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Sarah Babcock

February 18, 2016


Business Govt & Regulation
Professor Lambert
Jack Welch Corporate Social Responsibility
Jack Welch, The CEO of General Electric for 20 years, has raised much controversy over
strategic business tactics that question his regard for social responsibility. Social responsibility is,
the duty of a corporation to create wealth in ways that avoid harm to, protect, or enhance
societal assets (123). A firms main goal is to economically benefit society. To be socially
responsible a firm focus on market actions to remain competitive, mandate actions required by
the government, and voluntary actions to exceed expectations required by law. He generated GE
into a highly profitable one, but in that process he cut jobs, ignored pollution issues, and refused
to correct retirees pension funds, leaving them with unfair pensions during a time with high
prices when GE had more then enough money to compensate them.
Jack Welch was ruthless in his profit achieving actions for GE. He held his position from
1981 until 2001. Throughout his time serving as CEO Welch was known for his management
style, and his cost cutting abilities, he was even named Americas #1 manager by Fortune
magazine. Welchs tactics were aggressive, but he took the necessary actions to bring success to
the company. Other companies even took on his internal review process for employees, known as
the vitality cure, which weeded out the bottom 10% of workers every year. Welch believed that
having the right employees was key to a profitable business. During his 20 years at GE he
eliminated of employees. The tactics of the vitality cure rating method created a culture were
managers were motivated, and wanted to preform. This method was so successful, that other
corporations implemented the vitality cure into their evaluation of employees, although most
used less strictly. This processes proved to insure a strong employee force, another leading factor
to GEs profits.

New Yorks Hudson River was heavily polluted from several of GEs manufacturing plans
in New York. Over a course of 35 years 100,000 pounds of polychlorinated biphenyls (PCBs)
were released into the river. PCBs are toxic to humans and animals, causing cancer and other
illnesses. The outcome damaged the fishing industry on the Hudson River, and the chemicals
spread down 200 miles of the river into the ocean. The conclusion by the Environmentalists was
to dredge the bottom of the river to remove the toxins. GE was found liable for the pollution, but
Welch refused to take any action to clean up the mess. He claimed it would be a nuance, and
persuaded the community that it was an ineffective solution; he even hired lobbyists, a former
senator, and six former House members to fight against the cleanup.
The GE pension fund had a surplus of 21 billion and covered around 485,000 employees
and 195,000 retirees. Inflation hit in so retirees were unable to live off their 1965 pensions. GE
responded with a 15 to 35% increase in 2000, but there was a 60% increase in prices, so retirees
requested for a more generous increase. Welch refused to accommodate the requests. With the
abundance of leftover money in the pension fund GE was able to apply it to revenue, increasing
earnings to 13.7% (154). By ignoring retirees requests, GE was increasing corporate profits.
In September 2001, Jeffery Immelt took Welchs CEO position and applied vastly
different values to GE. . Under Immelt, his tactics were much different; he went out of his way to
enhance society. He cleaned up past pollution in the Hudson River at a cost to GE of $1 billion
dollars. He kept in place the ranking process for managers, but did not hold it to such strict
standards, Immelt even made an effort to enhance GEs diversity issues that Welch ignored. GE
transformed into a company that in 2008 it was the second most socially responsible company
among the top 100 global corporations. Immelt was not as concentrated on the shareholders, but
more on society.

