Ep780: William Cohan – Power Failure: The Rise and Fall of An American Icon

Andrew Stotz 00:01
Hello fellow risk takers and welcome to my worst investment ever stories of loss to keep you winning. My name is Andrew Stotz, from a Stotz Academy and I'm here with featured guest, William Cohan. And William is a former guest on the show. He was episode 739. William is a former senior banker for 17 years in the area of m&a and is the New York Times bestselling author of seven nonfiction narratives, including his most recent book, power failure, the rise and fall of an American Idol. William, welcome back onto the show. Great to see you.

William Cohan 00:40
Good to see you, Andrew. Thank you for having me back. Yeah, we

Andrew Stotz 00:44
had a few backs and back and forth to get you back on with all the weather and all kinds of crazy things going on. So it's good to have this discussion.

William Cohan 00:52
Earthquakes, monsoons. You got it all here lately?

Andrew Stotz 00:56
Yeah. That's crazy. I saw the news about the earthquake in the on the East Coast, I was like, What is going on

William Cohan 01:03
helped it to melt it in my house. And raft were shaking.

Andrew Stotz 01:09
That's crazy. I mean, I remember moving from Ohio to California and La feeling the earthquakes. But I never felt any, you know, when I lived in Delaware or in Ohio, so the world is shaking. Not only is it on fire, and burning, it's also shaking. And the reason why I wanted to get you back on and for the listeners out there is because I, I went on audible to get your book. And it wasn't available at the time, I couldn't find the hardcopy in Thailand. So I thought I'm just gonna get it on Audible. And I think that this type of a book, a narrative, a nonfiction narrative is a fun book, maybe also fiction books, you know, are fun to listen to, as opposed to sitting there and reading and kind of, I take notes and nonfiction type books. And I'm holding the book up right here, because I also found it in the bookstore in Bangkok, it's now calm. So for those people that are looking for the book, you probably can find it in a bookstore near you have it's made it to Bangkok. But you can also find it on Audible on Amazon. And that's why I listened to it. But the key thing is that it was a 28. It's a 28 hour book. And I don't know about you, but for myself, when I see a book, that's four hours, I like that. I'm like, I can deal with that. But when I say about this 28 hours, I'm really intimidated. And it's just like, I feel like that's 28 hours of my life. Do I really want to give that to this. But because I had met you and decided it's worth giving it a try. The thing that is the reason why I brought you back is because I can tell you and tell the audience that I was riveting. I mean, every single day, I had time in the day that I turned that on, and I listened. And it took me you know, a couple of weeks to get through it. But I just found it. Absolutely fascinating. And so first of all, I just want to congratulate you on that. Because how hard is that?

William Cohan 03:02
Well, thank you. That's very nice. Yeah, it's a lot of work. It's a lot of work.

Andrew Stotz 03:07
And so for the listeners out there, 28 hours is about 750 800 pages total, including notes and all of that. How long does it take to do something like that?

William Cohan 03:23
Well, you know, I started it before the pandemic, and then that hit. And I don't know whether that helped, or hurt. I mean, I couldn't really good, couldn't really go anywhere, couldn't you don't see anybody. So I guess that sort of made it but made it more time on task. fewer distractions, but I don't think I realized, I Andrew, quite what I had bitten off. You know, between all the interviewing I had to do and the research, I mean, the company was started in 1892. And I was writing about it till you know 2022. So that's, you know, 130 years, that's a lot of history to write. And, of course, you know, you don't include everything. There were things that I put in that got cut out and it was still as long as it is so you know, and it was such a fascinating history, the it's really the history of the 20th century, of course, and the history of you know, America's rise to prominence in the 20th century. And, you know, incredibly this company became, you know, the most valuable company in the world the most, one of the most respected companies in the world, and then it kind of all fell apart. So not only did I have the great story of it being created, I also had the fascinating story of it falling apart. Literally, it's now in three Two separate pieces as of literally this week

Andrew Stotz 05:06
and and maybe for the listeners out there that don't, that maybe they don't know about General Electric or they don't know about Jack Welch as an example in inside the story, maybe you could just give us an overview of what what is the the overall story that they're gonna get when they listen to this book when they buy this book and read this book. You know, it's, it's, it's an American story, that's one thing for sure. But it's also story available.

William Cohan 05:36
I mean, yeah, and then it's a story of a company that then had facilities all over the world, and became a global company. But yeah, I like to write my books about the people involved. I kind of focus on the movements of the people, the backstories of the people, because, you know, I mean, you get a character like Jack Welch. And that's like, manna from heaven, you know, because he's so souI generous and so interesting, and, you know, led this company, when he took it over, it was highly respected company, a leader, you know, in American business and industry. You know, and it was a $12 billion market value company, which, you know, was probably a lot, you know, in 1980 and 1981, when Jack took over, and he, he, you know, through, you know, sort of relentless buying and selling of companies, through relentless focus on earnings and earnings growth, and relentless focus on pleasing Wall Street, and the Wall Street analysts and the media that covered Wall Street, he turned this company was worth $650 billion when he before, you know, in the year before he left, and it was kind of the, you know, it was it was ever it was kind of the everything company, I mean, it was a technological leader, it was a leader in finance, it was a leader in media, it on NBC, it made all the, you know, appliances that we take for granted. And, and it made you know, the world's best Gen jet engines and power plants last night. So, it Yeah, I mean, it. X ray machines, MRIs, I mean, it did an amazing array of things. Sort of, like, if, kinda like, Apple and Google and Microsoft, and Netflix and Amazon were kind of rolled up into one. That's the kind of company we're dealing with, we're dealing with here, and, and the guy who's sort of brought it to the, you know, world leadership, world dominance almost was this guy, Jack Welch.

