[00:30:58] William Cohan: And then he sort of was able to meet the earnings projections he had told analysts he was gonna make, and while also absorbing the kidder unexpected kidder losses. So people look at that and say, well here it is. He’s  admitting to manipulating earnings and earnings that necessarily weren’t there or stealing from the future to solve a problem in the present, robbing Peter to pay Paul, whatever you want to say.

[00:31:23] William Cohan: And so they say, well, Jack Larry, he is admitting to this himself. And I think what I have sort of concluded and figured out is this, this was Jack’s. Mantra. Okay. If I’m the CEO of this company and this company is, let’s just say for argument’s sake, half an industrial business and half a financial company with 650 billion of assets, you know all around it.

[00:31:50] William Cohan: And I am in the business of creating shareholder value. If I tell Wall Street research analysts every quarter, I’m going to make X dollars per quarter per share. And then if I don’t do that, my credibility is lost. With investors, my credibility is lost. With the Wall Street research community, my credibility is lost with Wall Street bankers and I need all.

[00:32:17] William Cohan: Like a lot. I cannot age, I am like the biggest company in the country and I’ve been a key component of the Dow Jones Industrial average since the 1890s. I have a AAA credit rating. I have a responsibility. I was the founder of the Business Roundtable. I’m a big defense contractor.

[00:32:38] William Cohan: All sorts of products that people, everyone in America and maybe even around the world uses and relies on and takes for granted. I have a responsibility to make sure that I do what I say I’m going to do every quarter. So if I can tell two thirds of the way through the corner that my industrial businesses aren’t gonna.

[00:33:00] William Cohan: Aren’t gonna produce what I hope they’re gonna produce. Or if there’s a hiccup along the way, like the kidder thing that I did not anticipate, and I have all of these assets over here in GE Capital that I can monetize either by selling warrants that I obtained by doing a deal, or I own buildings that I got by making equity investments in real estate.

[00:33:23] William Cohan: Or I have loans that I can sell in the marketplace that are even maybe trading above par or where I issued them. Then I’ve got an obligation to do that. And if I don’t do that, that’s kind of negligence on my part. That’s Jack’s argument. And other people see that as manipulating earnings kind of in the Jack Camp on this, that the CEO of this entire company.

[00:33:48] William Cohan: It’s not just an industrial company for better or for worse, and obviously, During the financial crisis, it became a real problem, but it’s also a financial services company and a big one and a big unregulated one, and that, that I’ve intentionally created and allowed to grow and making a lot of money by arbitraging our AAA credit rating, borrowing short and lending long.

[00:34:11] William Cohan: And that’s what he told me, that’s a lot easier to make money in that business than it is to make a jet engine. So I have a responsibility to make sure that I don’t miss my earnings estimates, and I think that’s what a responsible CEOdoes. It’s not like he’s stealing or doing you could say that I guess by doing all these m and a deals, of which he did a lot earnings always got fuzzy and it was hard to tell, to compare one quarter’s earnings to another, or one year’s earnings to another because there was all these, all this noise and the earnings, and yes, there was a lot of that going on, which could probably added to the cloudy picture that resulted in GEs earnings.

[00:34:54] William Cohan: It was a complicated company. Incredibly complex. But for a long time, like during Jack’s years and even into some of Jeff’s years, the market kind of loved this company in the same crazy way. The market loves Tesla today. There’s not much difference. I mean, they reward Tesla. Absurd multiple of earnings.

[00:35:12] William Cohan: They rewarded GE with this absurd multiple of earnings. At one point, people came to their senses and GE came back down to Earth leading to the breakup. At some point Tesla’s going to, investors are gonna realize that Tesla’s really just in the end, a car company. It’s not like a car company that’s landing electric cars on Mars, and we should all be rejoicing.

[00:35:34] Trey Lockerbie: So Jack while he did have those amazing m and a moments with RCA, as you mentioned, and and some innovations around media, he could have taken GE into the next generation, but he had made some questionable decisions like selling off the computer business at one point to Honeywell, and then later trying to buy back Honeywell.