GE in the Welch era did fulfill the corporate duty to create wealth; he made fortunes for
managers and directors, and paid taxes. Welch did fulfill the economic responsibilities to society,
but he did not take responsibility for the pollution of the Hudson River. GE was careless, and
was not willing to make right to the pollution they created.
GEs priorities under Welch represented practical methods, like the vitality curve. Welches
management style appeared cruel to some, because of the 132,000 employees he cut as a result of
his vitality curve ranking system. Although it appears Welch got carried away with his belief that
exactly 10% of employees must be cut, but this tactic is what lead GE to the outcome he wanted,
high profitability. Welch took the necessary actions to save money, even if it was at the expense
of employees. Welchs focus was on cost cutting efficiency, not supplying jobs. Implementing
strict employee ranking, it served as an effective elimination system cutting out poor preforming
employees. This method leads to employers working hard to stay on the top, and removing the
employees with inadequate performance, making the work place more efficient. The type of
employees in a firm reflects the business you create, so by retaining the profound performers the
company will see better results. It is not wrong to see employees as costs of production, because
having excess employees is a large expense. GE increased their efficiency by having productive
workers, and weeding out he bad. The concentration was on saving money, and raising profits.
An overflow of GEs pension fund was a significant factor to their competitive financial
statements. This is a strong play on accounting rules by Welch; he made the decision to limited
pension increases to benefit the company. Welch ignored the requests for more by ex employees,
but he did so for the better of the companies financial standing. By law, GE did nothing wrong,
so because of this decision GE and its stockholders were able to reap the benefits. If Welch
agreed to the larger increase, the company would have fewer revenues to report, so their financial
standing would be weaker, therefore not putting the stockholders needs first. This was an ethical

business decision to keep GE a strong competitor in the market. GE remained responsible by


allocating a 15 to 35% increase to pensions in 2000 (155). This limited increase represents that
they are running for economic profit. GE was not meeting only social objectives, but financial
ones. In fulfillment of the promise to benefit the economy Welch took the financial
responsibility to not over allocate pensions.
Welchs was not socially responsible in his failure to acknowledge the pollution GE
created to the Hudson River. Although at one point the plants releasing of PCBs was allowed, by
1977 PCB became outlawed because of the severity of the chemical. The toxins from GEs plants
still contaminated the Hudson River, and GE is liable for the harm done. Welchs decision to let
the chemicals lay in the Hudson River went against a government mandate to eliminate the
chemical. His disregard for the standards enforced by law was unethical. Even though the release
of this chemical caused serious harm to the environment and destroyed the fishing industry on
the Hudson River. Welch took no voluntary actions to fix the problem. Instead, Welch used
money to hire influential people like the 17 lobbyists, a former senator, and six former House
members to persuade the community to ignore the pollution so he would not have to pay for the
cleanup. (154) There was no concern for the impacts GE had on the environment, or the fishing
industry that was left destroyed. Although he was supplying a profitable firm to society, taking
advantage of the environment is not socially responsible. Ignoring the pollution they caused to
save GE money and time is unethical, and unfair.
Overall, Welch believed he was acting for the better, he even stated, I believe social
responsibility begins with a strong competitive company. This remains true for the jobs lost
under his authority, and the limited increased in pension funds. As a result of his responsible cost
cutting methods, GE was able to sustain its position as a large competitor in the market. GE was
incredibly profitable, and earnings per share for its shareholders rose from $0.46 in 1981 to $1.07

in 2000. (151) It is clear that GE under Welch served the economy greatly with profits they
created, but he took the cost saving methods too far when he ignored the pollution of the Hudson
River. Welch overlooked corporate social responsibility by refusing to take action to cleanup the
pollution GE plants released into the Hudson River, even though they were proven liable for the
contamination hurting the surrounding communities and destroyed its fishing industry.
GE did not conform to correcting the adverse social impacts they caused from polluting
the Hudson River with PCB. The responsible action would be to accept their accountability and
the effects that the pollution had on the community. Leaving behind a mess is not fair to society,
so Welch should have taken the cleanup expense without hesitation, restoring the River. As the
CEO he should have gone beyond dredging the River, by taking other steps to make the firm
more environmentally friendly. Welch should have exceeded the requests by also giving back to
the community that was affected. GE could have acted in a socially responsible way, by
accepting the liability, and agreeing to remove the dangerous illegal deposits. The refusal to
clean up the mess proved that in this case Welch worked too much for profit and not enough for
society. Welch left the Hudson River societys problem so GE could save money. By not
protecting societal assets, GE under the Welch area was not socially responsible.