Jack Welch on His ‘Dilemma,’ And How He’s Resolving It
I want to share a helluva problem that I’ve been dealing with recently.
Papers filed by my wife in our divorce proceeding became public and grossly misrepresented many aspects of my employment contract with General Electric. I’m not going to get into a public fight refuting every allegation in that filing. But some charges have gotten a lot of media attention. So, for the record, I’ve always paid for my personal meals, don’t have a cook, have no personal tickets to cultural and sporting events and rarely use GE or NBC seats for such events. In fact, my favorite team, the Red Sox, has played 162 home games over the past two years, and I’ve attended just one.
But these things are not the issue. How to deal with my employment contract is what creates a dilemma.
I spent 41 years at GE, the last 21 as chairman. My respect for the company and my fondness for its employees make me hate the fact that my private life has brought unwelcome and inaccurate attention to the company.
I’ve debated what to do about this. In my mind, it comes down to two choices. I could keep the contract as it is, and tough-out the public attention. Or I could modify the contract and open myself to charges that the contract was unfair in the first place.
Neither option is particularly attractive on the surface.
My employment contract was drawn up in 1996. GE was enjoying great results and was in the second year of a succession plan for a new CEO. The GE board knew I loved my job, and frankly, I had no plans to leave, despite persistent rumors in the media that other companies were recruiting me.
But GE’s two previous CEOs had retired at ages 62 and 63, and the board wanted to make sure I wouldn’t do the same, especially in light of the quintuple bypass surgery I had undergone the year before. With these facts in mind, the board came to me and suggested an employment contract, which offered me a special one-time payment of tens of millions of dollars to remain as CEO until December 2000, when I would be 65.
I instead suggested an employment contract that spelled out my obligations to GE, including my post-retirement obligations, and the benefits I would receive in return. For six years, the contract was disclosed to shareholders through the proxy statement, posted on the Securities and Exchange Commission website, and discussed in the media. I agreed to take the post-retirement benefits that are now being questioned instead of cash compensation — cash compensation that would have been much more expensive for the company.
Over the next five years, GE prospered and I lived up to my end of the bargain.
That said, in spite of the contract’s validity and benefits to GE, a good argument can be made for modifying it today.
The world has changed during the past year. Reports of corporate malfeasance fill the media, as several companies and executives stand accused of betraying their shareowners. In today’s reality, my 1996 employment contract could be misportrayed as an excessive retirement package, rather than what it is — part of a fair employment and post-employment contract made six years ago. For GE and its board to be dragged into these stories because of a divorce dispute is just plain wrong.
To some, changing the contract may seem like an easy decision. However, changing it could raise the possibility that something about it was improper.
And, others might say, “Why didn’t you bring this up before it was in the papers?” The simple truth is: There was not a single day in the past six years that I thought it was improper, and I don’t believe it is improper today. I was given extra compensation for remaining at GE until I was 65 — compensation which would be delivered in-kind post-retirement, rather than a much greater payment in cash pre-retirement.
So here’s my dilemma: Do I keep the contract and look like someone who’s out of touch in today’s post-Enron world? Or do I modify a legal contract and take the hit of being perceived as having done something improper?
I called a number of people, including my successor, Jeff Immelt, other members of the GE board, and a wide range of thoughtful leaders. They had strong and varied opinions.
Here’s where I come out.
One thing I learned during my years as CEO is that perception matters. And in these times when public confidence and trust have been shaken, I’ve learned the hard way that perception matters more than ever. In this environment, I don’t want a great company with the highest integrity dragged into a public fight because of my divorce proceedings. I care too much for GE and its people.
I’ve asked Jeff and the GE board to modify my contract by eliminating everything except the traditional office and administrative support given for decades to all retired GE chairmen and vice chairmen. They agreed to do so last Thursday.
In the new contract, I will pay the costs for my use of all other facilities and services provided by GE such as planes and the company apartment. I estimate that I will be paying GE between $2 million and $2.5 million a year for these services. In other words, there will be no cost to GE or its shareholders for my use of these services. Also at no cost to the company, I will consult on an as-needed basis, and regularly teach courses at GE’s management development center. In fact, I’ll be there tomorrow.
In the end, this decision may not satisfy everyone, but it sure feels right in my gut.