[00:35:49] Trey Lockerbie: But then walking away, when you met Jack and you were talking to him about these kinds of moments, did he seem like a man with any regrets? Do you think he would’ve gone back and done anything differently, or was he pretty resolved in the decisions he made? 

[00:36:02] William Cohan: Oh, well, of course, the very first thing that he said to me when he sat down at our first lunch at the Nantucket Golf Club was that.

[00:36:09] William Cohan: He regretted his choice of his successor. So this is a man whose biggest decision that he made as CEOwas one that he ended up regretting. That’s a pretty big thing to admit to, and he was very frank about it repeatedly. So that sort of startled me. And so sort of right from the start, as I was reporting this book, I knew that this was not at all what I thought it was gonna be and that there was this incredible story about how that happened when it came to business decisions.

[00:36:42] William Cohan: Yes, he obviously regretted Kitter, but you know, he gave himself high fives, stir making chicken salad at a chicken shit Honeywell. Now, now I look at the Honeywell situation, he certainly had no regrets about getting. So Utah International, which was a mining company that  his Brenda Answer had bought or got or he certainly endorsed getting out of the computer industry.

[00:37:05] William Cohan: GE couldn’t compete with that and shouldn’t have been trying to compete. Just like many years later Jeff tried to make GE into a software development company, which there’s no business in. Ge hiring a bunch of software developers in Silicon Valley flushed 5 billion down the toilet.

[00:37:21] William Cohan: But Jack did not regret his moves into, say, insurance, which Jeff hated and got rid of Mostly. He, I think frankly many, I think we wouldn’t, I mean, may have never have written this book, or we would have never been talking about the breakup of GE. If Jack had gone through with the acquisition of Honeywell, which you know, was happening just as Jack was leaving, it’s more likely he would be leaving in 2000.

[00:37:50] William Cohan: He got his tenure extended to September, 2001 to try to get that deal done, which a competitor, United Technologies had reached an agreement to buy, and Jack could not let, could not fathom the idea of, of United Technologies merging with Honeywell. So he decided that he had to top that bid and get control of that company and he succeeded in reaching a merger agreement with Honeywell.

[00:38:17] William Cohan: And then the US Justice Department approved the deal relatively quickly, but the EU became a major roadblock. And Jack ended up deciding to walk away from buying Honeywell because the EU wanted him to sell a bunch of businesses that he didn’t wanna sell. And as he told me he thought he was gonna buy an 18 hole golf course and he only got 15 holes, so he didn’t want to go through with buying the golf course.

[00:38:44] William Cohan: I think that if Jack had bought Honeywell, It would’ve made a big difference in tilting the balance of the earnings power at GE back to the industrial side, making it less reliant on GE capital so that when the trouble came in 2008, it would’ve been a been less existential for GE. I did talk to Jack about his decision to abandon the Honeywell deal, and he did not seem to have any regrets.

[00:39:13] William Cohan: His position was sort of, you know what? We didn’t really wanna buy it in the end anyway. We found things we didn’t like after we got into the due diligence post merger due diligence phase and so the EU forced us or wanted us to sell various assets that we didn’t wanna sell, and gave us the opportunity to walk away, and we decided to do that.

[00:39:34] William Cohan: I think in retrospect, that was a mistake. He also told me he did regret firing Dave Cody, who was running the major appliance division, and then eventually became the CEO of Honeywell. Later, after the GEs Honeywell deal fell apart and Honeywell became worth more than GE, and I think perhaps Jack realized that he had underestimated Dave Cody.

[00:39:57] William Cohan: But aside from that kind of few regrets. 

[00:40:02] Trey Lockerbie: Okay. Well, I definitely wanna talk about Jeff Embolden, but before we do, I want to quickly touch on GE Capital, because it was such a huge piece of the puzzle here. At one point it became half of GEs earnings. In a way, it was like a corporate engine that was powering this manufacturing of engines , right?

[00:40:17] Trey Lockerbie: So walk us through how GE Capital was at once a golden goose that later became an albatross of sorts. 