Andrew Stotz 08:10
And, you know, if I think back to the younger, my younger years, conglomerates were all the rage, right? This is like the ultimate conglomerate, it wasn't like they were focused on one product, you know, I think about Apple as an example. They focus on kind of one product, the computer. And then later, they added another product that connected with that product. So even though they were adding on a different product, they stayed within a very narrow focus. And they still build a trillion dollar company, you know, amazing. But this is why GE is such an interesting story is how to bring together all of these different parts, you know, all of these different types of businesses. And I'm just curious, maybe we can take a look at Jack Welch's time as kind of the first theme of this and, you know, how was he able to do this? You know, I mean, I think a lot of CEOs out there and business leaders, they want to be able to do something like that. So how was he going to do that?

William Cohan 09:20
Well, I think one of the reasons he was selected, you know, Hmong, the five candidates sort of vying to become the CEO in 1981, was because sort of he was the youngest. And he was the most, potentially the most disruptive. You know, he sort of had pledged to disrupt things to change the way GE had been run, and that meant, I thought, I think he thought it had gotten too bloated to be Are kradic Too slow? not focused enough on quality and quality control. And so I think he, you know, he adopted a lot of Japanese manufacturing techniques, Six Sigma, he made a big show of firing people who weren't productive the bottom 10% You know, they call them neutron Jack, because, you know, he fired the people and left the building standing. And he any basically changed me much about the composition of the conglomerate, you know, he, he sold off one business called Utah International, that his predecessor had bought. And it was like a $2 billion dollar m&a deal. He was a commodity, it was a mining company and in the western US, and Jack didn't like commodities. And this has been, you know, the, the biggest m&a deal in history when it was bought by his predecessor, Reg Jones. And Jack was against doing that deal, but he was powerless to stop it. So, one of the first things he did when he took over a CEO is he sold off Utah International. So got rid of this sort of commodity mining business. And then the next thing he did, Andrew was he bought RCA, which was itself a mini conglomerate, manufactured TVs, owned NBC own radio stations, own TV stations, and, you know, made defense systems and radar systems and, you know, he swapped out a variety of different assets. With Thompson in in France, a gay that shipped off the TV manufacturing business to them, and in return, got a lot of health care device companies, you know, and that helped build up G's health care, manufacturing device, like the X rays, and the MRIs, and all of those machines, again, that we take for granted now. And so, he, you know, he built that up, and then NBC became an important part of the company, he built that up. And of course, you know, he transformed GE Capital from being a company, a part of the business that helped finance, customer purchases of GE appliances and GE equipment into you know, this the third or fourth largest financial services company in the country. And it ended up you know, it was able to borrow very cheaply in the commercial paper market because of G ease triple A credit rating, and he essentially arbitraged that cost of capital and then lent out the money at large spreads and, you know, was making huge profits. You know, almost 50% of the company's profits were now coming from this non bank bank, this unregulated bank, and most people had no idea, you know, what he was up to, and that's sort of in addition to growing the, you know, aircraft engine business and the power supply business. So, you know, he, he really was a master allocator of capital and a master motivator. He also really revamped GES Management Development Program that was at a Croton Ville which was a center that he built on the Hudson River. So he was really frankly, an amazing leader. People love working for him. And he got more out of people than they thought possible. And then the so the combination of that the never ending in increasing earnings. The fact that the media loved him and the research analysts loved him. It was powerful, extremely, extremely powerful. And I don't really think there's anybody quite like that today, you know, across so many, you know, industries you know, If I suppose if, if Jeff Bezos or Elon Musk were, were beloved, instead of like, not really liked and not really, you know, people wonder, you know, about their leadership qualities, and they're responsible they are, I mean, Musk, obviously more than Bezos. But you know, Jack was sort of Beloved, feared, respected, and delivered.

Andrew Stotz 15:30
So, first lesson that I took away as I was listening to the book, and as I listen to you talk, he said, he struck very fast. He was like, fast and deep, right off right out of the gates. And I was surprised about how aggressive you know that even the board Let him be. And that he was, Is it accurate to say that he's that he really strike fast and deep.

William Cohan 16:04
But yeah, again, he was, the reason he got the job was he was through, in addition to being a master politician. He was, he was the youngest, he was probably the most different than reg Jones, who was a sort of a patrician Brit, who moved to the US. You know, Jack, was an only child from outside of Boston, spoke with a heavy, you know, Boston Area accent. And he was hired not only because of his youth, and his energy, but you know, he was going to be this change agent, there was no doubt about it. And, you know, I don't think reg thought he had, you know, made mistakes or anything, but, you know, GE would go through these phases, you know, when it was trying to be lean, and then it would get too bureaucratic. And then, you know, you had to have somebody come in there and sort of get out the deadwood, Jack, you know, Jack Jack aspired to this Jack wanted this job. And so, you know, when you want something and you think you're the right guy, for the job, and then you get the job, then you, you know, you don't not gonna waste any time you know, what you're doing, and you get right to it. And, you know, that's what Jack did. And I

Andrew Stotz 17:35
guess by that time at 80, in 81, he had been at the company for what was it? 2020 years, you know, he's like, early 60s. So he already understood the company very well, and what you've just described and given more

William Cohan 17:47
and more responsibility along the way, you know, which is the way they did it, they would sort of expand your worldview, to see if you could handle more and more responsibility. And of course, he did every, every time he was given more responsibility, he was able to handle it well.

