Thomas Gryta is a reporter at the Wall Street Journal and the co-author, with Ted Mann, of Lights Out: Pride, Delusion, and the Fall of General Electric. In this episode, Robert talks with Gryta about the book, how GE soared in value under its charismatic leader, Jack Welch, and how hubris, excessive financial leverage, and the company’s dependence on profits from GE Capital, nearly forced America’s most famous industrial company into bankruptcy.

Episode Transcript

Robert Bryce  0:04  

Hi, and welcome to the power hungry podcast. I’m Robert Bryce. On this podcast we talk about energy, power, innovation and politics. And my guest today I’m proud to say is Thomas Greider. He is a reporter at the Wall Street Journal and the co author of a new book called lights out. Pride, delusion and the fall of General Electric. Tom, welcome.

Thomas Gryta  0:25  

Thanks for having me.

Thomas Gryta  0:26  

Happy New Year.

Robert Bryce  0:27  

So I like to have guests introduce themselves. I find it to be less windy, right? Yeah, I could give you a big buildup. You don’t mind. Introduce yourself to our listeners. 3045 seconds, tell us who you are.

Thomas Gryta  0:40  

Sure. I grew up in New Jersey, went to school at the University of Massachusetts, studied some time overseas, which sort of jetted me into journalism. I’ve worked for Dow Jones, The Wall Street Journal, basically my entire career. 20 years, I’ve covered all I’ve been all over the newsroom. I’ve been an editor, I’ve covered steel, I’ve covered biotech, I’ve covered Telecom, and then industrials, which, you know, basically is the GDP.

Robert Bryce  1:09  

Gotcha. Well, great. Well, that was shortened to the point. So I read your book, and I quite enjoyed it. And I’ll tip my hand in saying my first book was on Enron, now almost 20 years ago, pipe dreams. And reading your book had a bunch of parallels to the Enron story a bunch, and I’ll get into those. But But let me start from the beginning. And just ask you what, what led you to write this book and also to have a co author Ted man on? Who can’t join us today? But what what was the When did you know that you had to write a book about GE, and what it what, how the company had has fallen on hard times? When did you make that decision? And why?

Thomas Gryta  1:53  

You know, I think it comes down to wanting to answer the question that we always get, which was what happened to GE, you know, when someone when you tell somebody write about GE, The Wall Street Journal, what happened, you know, and we had written so many stories along the lines, and that had been sort of, you know, breaking news around that, and it just was just amazing stories. And it was this iconic organization. I mean, they just, if you, you know, I just talked about the different industries I’ve covered, but like, it’s like, you almost couldn’t not run into GE, you know, like, it’s just they were everywhere, and I think, you know, really intertwined with our, with our culture. So Ted covered General Electric before I did.

Robert Bryce  2:40  

And when did you start covering the company?

Thomas Gryta  2:42  

2017 So three years ago toy like three months before Jeff Immelt said he was gonna step down, gotcha. Which when I took the job, people were like, you know, he’s been the CEO for a long time. This may happen when you’re there, you don’t know, it’s sort of like the biggest event, you know, who’s gonna be the next CEO of GE. And sure enough, like three months in and it just got a little did I know, that would be sort of the, you know, the the least exciting event that would happen. And

Robert Bryce  3:13  

since then, G has gone through Well, now on to other CEOs since then, now headed by Larry Culp. Right. So yeah, to two other people. I mean, we’re not talking about Pacific Gas and Electric, where they change see who’s every every couple weeks, but still right for a company that’s been as solid as GE to have that kind of change over at the top is unusual.

Thomas Gryta  3:32  

Oh, yeah. I mean, very new, right. I mean, this is this, you would be CEO for decades there. But they’ve only had what a dozen chairmen or something. I mean, it’s yours. Yeah. 120 125 years. It’s It’s shocking. And I think never just just thinking about G’s position as sort of a management icon. It’s beyond shocking, right? Like, how could this happen to them? And I think that all feeds into like, why we thought a book would make sense, we wrote this, this really long piece in the journal in December 2018, that really got into what went wrong was burned out, you know, and it just felt like we could say more. And we knew the story so well, with Ted having covered it for me. We, you know, he’s based in DC, and we just, we, we really work together on a lot of this. And the book really is, you know, we say the order of our names is alphabetical. I mean, it really was the two of us.

Robert Bryce  4:37  

Well, it reads very easily and, and surprisingly so on a, you know, a book, like this seems like it’s a more of a personal kind of thing. And the fact that it’s co authored was interesting, because it’s pretty seamless. I mean, I don’t see a change in tone, and it’s really, really well written.