[00:40:25] William Cohan: Well, again, it gets back to simple mathematics, I guess the arbitraging price that GE had to pay to borrow money. With the price that it could get to lend out that money. And its cost of capital was very low because it was a AAA rated credit, one of maybe 12 at that time.

[00:40:49] William Cohan: This was sort of before the rating agencies went berserk and started rating all of those mortgage backed securities, aaa. And so Jack, just even before he was CEO, he was put in charge of GE Capital after his tour at plastics. And he just sort of fell in love with me and what it could do. And fact there was unregulated, had unlimited access to capital and could borrow cheaply and lend out extensively.

[00:41:20] William Cohan: And now, when I was there, people used to complain that we were the most expensive lender. Around like Wall Street banks were much cheaper in terms of pricing and fees and whether or not they took warrants or just to spread libel or whatever it was. And at the time I used to think, Hmm, Jesus, when I thought about it and all that is how are we gonna compete against First Boston or Goldman Sachs or Morgan Stanley who are pro providing these bridge loans for these buyouts and other things.

[00:41:53] William Cohan: We’re so expensive and, you know, we would do deals that other people wouldn’t for starters. And when I thought about it in the writing of this book, and of course having then lived through any number of financial crises from starting from 87 to the early nineties, to the early two thousands to 2007, 2008, what was obviously quite clear to me is that actually GE Capital was pricing risk properly.

[00:42:21] William Cohan: And was getting paid for the risks. It was, unlike every other financial institution. And that sort of reinforced in my mind, sort of what a good business GE Capital was. So I think Jack understood the risks that were inherent in GE Capital and those that he didn’t understand. He had people in place like Gary went and Dennis Naden, who did understand those risks.

[00:42:50] William Cohan: And he had a lot of faith in, and Dennis Erman and others, we had a lot of faith in, I think Jeff really liked the earnings that GE Capital produced year after year. But I think he didn’t have the same intuitive inherent understanding of the risks that Jack did, or that Jack’s leaders did. And Jack of course famously got rid of Gary Went, but at least replaced him with Dennis Naden.

[00:43:21] William Cohan: Jeff got rid of Dennis Naden and replaced him with Mike Neal, who I think wasn’t quite as willing to stand up to. Jeff and Jeff thought he understood the risks that were inherent in GE Capital and turned out, of course he did not in a big way and had, despite warnings, right. That occurred either from Bill Gross early on or to a guy who worked at Stanley Druckenmiller hedge fund or my favorite person in this whole story, Jim Grant, who wrote repeatedly of the risks that were inherent in GE Capital.

[00:44:01] William Cohan: And basically Jeff would go down and meet with the rating agencies. The rating agencies would complain about the risks that Jeff was taking in his funding model at GE Capital. And he basically, Poo it all and ignored it. And it wasn’t until he would, he ignored the advice given to him by Michael Ley, who was running GEs real estate business GE Capital.

[00:44:27] William Cohan: They had been tremendously successful and made a lot of money, and Michael probably told him in 2007 that it’s time to sell this business. And I, he had lined up Goldman Sachs to help with the sale of the business, and Jeff sort of waved around this report from McKenzie and said, no, Hey, MC McKinzie says this real estate bubble is gonna continue for the foreseeable future.

[00:44:50] William Cohan: Well, of course we know what happened, and Kinsey was wrong. Jeff should have sold GE’s real estate business at that time and would’ve made a ton of money. Instead, he didn’t sell it. A lot of that profit was lost. And then, of course, come. The 2000 eight financial crisis, September of 2008, Jeff had to go hat in hand to Hank Paulson, the Treasury Secretary and beg him to solve the problem that GE Capital was having in borrowing in the, the short term commercial paver markets, because those markets dried up in September of 2008.

[00:45:29] William Cohan: And GE Capital no longer had access to those, to that kind of funding. And basically Hank Paulson came in and saved the day for Jeff told them to go speak to Sheila Bear, who said of the FDIC. And then Sheila Bear basically was forced to let GE into all of these financing lines of credit that the government was making available to other financial institutions.