Andrew Stotz 18:04
And, and then the last part of this is that he was the mandate was from the board. And I guess you could say, from the shareholders, if it's coming from the board was to, you know, make serious positive change. So he had the mandate to move fast. And he did move fast. One of the questions so just just want to continue on for just a bit on his management. And, you know, there's another a management guru, different from a manager, Dr. Deming, who came of age during that time, Kate became popular his book out of the crisis came out in 1996. And he had already been helping the Japanese he had come back, he was trying to help Ford, he was trying to help American industry. And he had a really one of his 14 points was drive out fear in the organization. That fear is what's holding, many companies back, workers aren't going to take a risk because they fear and when you think about Jack Welch's, you know, tenure, I think, fear, fear fear. I mean, if I was working for him, I would be intimidated. I would be scared, I would be worried. You know, there's like public executions and like, there is fear is an important element of his style. And I'm just curious, how do you see the two sides of that debate or discussion or idea about, you know, that using fear in management?

William Cohan 19:36
Well, it was, you know, there was both love and respect and fear. Yes. Well, you know, fear that somehow if you didn't deliver for him, the earnings that he wanted you to deliver he wasn't You're going to put up with that for very long. He wasn't going to be immediate firing, but if you didn't get your act together, he wasn't going to wait and give you a whole bunch of chances. Again, he was, you know, he told you what he expected of you to do. And he expected you to deliver what he asked you to do. But he also encouraged dissent, which, you know, a lot of people of organization are fearful. Because people are afraid to speak up. People are afraid to dissent, people are to share with afraid to share what they really think. Because, you know, there'll be consequences for their career. And I think Jack could be persuaded, you know, he was whip smart. But I also think he would allow his mind to be changed. And there were plenty of examples where his mind was changed. I think one of those examples was some sort of was a billion dollar loan they were talking about making to a company in Thailand, that was the biggest rental car company or something in Thailand. And Jack was completely against the idea, but then he had his mind changed, and they made that loan and they made a lot of money. So I think it was very much a meritocracy. Don't think, you know, he didn't matter that much. I mean, he liked the Ivy League. Graduates don't get me wrong, because Jack was not an Ivy League graduate. I think he like, I mean, one of the reasons he, I think gravitated towards Jeff Immelt was because Jeff and molted gone to Dartmouth and Harvard Business School, you know, Jack went to us and got his PhD from the University of Illinois. But I think it was a real meritocracy, too. I mean, I think he he just wanted to have smart people around him, and encouraged people who are smart, and who could deliver, he really promoted the hell out of those guys,

Andrew Stotz 22:46
you just get this feeling as I was listening, you know, and going through it, it's like, he's, he's a baseball player, and then he becomes a baseball coach. And he just loves the game, he just loves it. And he loves the players and he loves the action, he loves the competition. And he just gonna, until his dying breath, he's just gonna want to be in that game and competing. That's the way I felt, you know, when I was, you know, thinking about him?

William Cohan 23:15
I mean, think about how great would it be to, you know, be the CEO of the most powerful companies, you know, on Earth. You know, I don't think there was a, hardly a country, he could go to where there wasn't a GE plant or facility or office or something, you know, the most valuable company in the world, the most respected, you know, if he, you know, he could get access to presidents and prime ministers and, you know, dictators, I mean, you know, people sought him out the media, the, you know, the research community, Wall Street, bankers were fawning over you know, you know, it's hard not to like that you're flying around the world and corporate jets, you know, you're living the Imperial lifestyle. Everybody's hanging on your very word, you know, your command an army of, you know, 200,000 people. And, you know, what you say, you know, goes, you know, why wouldn't you enjoy that?

Andrew Stotz 24:20
Yeah, um, I just talked about the GE Capital deal in Thailand. Basically, in 1997, Thailand, went bust and we had 55% non performing loans in the banking system. And the Ministry of Finance ended up shutting down, you know, a large number of banks and many brokers and other financial institutions. And there was billions of dollars of bad loans that they auctioned off. And, you know, it was mainly foreign players that came in to buy those. But what was auctioned off? GE Capital, the people And I think I want to get the guys that were involved in it here on the ground in Thailand to talk about that later. But in this case, you know, they invested maybe close to a billion dollars in auto loans and those types of loans. And then they just work that out. And they make great money from that deal over a long time. And so they brought, you know, capital into the country, when really I remember at that time, I was in the stock market. And, you know, the country was just, you know, in an awful situation, the GDP had collapsed by 11% 99. Year, and that's when they saw the opportunity to buy, so just that's a little background on that. What I'm also thinking about, is, should a young person, build their young person that wants to be a successful manager? Should they modeled themselves off of Jack Welch?

