Power Failure by William D Cohan review – pulling the plug

General Electric was a 20th-century industrial empire. What caused it to fall apart?

The executive suite of General Electric’s Connecticut headquarters was known as “carpet land”. Persian rugs and dense wool carpet covered every floor, creating an atmosphere of hushed probity. For almost a century, GE had stamped its curling blue logo on just about everything, from wind turbines to submarine detectors, fridges, televisions, toasters and lightbulbs. The office was a monument to the baronial power of its CEO. Jeff Immelt, the final chief to occupy this floor, enjoyed the use of a shoeshine station, a pantry and dining room. His two assistants also had their own private bathroom. When Immelt travelled by private jet, as he often did, a second, empty jet would often trail behind him in case of mechanical failures on the first plane.

At its peak, GE was an industrial empire worth almost $600bn. When Immelt became CEO in 2001, he inherited one of the most valuable companies in the world. It was so trustworthy that it had a triple-A credit score, the same rating given to government debt. Fast forward two decades and that huge company is about to disappear. In November 2021, General Electric announced it would be broken up into smaller fragments. Over the previous few years its number of employees had fallen by more than half. The founder of GE, Thomas Edison, was credited with inventing the lightbulb. By the 2000s, the company had started sourcing its lightbulbs from Chinese contractors and branding them as GE products. In 2020, GE sold off its lighting business for good.

William D Cohan’s new book, Power Failure, is a digressive history of what went wrong behind closed doors. Cohan, a business writer and former investment banker, covers almost a century of imperial expansion and errors of judgment. He focuses on the insular politics of the boardroom and the machinations of its executives, rarely pausing to consider the transformation that GE’s products or corporate culture wreaked on the wider world. Instead, Power Failure hinges on two antagonists: the late Jack Welch, the heedless, tyrannical chief executive who was said to advocate firing 10% of his workforce every year, and his successor Immelt, an obstinate sales manager who, as one of Cohan’s sources puts it, was merely “masquerading as a CEO”.

Welch, the restless only son of working-class Irish-American parents, became CEO of GE a few months after Ronald Reagan became president. He was a qualified chemist, but his fortunes rose when he learned the art of financial engineering. Welch transformed GE Credit, a programme launched at the height of the Great Depression that allowed customers to buy appliances and pay for them later, into a financial powerhouse. Under his leadership, the company used its stellar credit rating to borrow cheaply in unsecured markets and lend this money to borrowers at higher interest rates, pocketing the difference. Welch often remarked how effortless it was: “I thought it was easier than bending metal,” he told Cohan, who worked for GE’s financial arm for two years when he was still in his 20s. “It was a home run.” He turned GE into a company that made money from money.

Welch displayed a zealous concern for earnings targets (the Financial Times once called him the “number whisperer”). Often, he would reduce overheads by simply firing people (he fired more than 100,000 staff in his first few years as CEO), or by outsourcing GE’s work to other companies in countries with lower labour costs. But there was another, more contentious source of his uncanny ability to produce ever-increasing growth. The Wall Street Journal accused GE of engaging in “earnings management”, the practice of smoothing out gains and losses in order to produce the illusion of steadily rising profits on a balance sheet (accusations that Welch vehemently denied). In any case, he had created a company whose value was like a skyscraper built on sand, prone to crumbing as soon as the landscape beneath it shifted. Soon, the profits from GE Capital far outstripped those made from inventing things, or producing X-ray machines and jet propulsion engines.

Immelt tried to stem the company’s reliance on financial speculation, but he ended up by inviting the enemy in. In 2015, Trian Partners, an asset management firm known for shaking up underperforming companies, became a top investor. Billionaire co-founder Nelson Peltz, who voted for Trump in 2016, was relentless in his pursuit of shareholder value, so it was perhaps inevitable that the firm would demand changes – including Immelt’s head. GE now has a new CEO, Larry Culp, who works closely with Peltz (neither spoke with Cohan for the book). Last year, Culp finally “pulled the plug on the company”.

At more than 700 pages, Power Failure asks a lot of its reader. Halfway through, a blurry feeling settled over me as the narrative thread was unwound by detours about where particular executives went to university or whom they married. Cohan quotes at length from interviews with Welch, whose anecdotes feel a little too neat, as if you’re listening to a faded power broker recount their best stories across a bar. The rise and fall of GE is explained as the product of individual men and their mercurial decisions, yet its fate has a wider significance. It ought to be a warning: cost-cutting, outsourcing and financial speculation produce a warped model of value that is liable to collapse.

• Power Failure: The Rise and Fall of an American Icon by William D Cohan is published by Penguin (£35). To support the Guardian and the Observer, buy a copy at guardianbookshop.com. Delivery charges may apply.


Hettie O'Brien

The GuardianTramp

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