[00:45:54] William Cohan: And all this occurred without anybody realizing what was going on. Everybody was focused on Wall Street banks going down the tubes or, or focused on the car companies going down the tubes. But here was GE, our most admired and respected industrial company, one of the largest financial companies unregulated in the country.

[00:46:15] William Cohan: And he was going down the tubes, literally having twice gotten the papers ready to file GE Capital for bankruptcy. And nobody had a clue. I didn’t have a clue and I worked there. I didn’t know until I started reporting this book. 

[00:46:30] Trey Lockerbie: Incredible. I mean, yeah, it seems like, I’m going off memory, but I think GE Capital was at times over levered eight to one, maybe more.

[00:46:36] Trey Lockerbie: That idea of them being unregulated was at one point an asset for them. Right. But then after the, the global financial crisis, when everyone who was regulated was guaranteed by the government, all of a sudden they’re left on their Rhode Island and it would seem . 

[00:46:50] William Cohan: Well, two things happened. First, they were not part of the tarp, so all these other financial institutions were getting bailed out and GE was, no, not part of that.

[00:47:00] William Cohan: Then all these lines of credit were made available to essentially backstop the commercial paper markets and other short term lending markets, and GE had to beg to be included in that so that if they weren’t included in that, then there’d essentially be a run on the bank at GE because no one would invest in their, in their debt or provide them short-term financing because essentially they weren’t backstop by the government, but other financial institutions were.

[00:47:29] William Cohan: So they had to scrape their way to get into that land, and they were let in. But then of course, the result of all that, they were declared a cfi, a systemically important financial institution, which meant that they were regulated by the Fed. So they went from being completely unregulated to being, having the ultimate in regulation and it was costing them like 2 billion plus a year.

[00:47:53] William Cohan: And Jeff Immelt felt like the Fed was in everything that it was doing and was sitting in board meetings and was basically regulating its financial business, which was something he almost could have dealt with, although he hated in and it was costing him a lot of money a year. But he was afraid they were about to encroach into the industrial side of the business and not let him run that business the way he wanted to.

[00:48:18] William Cohan: So he resolved that he basically had to get out of GE Capital, which was an incredibly fateful decision, and he thought was so brilliant when he did it in 2015, but two years later resulted in his being fired from the company. 

[00:48:37] Trey Lockerbie: And you mentioned that Bill Gross from PIMCO, and Jim Grant were publishing these amazing warnings on GE Capital prior to the great financial crisis.

[00:48:45] Trey Lockerbie: You mentioned Jim Grant was your favorite character in all of this. I’m kind of curious as to why that is? 

[00:48:49] William Cohan: Is. Well, first of all, he is such an incredible person to begin with, and he’s so sort of sui generis and he’s become an iconic character because he writes grant’s interest rate observer so thoughtful and so well, and so insightful.

[00:49:11] William Cohan: He picks up on issues going on in the credit markets, which are of course, four or five times the size of the equity markets. And people don’t really understand the credit markets. And more importantly, they don’t understand what the credit markets are telling them. And one thing I love about Jim is he understands what the credit markets are telling us.

[00:49:30] William Cohan: And then he tries to warn people through his newsletter and his publications about what’s happening and how so he sees around corners and sees things coming that very few people do. But if you’re like the CEOof ge, you are like an imperial deity kind of thing. And so are you gonna stoop to taking the advice of Jim Grant?

[00:49:56] William Cohan: Probably not. And yet, Jim Grant repeatedly year after year after year, would write these pieces that are of course preserved in Amber. The risks that GE and GE Capital are taking. And he would lay out the balance sheet risks and he would talk about how when you have a AAA credit rating, you can only go one direction.

[00:50:16] William Cohan: There are no quadruple credit rating companies, there’s only companies that are less than aaa. And that just because GE was sort of a paragon of virtue for many years, it had sort of implanted the seeds of its own destruction in the company and nobody was realizing it. And so I just loved that, that fact that Jim Grant who wears bow ties, saw this coming and seems very professorial and Jeff , the master of the universe couldn’t possibly stoop to listening to something that Jim Grant was saying and laying out repeatedly and.