William Cohan 25:57
Well, that's, that's a tough question. To know how to answer. I mean, everybody is different, you can, you know, you know, I can model myself after LeBron James, but just don't have the skill set, or any, any reason to believe that I would ever end up being anything remotely like him. You know, so is Jack Welch is kind of the Lebron James of, of, you know, quote, was corporate CEO types. I mean, you know, do you have what that takes? I mean, first of all, Andrew is, is, you know, I mean, how in the world, do you, you know, weave your way, and organize your life in such a way that you can get to the top of this kind of an organization, and even be, you know, considered to be the CEO, let alone get the job. I mean, how do you maneuver your way through the corporate maze, you know, year after year after year, and get yourself in a position to, to be considered for that kind of job, let alone, get it and then do a great job, once you get that responsibility. So, I, you know, I don't know how, you know, we can sit here and talk about, you know, modeling, you know, young people modeling themselves after, after Jack Welch, I just don't know that that's a useful concept. But I think that people, you know, I think if you do the basic blocking and tackling, that Jack Welch did, which is, you know, be, you know, be super achievement oriented, do a super good job, you know, take every assignment that you're given and do a fabulous job at it be politic, right. Be be, you know, be able to, you know, kissing up and sucking up is a real art form. And to be able to do that. Well. And I'm not saying Jack did that. Well, but, Jack, I had rabbis, you know, I think, as I tell the story in the book, I mean, after his first year there, he was in the plastics division. And for whatever reason, there were, you know, four or five guys in that division, all sorts of young guys, and, and whatever the decision was made, to pay them all the same. And Jack just was so offended by that, because he thought he was much better than the other, his other colleagues. And so he, he quit, he actually got a job at Akamai, a company in the Midwest, in Chicago, I think, and was getting ready to move and, you know, his boss's boss called him up and basically said, No, essentially, you know, don't don't leave, I'll take care of you. You know, you don't have to worry about your Boss anymore. I'll, I'll be your rabbi. And, you know, he stayed, he got a bigger compensation. And he had a rabbi in the corporate office who took care of him. I mean, how do you pull that off? You know, it's really kind of an innate, you know, an innate art form and innate skill to be able to, you know, weave your way in these corporate mazes and, and succeed and, you know, come on

Andrew Stotz 29:50
hats off to that guy for identifying that this is a key strength in this company, and we can't let him leave. You know, that's also an art form. There's a parallel here that I was thinking about. And that is, there's another asset allocator, let's say our capital allocator out there that started roughly, let's say, the same time as Jack Welch. And he started with a company that was roughly the same size about 10 million or so at the time. And that capital allocator, has now built that company up to about 900 billion. So if you take that back to the term when Jack Welch was head of GE, at 650 billion, maybe in those dollars, it's almost exactly the same. And that's Warren Buffett, and Berkshire Hathaway. He did it by, you know, he did it by a very different route. But the increase in market capitalization was pretty much the same. And I'm curious, you know, when I think about Jack Welch and his capital allocation, you know, he definitely wasn't like an all numbers guy. It wasn't like it was a finance guy. And the numbers got to line up, he had to have vision to see how these different parts would work together with his acquisitions, and his divestitures. And when I think about Buffett, he's also a visionary guy of thinking about what's the future potential for this particular business, let's say Coca Cola as an example. He liked the simplicity of it, you know, and all that. I'm just curious if we were to look at those two people. What are your thoughts about that, you know, the differences or similarities of what it takes to take a company from 10 million to 650 billion?

William Cohan 31:39
Well, you know, Warren, Warren Buffett is obviously a legendary figure, he's, he's an investor, though, he's he, you know, has identifies companies that have characteristics that he likes, and he thinks will be long time success. And he's basically been pretty bright and most of the time, and he invest in those companies. And then he also buys companies. But then, you know, keeps the management and leaves them alone. You know, Jack, was part that, but also, you know, an operational guy, you know, he, he, he ran businesses, he managed people. I mean, Warren Buffett doesn't manage anybody, he manages, you know, the 10 people in his office or whatever. But he doesn't manage the hundreds of 1000s of people who work in the companies that he owns, or has big stakes in. Right? He has no, it's a quiet life. Yeah. Is it quiet life that has made him $100 billion. And, you know, it's a completely different strategy completely? You know, so Jack, was an operations guy, and managed people. So, very, very different skill set, very different approach, very different business plan. I'm sure. A Warren Buffett's life was a lot less stressful than Jack Welch. Which may explain why Warren is, whatever, 92 or three now and still at it.

Andrew Stotz 33:38
Yeah. And I guess it also shows kind of different strokes for different folks, that, you know, people follow the path that works for them. Let's talk now about the second theme of this, which is the transition from the second theme of this conversation, not necessarily the book, which has many themes, but clearly, there was a, you know, the transition from Jack Welch, to to Jeff, Jeff M. Mo, was a key point, a turning point for GE, and maybe you could just describe briefly, you know, what, what that process was like, and then we'll also talk a little bit about Jeff, and then try to, you know, draw some conclusions from that. I'll try to draw some conclusions. I know, you know, what I like about what you said earlier to me when we before we turn on the recording is like you draw your own conclusions. I'm not here to necessarily, you know, say the exact conclusions, but I'm here to set the stage so that, you know, you can think about it, or you can just enjoy the story.