Thomas Gryta  4:51  

Yeah, that’s amazing. I’m really happy to see that and that’s so like for us, so there’s a lot of rewriting obviously getting that tone, the same I think the 10 I worked very well together. So being III, and we’ve gone through this journey together. So I don’t know, it wasn’t as difficult as it might seem. But for me, certainly the goal was to make it readable, right? It had to be. I just was, you know, how many people are picking up a book about General Electric, and hopefully a good amount. But, you know, I wanted like my mother deal to pick it up,

Robert Bryce  5:22  

of course. And understand it’s interesting you say that when I think about what how I write and what I write, I think in my mom, I wanted to be able to understand it the first time, I don’t want to have to explain it again. No, I want it just has to be simple, but not too simple. But let me let me back up because what you’ve written is, in some ways, a strange corporate history in that, here’s an iconic company that’s started by Edison, Thomas Edison himself, really. And then JP Morgan took it over and and Edison, you know, sold the stock famously and went on to other things. But you skip essentially 100 years of corporate history and pick up in 1981, with jack welch. So it’s not, it’s not this is not the definitive history of GE, it’s really the history of GE, since jack welch and I just looked at the stock chart, and a share of GE is now selling for about 10 bucks, which is the same as it’s sold for back in the early 1990s. So, tell me just how, how quickly, Can you summarize what happened? Why did GE go through this meteoric rise and then fall to Earth? And not fail? Not go bankrupt? But almost what what what happened? What was the shortest possible sentence? What can you how do you summarize what happened? You know,

Thomas Gryta  6:41  

the shortest way is to say is hubris. Right? I mean, it, you know, as it was, you know, a series of bad decisions, resistance to change, you know, this feeling of, of just being impervious to the forces that, you know, corporations have to keep an eye on, I think, you know, we’re so big we can we can handle it. You know, you mix that with just the culture, the performance culture, the way people were driven inside. And then, you know, we don’t even mention the financial crisis, or, you know, the financial aspect of that GE was a bank, with an industrial company wrapped around that, essentially going into the financial crisis. It was a huge, there’s a huge period for them, and they, they got out of it, but I, you know, I don’t know if they really got out of it, you know, I don’t really they were really fully recovered from that.

Robert Bryce  7:39  

And then see if I can paraphrase what you’re saying. And it was something that happened to Enron has happened to a lot of companies, the financialization of the business, instead of sticking to the making, they manufactured profits, they, you know, they they financialized their business. So, I want to come back to the commercial paper part of this because that, I think, is really the interesting, you know, you really lay it out very clearly about their ability to borrow on the short term and landed on the long term. And that was essentially how they were making money as a as a as a, as a bank. That wasn’t a bank. Right, if I can summarize that, but excellent. Let me just back up because to me that the, the stature of GE, it’s on the Celtics, Boston Celtics have it on their uniforms now. Right. That’s the meatball they call it right. Yeah, that would be. So Exxon is of similar vintage to GE, but I can’t think of another company that has as long a track record or has grown to such prominence. As GE, why why was it so successful for so long? I mean, you know, Exxon’s falling on hard times now as well. But why was GE so iconic? And what made it so successful for over the course of a century?

Thomas Gryta  8:52  

I, you know, I think they they did manage to sort of reinvent themselves regularly. And I do I do, I did think that they had, you know, the CEO before, before, Welch, you know, was, was like a renowned CEO, like, you know, they have this history of just producing leaders in management, and I do think was a well managed company for a long time. So, so gigantic. I mean, the markets, they were in light bulbs, making the machines that make the power they a third of the planets power is produced by GE, armed with

Robert Bryce  9:34  

these turbos, it was one of the facts in your book that, you know, I’ve studied my latest book is on electricity. And that was the one that stopped me I thought, Wow, now that is market influence. A third of all the electrons distributed around the world today are coming out of General Electric machines in one way or another. Stunning.

Thomas Gryta  9:51  

I mean, jet engines, X ray is, you know, and they were, they’ve played key roles in developing these types. ologies to And that’s no. So I mean, their jet engine business is gigantic, and we can talk about what’s going on with it now, but like, it’s just, you know, it’s hard to sort of understand how big its presence is in so many different industries. And they really, you know, they survived the sort of great washout of conglomerates, you know, because of they were exceptional. And I think that’s, they’re always seen as well, it’s General Electric, it’s, you know, it’s like, they’re almost like part of the government. I mean, it’s just they are America. And, to your point, there are other big companies like that, but they stuck around for a really long time. And, you know, when you said before, they didn’t fail, they’re still around, I think it’s for the same reasons. I mean, they make big turbines and jet engines, and they still make those products, right. It didn’t,

Robert Bryce  10:48  

they didn’t believe in plastics and medical equipment, and all kinds of other,

Thomas Gryta  10:54  

like real products that people use and pay money for, and there’s cash coming in the door. And it’s, if you can, it doesn’t mean you’re going to be successful, but at least it’s, you know, kind of the first thing you need to set up a functioning business. And I think, you know, they do have that. And I think that does that does help them.