[00:50:53] William Cohan: I mean, and not to listen to Bill Gross. I don’t, just don’t understand that, not to listen to the credit rating agencies. I mean, when credit is the lifeblood of your company, like almost every company you have to protect. And when you’ve got a AAA credit rating, you’ve got to protect that with everything you’ve got.

[00:51:13] William Cohan: Cuz that goes to the very confidence that people have in your company. And it’s not just an equity story, it’s a credit story. And people just don’t understand credit. They don’t understand credit markets, they don’t, even though most of us borrow money and most of us have interactions with the bank, it’s incredible how few people understand what’s going on in the credit markets and what the credit markets are trying to tell us.

[00:51:40] William Cohan: And Jeff Immelt didn’t understand that. And if you have somebody like Bill Gross and like Jim Grant telling you, Laying it out for you, the problems that you are potentially facing, and you don’t take that to heart. Well, that’s a big mistake. 

[00:51:55] Trey Lockerbie: The debate around whether Jeff was handed a royal flush from Jack or not, kind of falls apart in, in my opinion.

[00:52:02] Trey Lockerbie: Well, from reading this book around when the tech bubble crashed in the early two thousands, in the aftermath, the markets were in turmoil. Jeff had this opportunity to reset the company and get rid of all these potentially cancerous legacy issues or these ticking time bombs that maybe Jack did have in the company.

[00:52:17] Trey Lockerbie: But, but he didn’t do that. And beyond that, he went on to factor receivables and poorly timed stock buybacks and overextended dividends. It seems like maybe his biggest mistake of all though was surrounding himself with seemingly sickens. Right. And I guess my question is, where was the company’s board through all of this?

[00:52:37] William Cohan: Nowhere. Trey, they, I mean, with some notable exceptions who I know they’re notable because they talked to me, they had the guts to talk to me. So Ken Langone, who Jack appointed, and then Jeff had fired, or even Sandy Warner, who tried to stand up to Jeff and was fired by Jeff. So what was clear is that if you wanted to take Jeff Alt on in the boardroom, you were gonna lose your board seat.

[00:53:04] William Cohan: And of course GE was of course the pinnacle of corporate boards, probably the most prestigious corporate board to be on. And so if you were asked to be on that board, the last thing you wanted to do was to be removed from the board. And of course that meant that you did not challenge Jeff Alt.

[00:53:20] William Cohan: Well, of course, the purpose of a board is to challenge a CEO to be the last gasp for shareholders or creditors or stakeholders or employees. If something is going wrong, you’re supposed to stand up. To the CEO and push back and hold him or her accountable. And this board didn’t do that, and was constantly being overrun by Jeff.

[00:53:46] William Cohan: And of course when I come along and want to talk to them about what happened and why they made the decisions they made and why they didn’t stand up to Jeff and why they let him get away with all these things, or as Dave Calhoun said to making the wrong decision every time he had a big decision, why didn’t they challenge him on these things?

[00:54:06] William Cohan: Instead of talking to me and explaining to me why they made the decisions that they made or why they allowed Jeff Immelt to sort of bulldoze them through various board meetings and they were getting paid whatever, $400,000 a year to go to some board meetings and they just didn’t do their job.

[00:54:26] William Cohan: They enjoyed too much being on the board of GE and failed to do their job, which was to hold the CEO accountable on behalf of the shareholders. And they didn’t do that. And instead of explaining why they didn’t do that to me or engaging with me, they just ignored me and gave me the stiff arm, except for Ken Langone and a couple of others.

[00:54:49] Trey Lockerbie: Yeah. This amazing quote about boards from Warren Buffet in the book where he says, CEOs go shopping for pit bulls, but it’s the cocker spaniels that get taken home. , like, that’s such a great quote. And [00:55:00] Warren Warren comes into this, the picture around the great financial crisis. He ends up buying 3 billion of GE preferred stock with a 10% dividend, and he also receives these five year warrants and additional 3 billion for a strike of 2250.