William Cohan 34:37
Yeah, I mean, the it was a very, very public succession process, you know, to succeed Jack Welch, as you can imagine, I mean, you know, the most admired CEO on the planet, has been in seat for 20 years and he's going to pick his successor and so, you know, the competition was keen it was narrowed down to three guys in malt Nardelli, Bob Nardelli and Jim McInerney. And, you know, Jack decided that whoever the two losers are, they'd have to leave the company. You know, they were, he also made the decision, which was different than he had experienced, he made the decision, you know, they were each running different parts of the business. You know, Nardelli was running the power business and McInerney was running, the jet engine business and emerald was running the health care machine business. And, you know, they were in different locations around the country, because that's where these businesses were located. And instead of, you know, bringing them to Fairfield, Connecticut, which is where GES headquarters was at the time, now it's in Boston, and, you know, actually, who knows where it is now, because they don't really have a central location anymore. Being three separate companies. You know, he kept them out in there in the field and their locations, and didn't bring them to Fairfield. One thing he didn't like about his own succession process, is that Greg Jones brought everybody to Fairfield, Connecticut, you know, the five people competing, and for two years, you know, they had to look at each other in the hallway, you know, and see who they were competing with. And, you know, Jack didn't like that, because he just thought it was ridiculous amount of politicking. But it was great for REG Jones, because he could see, you know, who was, you know, on a day to day basis, you can really tell what people were like, Well, Jack didn't want to do that, because he didn't like that. So he kept these people out in the field. And so he would see them like, you know, once a month, when they would come to like the GE Capital board meeting, or they would come to review their budgets with him or review what they, you know, they didn't do right, or to review, you know, how much what bonuses, they're going to pay people. And so, you know, when they would come and see him, like, you know, once a month or once every two months, they'd be, you know, and they'd be politicking the whole time. So, it became a contest, really, to see who was the best politician not who was the best meat manager and the best leader and the best businessman. But, you know, Jack, and Jack thought, Oh, well. So that's one thing he did differently. And then he, you know, one day in the shower, he told me, he came up with this great idea that he would add each of the businesses for these three guys. He would name a Chief Operating Officer and that sense a successor to this person, so that if they lost the job, because two out of the three, were going to obviously lose the job. Then they would have to leave the company, their successor would be named and already in place. It would sort of be a seamless operation. And so he was pleased with himself for doing that. So, you know, we had the guy running for CEO and then, you know, there's number two guy as the CEO and, you know, long story short, Jeff Immelt, Dartmouth and I'll revisit school was a better politician than Jim McInerney and Bob Nardelli. And so, when Jack made that decision, I think he had no doubt he had made the right decision. He thought he had made the right decision. And of course, there was a lot of fanfare and a lot of, you know, high fiving all around. But, you know, soon enough Jack soured on Jeff emeralds. And you know, Jeff Immelt ended up staying for 17 years, and having a huge effect on the company.

Andrew Stotz 39:34
And I guess a takeaway that I got from that part of the story was the idea that if you, if you're kind of elbow to elbow with somebody, on a day to day basis, you're gonna see their faults. You're going to see their insecurities, you're going to see the problems and by and so therefore, if you're working on a successor, one possibility that could make it so that you're more likely to be successful in that is that you try to get as close to that person for as long of a time as you can, so that you really more deeply understand them, as opposed to just, you know, holding court for them to come and, you know, present themselves with their latest, you know, stuff. Would you think that that would be a good conclusion to draw from that?

William Cohan 40:25
Well, absolutely, I think Jack didn't like it. But I think reg Jones had the right process for succession. Not Jack. And, you know, Jack, I think, would be the first to admit as he was, to me, the first thing he said to me, even before I sat down for our first interview was that he had screwed up the selection process of his successor. First thing out of his mouth. And, you know, I was pretty much incredulous, because, Jack, this is this is your main responsibility as the CEO, you know, you could do, you could do all these great deals, you could buy RCA, you could, you know, buy your swap with Thomson, you could try to buy you know, other other companies. You know, but if you screw up the choice of your successor, you've blown a hole in the organization. Yeah. And it's,

Andrew Stotz 41:38
it's something like, when I think about it, I think it's, it's, you know, it's not a common thing. But on the other hand, he was picking successors of many businesses, you know, all the time. Totally.

William Cohan 41:51
He was allocating financial capital, and he was allocating human capital. That was his job.

Andrew Stotz 41:56
Yeah. So my last question on this point, and then we'll talk about Jeff Mo, is, what role did the board play in this process? And what do you think, you know, could the board have? You know, is the board just a tool of the CEO? And therefore, they're not going to provide much dissent? Or should the board have been involved in a different way? Or what are your thoughts about the relationship between the CEO and the board there?