Robert Bryce  11:13  

So you’re still covering you’ve written a book, and which is, I don’t know if there are other ones that are out that are similar vintage, and your book came out? mid mid 2020. Right. I think July. Is that right? So but you’re still covering the company? I mean, what’s that like to have now written a book the book about this company, and you’re still covering it? Is that awkward at all? Or is it give you a leg up? Give me credibility? How does that work?

Unknown Speaker  11:39  

Well, um,

Thomas Gryta  11:40  

if it gives me a leg up at all, I mean, I think it’s interesting to still be covering them, they are essentially a different company. I mean, they really are not, it’s the company that we’re writing about in the book is that Welch ml era. And we write about how all that sort of came tumbling down. And, you know,

Robert Bryce  12:03  

which cover about almost 40 years, not quite 40 years, but for five decades, anyway.

Thomas Gryta  12:08  

Right? Right. You know, and is your point, it’s by no means definitive history of GE. We did write it pretty fast. We wanted to get the story out there. We wanted people who hopefully understand it. You know, and there’s, of course, more that you could write or more details, but yeah, I mean, I think it’s, you know, it’s a still an interesting story. But it’s not, you know, a lot of the people who were there there. Even john Flannery, who came in immediately after him and then was there for 14 months. He was, was really pushing hard to change the culture and really the things he found and he had thought for years about the problems he thought he had and how, you know, he would do it if he got that chance. And I think he was really, really pushing that he just didn’t know he either didn’t really get the chance to do it. But you could also you could argue that, you know, rethinking GE was never gonna be able to be done by an insider. They needed, they needed something to come in and Larry Culp comes in and it’s he’s doing essentially those same things. In his own way, you know, he’s a very sort of regimented, PR is just processes. Right. But it really is a different, it’s a different, you know, I could ask, you know, Larry Culp about, you know, jack welch or the culture of GE, it’s just not he’s not part of that, like it’s a

Robert Bryce  13:30  

and he’s the first that you jumped ahead, because that was one of the questions I wanted to ask because coke was the first outsider, first non GE person to lead the company in its history, and 126 years, which came from Danaher Corporation, I guess. And if memory serves, and that in itself is a remarkable break, but but let’s go back in terms of because the you really cover it, as you said, the welchen ml era. And GE was going, you know, as I said before, goes back to the dawn of the of the electric age in America. So it’s a pivotal company, but it really changed under Welch, who took over in 1981. And the obituary in the New York Times said that during his tenure, the market capitalization of the company went from 12 billion to 410 billion and they called him a business superstar and he was he was everywhere, you know, the neutron jack, he became this celebrity CEO. Why was Welch so important and what what made him successful?

Thomas Gryta  14:32  

Um, know that those are those are great points. Although I would say you should read the obituary for the Wall Street Journal first.

Robert Bryce  14:41  

Like a true Dow Jones man.

Thomas Gryta  14:44  

Sure, like how many CEOs who aren’t founders right are like this, right? Like, how do you think of like growing Lee Iacocca? Like how many people are actually talked about at people’s houses or at dinner tables

Robert Bryce  14:57  

or managers and not owners and I want to come back to that Because that is a critical a critical point.

Thomas Gryta  15:02  

Sure, sure. Um, you know, that was jack welch though. I mean, he he was like larger than life. He came in from the beginning, he wanted to change. He wanted you to move faster. He wanted to get away from the constant planning and sort of what he saw as the sole sort of more stodgy old ways. And he wanted to cut costs, he wanted to be efficient, he was there to make money and make the company as good as it could be. You know, I think, jack, you know, it’s amazing to think of sort of Jack’s position in the world in 1999, compared to now, where I think people question some of his, you know, build rank and yank methods and some of that aggressive, aggressive positioning, you know,

Robert Bryce  15:50  

and ranking. Yes, to be clear, that was that was upper out, right, you had grading every year, and ExxonMobil still does this. Enron did this and that it was a it created at Enron, I would argue, a very toxic culture. But I mean, but that also created a very competitive culture as well, I’m just interjecting that yet rank and yank, because I think that was the other part of his tenure. That was controversial. No, yeah, no, I

Thomas Gryta  16:12  

think that’s true. And if you asked, you know, you know, I’ve seen he has passed. But if you ask jack about that, you know, he would tell you, it was a great tool, because they did so many deals, right? They’re constantly acquiring companies, so they could go in and essentially clean up the place. But I think if you’re if that’s going to be like, the standing corporate policy, it could be really hard on the culture and just you, you might be losing some good people, you know, cinemas, and then, you know, obviously, the move towards financial services, in the 90s, you know, really, really happens under Welch. Right? It was very clear, you know, the people said that he, when he realized how easy it was to make money in financial services, like he couldn’t believe like it didn’t, you know, after decades of selling products and cutting costs, and you’re like, you can just sort of write we’re running a company. So well, people will lend us a great lead rate. So we can just re lend to sort of middle market people who aren’t served as well and get higher rates. And and and i

Robert Bryce  17:17  

think that that’s the key there is because it was really the GE Capital, the rise of GE Capital, which eventually under Welch, if memory serves, I’m looking at my notes here, eventually starts to contribute half of GE profits, which is just enormous for an industrial company that isn’t a bank, and yet it became one of the biggest lenders in the world. And it was due to their credit rating. So but it was that really Welch’s main achievement, or was there something else?