[00:55:15] Trey Lockerbie: What I’m curious about is how Jeff goes from getting that investment from Warren Buffett. So then Tryon, if I’m saying that correctly, or Trion, who was this highly aggressive activist investor and seemingly part of the death now for GE overall? 

[00:55:29] William Cohan: Well, obviously those two things were separated by seven years.

[00:55:34] William Cohan: GE wasn’t Warren Buffett’s first rodeo. Ge Warren had done the same thing at Goldman Sachs and at Bank of America. So the Warren Buffet preferred equity seal of approval was something that was in the air at that time. And of course, Warren being the genius that he is, he knew that these firms, these financial institutions couldn’t get money from other places and that it would be a huge vote of confidence.

[00:56:02] William Cohan: For them with their investors, their creditors, their stakeholders, their depositors if he came in and sort of ratified the genius of the management and the business plan. And so Warren did that, as I said, at Goldman B of A and GE and that enabled GE to then go out and raise I think an additional 12 billion of equity for a total of 15 billion, which they felt they needed very much at that time.

[00:56:34] William Cohan: And again, it proved not even to be enough, GE had to cut its dividend. And then of course, Jeff decided he had to sell NBCUniversal to Comcast without an. To raise even more capital. GE was in a desperate situation, but by 2015, I think Jeff thought the ship had been righted and that he felt like he had bought Altham.

[00:57:00] William Cohan: He had decided to sell GE Capital and raise even more capital. And he used that money, as you said, in pro he made a big mistake. Again, I mean, I think he made a mistake by selling GE Capital often, but then to use the proceeds of that to spend 30 billion or so buying back stock at $45 when the stock later went to.

[00:57:22] William Cohan: Teens was of course a ridiculous use of capital. Completely wrong investment of capital. I should have paid down debt, probably should never have gotten rid of GE Capital to begin with. But he thought he was this so-called Project Hubble which was the selling of GE Capital, getting GE out of the CFI business, getting GE out from under the federal Reserve’s regulation.

[00:57:47] William Cohan: Getting rid of 2 billion of annual expenses was the way to go and to sort of ratify his, what he thought was his genius In doing all of that, he brought in Trian Partners which was an activist hedge fund headed up by Nelson Peltz. Any thought that they would be friendly because when he was at Dartmouth, he was friends with a guy named Tom Garden who was.

[00:58:12] William Cohan: Edgar’s brother and Edgar is Nelson Peltz son-in-law who worked at Tryon Partners. And so he thought this familial relationship would be beneficial to him in GE and that Nelson Peltz, who he referred to as the smiling crocodile, wouldn’t bear his teeth, but when things didn’t, weren’t going as well as Jeff had promised, they would I think he was told by Wall Street bankers that GE was ripe for an activist investor.

[00:58:41] William Cohan: So he thought he might get one that was what he thought would be friendly and more sympathetic to him than another one who might come in that he didn’t know. But of course two years later that all backfired too. 

[00:58:54] Trey Lockerbie: Okay, so GE is now the biggest fall from Grace we’ve seen from an American company, and  through all of this, this three years of research he put into this book.

[00:59:03] Trey Lockerbie: Which is just, I have to say, in so incredibly detailed, it’s, it’s unbelievable really. This book, I mean, the research that went into it is just incredible. And I’m just kind of curious through all of that, what are the lessons we can now take? I mean, we can, we can certainly throw Jeff under the bus all day long, right?

[00:59:18] Trey Lockerbie: But what were some of the key lessons that people who are running businesses today can really learn from all of this 130 year business that ultimately failed in a very short amount of time? 

[00:59:29] William Cohan: Well, first of all, just because something seems that it has a mode around it, that it’s impenetrable, that it’s imperial, that it’s the most valuable company in the world, that somehow that.

[00:59:42] William Cohan: Inoculates it from a fall. Joseph Schumpeter, the Austrian economist, talked about creative destruction and the dec seeds of accompanies are sown early on. And I think that that is especially true in the case of GE as we’ve discussed. So this idea that somehow you are invincible, which was basically Jack’s theory of the case is you said that he had handed off to Jeff what he thought was a royal flush.