William Cohan 42:27
It's a good question. You know, the being on the GE board was very prestigious, sort of the pinnacle of capitalism. So, you know, who got chosen for that board was people who had succeeded, CEOs, or academics in other areas. And so, you know, first of all, the tendency in sort of a board, like setting somewhat of a group think, like setting is, you know, gives no, you know, it's not to rock the boat. Not to not to be a nail that sticks up because then you get bashed down. But, you know, I don't think Jack was like that. I think Jack, as I said, you know, encouraged people to speak up. But, you know, these, these board meetings were all very orchestrated, even if they had board meetings once a month, you know, these board members have other things to do the rest of the month, they show up, they get wined and dined, they get taken around in facilities, the agendas said, the board books that, you know, maybe there's some discussion about an acquisition or divestiture that, you know, Jack wanted to make, but, you know, it's all kind of gamed out in advance. You know, clearly, the board was aware of the succession process and the candidates and had a role in vetting them. But I really feel like, you know, Jack was also not only the CEO, he was chairman of the board too. So, and that's pretty much the way it is over here, generally speaking, and so, you know, generally speaking what the CEO wants the CEO gets. The CEO wants Jeff Immelt, you know, there was some dissension on the board about Jeff Immelt, but it didn't amount to much. It wasn't enough to win the day. And then when Jeff Immelt became the CEO, you know, board members who actively were dissenters, like, you know, Ken Ken Langone or sandy Warner, who was the head of JPMorgan, Jeff actually kicked them off the board. And so, you know, what does that do that you know, is like, as, as a Voltaire wrote in Candide, about the British General who came back to the UK after losing a battle in France, you know, and they got in, they killed him, you know, warfare. An example of Paul is old, you know, you know, getting rid of Ken Langone, you know, was the founder of Home Depot, and a wealthy investor, getting rid of Sandy Warner, the CEO of JP Morgan, you know, and it was JP Morgan, the man who helped create GE in the first place by insisting on the merger between Thomas Edison's company and Charles coffins company, to get rid of the CEO of JP Morgan from your board, because he was dissented from something, you know, he didn't want the, you know, he wanted a different successor to Jeff Immelt than Jeff Immelt wanted, you know, that sends a very powerful message about the dangers of dissent. And, you know, if you're welcoming dissent among your own board members, you can imagine what's happening in the rest of the organization.

Andrew Stotz 46:24
What is the translation in English of what you said that Voltaire said, what was how would you turn it? How does that translate in English?

William Cohan 46:34
It translates into, to make an example for the others.

Andrew Stotz 46:40
So you, it's a public execution, scare the crap out everybody scared

William Cohan 46:45
to scare the crap out of everybody, and you better lose the battle. Don't bother trying to come up.

Andrew Stotz 46:53
So let's just talk briefly about Jeff Mo, and and just, you know, okay, if I look at it from his side of the story, hey, I got this company, it was in trouble. It was wound so tight because of Jack Welch's style GE Capital is, you know, was we shouldn't have been doing this or whatever. And, you know, I had to, I was, you know, hit in the face with all of this plus external factors. And therefore, you know, I was just the unlucky one that landed in that situation. I'm not saying that that's his point, but that I'm constructing that argument. What if you were to completely take Jeff EMALS position or side? What would be some strong arguments as to why he just couldn't get it, right, besides the fact that he could have been just the wrong guy at the wrong place at the wrong time?

William Cohan 47:46
Well, the first thing that I would say if I would check them out, and he said, many of these things to me was that I took over my first job and the job was, you know, September 10 2001. My second day on the job, and then I made an announcement. You know, I had like a town meeting for the employees. And then I flew to Seattle. That day, that night, because I had a meeting with the CEO of Boeing the next morning, which was September 11. So here he is in Seattle, about to have a meeting with the CEO of Boeing, you know, who's got to be GE one of Germany's biggest customers, right? And GE, one of Boeing's biggest suppliers. And he's on the Stairmaster and, you know, at, you know, six, whatever in the morning, Seattle time and or 545, whatever. And, you know, he's watching what's going on in downtown Manhattan. And, you know, GE made the jet engines on the planes, they had reinsured several the buildings through their insurance unit, down the World Trade Center, they owned NBC, which went, you know, ad free for a week, they had two or three people who were killed, who worked at GE So, and, of course, you know, the world changed dramatically after 911. Also, that was a time of a lot of accounting scandals. You know, in corporate America and the passage of the Sarbanes Oxley law that made the CEO and the CFO personally liable for the financial statements. So a lot of things that Jack did and sort of got away with and, you know, the sort of jujitsu that he engaged in with Wall Street was now kind of against the law or, you know, frowned upon. And, you know, basically, he needed, you know, a big reset. And he and I talked about this a lot about why he didn't do a reset, why he didn't say to Wall Street look, you know, I know we're trading at like a 50 times P E ratio, but we're really just as kind of a, that's way too high. You know, now it's after 911, we're really just a manufacturing company, it's going to be a lot slower growth, we're not going to be, you know, a 50 P E Company. So why don't we do a reset, you take us down, our stock will trade down, but you then will have sort of a modest, but accurate kind of growth pattern. From here on out. Now, I understand why that's incredibly difficult to do. Nobody wants to take a stock is trading at a 50 P E, and trading at a 25 P because the stock will trade in half. And everybody will be really pissed at him better to you know, keep up the facade. That, you know, we're still a great company we were when Jack Welch ran it. And so I think that's sort of what he did. You know, he could also say that, you know, Jack Welch left him a bag a bag of bones. Instead of Jack Jack says, I left you a royal flush. And you played the hand poorly. Jeff Immelt could say, yeah, you left me kind of a, you know, a couple of pairs. And, you know, I played the best hand, I could. But, you know, and I suspect you're gonna ask me, you know, was it? Was it sort of Jeff? Well, to Jeff emotes, you know, if Jeff Immelt hadn't been the CEO, would the story have come out differently? And I thought about this a lot. And, you know, I think as I said, you know, the selection of the CEO is the most important decision the, the outgoing CEO can make the selection of a CEO makes all the difference. You know, you know, Jeff, Mo, for all of his, you know, appearance of being a CEO to central casting, he really didn't understand finance, that well, he didn't understand GE Capital. I think, you know, you know, when you're running the third largest non bank, financial institution in the country, maybe even the world. And you don't understand the dangers of borrowing short and lending long. The dangers of borrowing in the commercial paper market, which is like a 30 day liability, and lending out, you know, seven to 10 years, you know, which becomes, you know, seven to 10 year assets. You know, if there's something happens, you know, in dries up your source of capital, you know, you're toast. I don't think he really understood the risks that were inherent in a banking business. Yeah. Banking businesses incredibly risky. And people tend to forget how risky it is. You know, and, you know, I think a lot about what Dave Calhoun told me, David Calhoun, who was a longtime GE executive who left and went to the Blackstone Group for a little while, and then he was on the board of Boeing. And then he became the CEO of Boeing, and just recently announced he was going to leave as CEO at the end of this year. I interviewed him when he was at Blackstone after he had left GE but before he had gone to Boeing, and he told me something that still resonates with me. And, you know, kind of hate to say it, but I think it does sum things up well, which is that when Jack Welch had a big decisions to make, he made the right decisions by and large, and when Jeff Immelt had big decisions to make, he made the wrong decisions by and large.

Andrew Stotz 54:49
One last question I had for you was, you know, you introduce a lot of different characters in the story, and I'm just curious, like, is there any particular character like you mentioned, Charles Often as an example, but is there any particular character that you really enjoyed learning about? Or you would have liked, like the out of all of them, if you could have gone back in time to interview that particular person who would not have been in the story?

William Cohan 55:16
Well, you know, obviously, Jack is like the greatest character, and I did get to interview with them. But one of you know, Jack's predecessors back at the 100 years ago, was a guy named Owen Young, who was from upstate New York and was an incredibly gifted lawyer. And so, you know, eventually, you know, was urged to run for president. You know, he was a fascinating character, I had no idea. Anything about him. I never heard of him before. But you know, it most of what I wrote about him got cut out, but I thought he was a fascinating character, really admirable guy. disciplined, determined, righteous principles. You know, I thought, wow, he's truly an amazing leader. But I think that, you know, pretty much all of the, the irony is that pretty much all of the GE leaders before him old, had done a pretty, pretty good job. Amazing. Yeah. And, you know, as Jack said, In Montana, you know, a decent a decent to good seven year run until the financial crisis, and then it kind of all fell apart because he didn't understand the risks of GE Capital. And then he, you know, he managed to make it through that crisis. You know, GE Capital was prepared to file for bankruptcy twice, got bailed out by the Treasury in the FDIC. And, you know, after that Jeff kind of freaked out, he, you know, sold NBCUniversal, to Comcast, too cheaply, because he wanted to be able to sell a company quickly, and get cash she GE Capital became a scifi systemically important financial institution, now regulated by the Fed. He didn't like the Fed regulation, that was costing them $2 billion a year too much. He didn't like the Fed telling him what to do. He decided he would sell GE Capital. You know, and that was, you know, generating 50% or 40% of the earnings and he had nothing really to replace it with, you know, and then he overpaid for all sums power business. And then he brought in Nelson Peltz the hedge fund manager thinking Nelson Peltz would ratify his brilliance, you know, in selling GE Capital, and redeploying the capital, from GE Capital into other things, and, you know, it just compounded itself until finally, you know, the stock was going down. There were these hidden liabilities. And, you know, Nelson Peltz, you know, basically fired Jeff Immelt

Andrew Stotz 58:41
and how is someone to feel about the rise in such a dramatic fall of the iconic in you know, I wouldn't say institution but an iconic accomplishment of capitalism, and then to see it collapse like that and then break. How should we or how do you process that?

William Cohan 59:06
No, I think you know, Heraclitus, I think said, All this flux. And then, you know, Joseph Schumpeter, the great economist, talked about, you know, creative destruction. And, you know, come companies are sort of like sharks, you know, they have to keep moving forward or else they die. You know, you have to keep reinventing yourself you have to keep looking at being able to see around corners. You know, you know, what, you know, okay, so there's no more G but there's still Parts of GE, right I mean, the GE appliance business, still actually has the GE name on it, even though it's owned by hair, Chinese company. GE plastics, I think is owned by the Saudis. You know, GE Capital is dispersed into all sorts of different other financial institutions. And now there's, you know, three separate GE named companies, GE Healthcare, Ge vinnova, which is the power business, the original business of the company, and GE aircraft, which is the jet engine business. So, and I think together, those companies are probably worth, you know, whatever, 225 billion, so, not 650 billion, you know, the, it'll probably never achieve what it had achieved under Jack. But, you know, so and I think that's what happens, you know, a lot companies get put together, you know, the onwards are in fashion, then conglomerates are no longer in fact, in fashion, you know, investment bankers get paid to put them together, because the bankers get paid to pull them apart, you know, the investment bankers always make money, and the assets are still floating around there. You know, it's just a question of, who owns them where they are, whether they're up whether they're down? You know, it's like what I like to say, you know, you know, after 2008, the Fed basically moved risk, a lot of the risk off the balance sheets of the big Wall Street banks, but, you know, risk doesn't just disappear, because it's no longer on the balance sheets of the big Wall Street banks. It goes somewhere else. Yeah, there, there still is risk. You know, it's in the shadow banking system. It's in the insurance industry, it's in the commercial, real estate business risk is all around, and it may not be on the Wall Street bank anymore, but it's still out there.