[01:00:10] William Cohan: Jeff certainly didn’t see it that way, but that’s what Jack believed. He thought that he had created this behemoth that would’ve last for another 130 years and had his, surrounded by an impenetrable moat. So that’s number one. Tim Cook, or, or Elon Musk or Jeff Bezos says, Hey, just cuz you’re, and I think actually Jeff Bezos understands this and has said to his employees it’s just gonna be a matter of time before we’re gone.

[01:00:35] William Cohan: So let’s see how long we can keep that from happening. Just because you’re. On top now doesn’t mean you’re not vulnerable to all sorts of macroeconomic and microeconomic events. And one of which is of course, making sure you choose the right person as your successor. And of course, Jack admitted that he chose the wrong person and would become susceptible to Jeff’s charms.

[01:00:57] William Cohan: And that’s often what happens in these kind of succession rates is it’s often the most politically adapt person who charms the pants off of the person he needs that is making the decision that gets those jobs as opposed to maybe the person who might actually be the best person to take the company forward.

[01:01:15] William Cohan: So that’s major lesson number two is making sure you have the right successor. Major lesson number three is if you are the successor, make sure you understand the businesses that you are inheriting, that you are in charge of running, and if you’re gonna keep them in the stable and really make sure you understand them and.

[01:01:34] William Cohan: Don’t ignore the warnings that you’re getting from people who do understand the businesses that maybe you don’t understand as well. And all that of course is what  Jeff Immelt. And then don’t surround yourself with SI of fans and yes men and people telling you what you want to hear.

[01:01:52] William Cohan: Make sure you are open-minded enough to listen to people who have dissenting points of view and not dismiss them because they’re offering you a dissenting point of view. They’re smart too. They’ve been in this company a long time too. You’ve been paying them a lot of money too. Maybe they know something that you don’t know, even though you are the CEO and they’re not.

[01:02:13] William Cohan: It was all kind of preventable in my mind. This didn’t have to happen. I wouldn’t have written this book if this hadn’t happened, but it did and I did. And that’s where we are now. Company being split up into three pieces and General Electric disappearing after 130 years. 

[01:02:29] Trey Lockerbie: It’s one of the biggest tragedies I think in in corporate America and it’s just an amazing account

[01:02:36] Trey Lockerbie: What you’ve put together in this book is called Power Failure and I think the lesson as you put it there is going back to that Jim Collins quote about Edison being a genius with a thousand followers. It seems like that ultimately came back around with Jeff Omal and maybe genius is not the maybe generous term there.

[01:03:01] Trey Lockerbie: But anyway I wanna say thank you so much for this book and please before I let you go tell the audience where you want them to find the book and learn more about what you’re up to in your other books that are also amazing. So please share whatever you’d like before you take off here.

[01:03:24] William Cohan: Well, thank you Trey, for those kind words and this excellent conversation, which I really enjoyed.

[01:03:30] William Cohan: I’m easily Googleable and I have a website, william cohan.com, which lists all my books in many of my articles that I’ve been writing ever since I left Wall Street back in 2004. And I encourage people if they have questions or wanna get in touch with me, I’m happy to do that.

[01:03:52] Trey Lockerbie: Well, William, thank you so much again for your time and I hope we can do this again. I mean, hopefully it takes maybe less than three years to write your next book, but I’m, I’ll be equally awaiting the next one. So thanks again.

[01:04:10] William Cohan: Thank you, Trey. 

[01:04:11] Trey Lockerbie: All right, everybody, that’s all we had for you this week. If you’re loving the show, don’t forget to follow us on your favorite podcast app. And if you’d be so kind, please leave us a review. It really helps the show. If you want to reach out directly, you can find me on Twitter @TreyLockerbie. And don’t forget to check out all of the amazing resources we’ve built for you at theinvestorspodcast.com. You can also simply Google TIP Finance, and it should pop right up. And with that, we’ll see you again next time. 

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