Andrew Stotz 1:02:26
Yeah, yeah. Um, there's a company, another company with General at the beginning of it, that I used to argue when I was young, that they should let it go bust and that it's not, when General Motors has had so many different troubles over the years, I've always just thought, let it break up, it's not going to completely disappear, the assets, the technology, if there's innovation and all that that's going to be acquired, and that's going to be used, but to constantly try to hold a company together. You know, at some point, just, you know, destroys value over time. And so, have you ever had any, could you compare General Electric to General Motors, which I would argue, has had a lot of government help and support to keep it together?

William Cohan 1:03:14
Well, of course, General Motors, went bankrupt. To get rid of its long term healthcare liabilities, its pension liabilities. It's essentially got a fresh start, you know, GE Capital, and GE did not go bankrupt, it was on the verge of going bankrupt, didn't go bankrupt. That would have given GE a fresh start. And that's probably why GE was broken up now. And GM really wasn't because GM had the ability to finance itself through bankruptcy, which she didn't have. You know, people like to talk about the conglomerate model, being out of favor now. I think that's, by and large, true, but not completely true. I mean, there are plenty of common what's, what's Microsoft now, I mean, it's, we don't think of it as a conglomerate, but it's got a big cloud business. It's got a big gaming business, it's got a big software business, it's got a big AI business. Amazon, you know, as Movie Studio is, you know, it's, you know, store the world. It's got a big cloud service business. You know, so there are conglomerates, but this John aren't called conglomerates anymore, because nobody likes that word anymore. And then there's companies like Danaher, which is where the current CEO of GE came from Larry Culp. I mean that's a got a market cap. Last time I checked, it was bigger than G's. And you know, it was one smaller than G much smaller. And then that's a conglomerate. So, you know, the name has become a, you know, a bad word, but I think it's still out there. And sometimes it works. And sometimes it doesn't. And again, it comes down to how it's managed, you know, Warren Buffett clearly runs a some kind of conglomerate, right. And he, you know, his model works beautifully. We love it. Danaher is works beautifully. We love it. Microsoft works beautifully, you know, you know, Mata, they weren't, you know, GE, you know, they had the wrong leader at the wrong time, he made the wrong decisions, and we don't like it anymore. And the consequences of that is it should be broken up.

Andrew Stotz 1:05:52
For the 28 hours that I was listening, I thought to myself, How many hours did it take you to create these 28 hours worth of listening or 750 or 800 pages of a book?

William Cohan 1:06:06
Very hard work. And I do it all myself. You and what can I tell you, it's takes a lot of work. It's nice to see it there. It's nice to be able to talk about it. It's nice that people appreciate it. I you know, I may be getting a little too old for this. Now, it's very hard to see if I can, you know, keep doing it seems to take longer and longer each time. But you know, I'll tell you this. It's very intellectually satisfying. It's creative. It's fun to interview the people I interviewed for my books. I like not having a boss. I like being in charge of my own schedule. I like people not telling me what I have to do. So there are a lot of trade offs. And yes, hard work. But you know, it's nice to kind of know what you're going to do every day for a number of years.

Andrew Stotz 1:07:14
Yeah. And Bill, how would you say that writing this book changed you?

William Cohan 1:07:25
Yeah, I don't, I don't know the answer to that. I don't know. You know, I know that. Generally speaking. It's clear that, you know, I was meant to be a writer that I'm much happier as writer than I was, as a banker. You know, I used to say about banking. I was good one day, a year. You know, the year you got into bone and the day you got your bonus. So, all the other days really, stunk. And, you know, he talked about hard work, a lot of make work a lot of ambitious abolitionists, people telling you what you had to do, because they said you had to do it, you know, ruining your weekends and your nights, your family life. You know, this is far, much better life. You know, I don't get paid as much sometimes. But you know, it's a, it's a great trade off. Because, you know, how, what was the worth to be able to have, you know, basically complete control of your time and your life and what you do every day and being able to spend time with your family or go on vacations, you know, without somebody you know, chasing you down and driving you nuts. And, and ruining it being. Yeah. And people you know, you know, stealing your time and your, your capital, your intellectual capital and your equity. You know, now I, you know, if a book works and people like it, and they buy it, you know, that's, that's, that's my equity, my brand, my, you know, you know, my goodwill, and if it if it doesn't work out, then that's my, my blame my phone on problem. So, I like it. Yeah.

Andrew Stotz 1:09:41
Well, I just want to thank you for taking the time to go back through it, you know, after having our first interview talking about and for those people that want to, you know, visit back to Bill's first discussion we had, that's episode 739 where you talked about your worst investment ever, but You know, it's great going through this book power failure, the rise and fall of General Electric. It is an amazing book, I highly recommend it for the listeners and viewers out there have links in the, in the show notes and you know, just amazing. Maybe I'll leave you with the last word. Is there any last message that you want to get across in relation to the book or you know what you're thinking?

William Cohan 1:10:27
I just think I, you know, I try to write books that I like to read the great characters and great stories and, yes, it's a long book. About I think it's a great story and worth your time. It's

Andrew Stotz 1:10:42
worth it for sure. Again, thanks a lot. And for listeners and viewers out there. I will see you on the upside.