Unknown Speaker  17:45  

Um, you know,

Thomas Gryta  17:46  

I mean, the stock price went through the roof. I mean, how you want to look at achievement achievements. I mean, there were, you know, factory workers on the line, were millionaires because of the performance of GE stock and these years.

Unknown Speaker  18:01  

You know, he

Thomas Gryta  18:04  

it’s a hardcore, like, Where would he be without that? Well, I mean, you know, Westinghouse isn’t around anymore. I mean, there’s a lot. I it seems like it would have been hard for GE to survive without someone like Welch right? Because, and we may get a bit

Robert Bryce  18:19  

acquired or

Thomas Gryta  18:21  

get into this, right. But that, you know, conglomerates really only work when they’re run by the right person. Like, functionally, the theory of conglomerates is kind of not debunked, right? It doesn’t. But if you have the right person, or if you have Warren Buffett, or if you have someone who, right but like that’s hard to say it’s because of the company and not because of the of the

Robert Bryce  18:43  

of the leadership and and that’s a critical point. Well, so I mentioned before we started recording that my first book was on Enron and and there are pipe dreams for all of you listeners out there. It’s greed, ego and the death of Enron, it’s still in print, you can still buy a copy. But you mentioned Enron in your book lights out. And by the way, I’ve just a quick reminder, I’m talking to Thomas Greider. He is the co author with Ted man who couldn’t join us today. A recent book lights out pride delusion and the fall of General Electric, but you make the point at several in several locations in the book about General Electric and the parallels to Enron and one of them was the the special purpose entity. What was the Edison conduit?

Thomas Gryta  19:28  

It was it was a essentially this vehicle for you know, putting the company could buy assets and mark them at low prices, sell them into a vehicle which was an off balance sheet entity. sell them at a higher price and record the gain and use the asset to feed the conduit which essentially issued commercial paper. If that makes sense, I mean, I it’s sort of hard, probably hard to explain briefly, but hopefully we do it well in the book. But, you know, it’s this idea that you’re essentially doing deals in order to pump up your earnings.

Robert Bryce  20:19  

And the key I think here is that is that phrase, the special purpose entity, which is the clear parallel to Enron, which has and Andrew Fastow went to jail for this, he was the CFO, but in GE created a special purpose entities that they later had to reveal, I guess, in in 2001, that the special purpose entities after in their 2001 annual report, that they disclosed that they had more than $55 billion of assets in such special purpose entities. So it was a way that Enron and General Electric both use to make their balance, make their financials look better, by creating this off balance sheet entity where they could put assets move assets and, and appear to be more profitable than they were.

Thomas Gryta  21:03  

Yeah, I mean, I Excuse me, I will just sort of, you know, caution to say, you know, sure. Yeah, I just, you know, I think was clear. And Ron was, you know, fraudulent and there was a lot of self dealing. Whereas, gee, I don’t you know, I don’t think, you know, Jeff Immelt wasn’t in it for the money. You know, I mean, it was not a there was different, I think there were sort of different incentives. But But back then I do think and I think your point about some of the methods that were going on in GE, and in light, I mean, let’s likely other companies were, you know, similar to things that that companies like Enron did when you’re sort of cooking the books. And as you know, after that a lot of the rules changed. Right.

Robert Bryce  22:00  

And so when she was with Sarbanes Oxley and right, but it was around this time that that was kind of the Wild West. And it’s interesting, I was looking at the new board of directors at GE, Leslie Seidman, who used to be on the federal Accounting Standards Board is now on the GE board. So presumably, to have a look at the at the financials, but I one of the things I noticed, too, in 1998, Arthur Levitt, who was in the head of the securities exchange commission, famously said, accounting is being perverted. So, you know, how perverted we can argue about the degree between GE and Enron. But nevertheless, it was not being fully transparent. In terms of the accounting. Is that a fair a fair assessment?

Thomas Gryta  22:41  

Yeah. And I think because of the rules at the time, there wasn’t necessarily anything wrong with it. Right. Just the, you know, the level of disclosure that was required from companies wasn’t there. And when some of these things came down, companies lost some of the tools they use to, you know, manage their earnings.

Robert Bryce  23:02  

Well, and that’s the key is that that was what these special purpose entities and the way that that Geez, blackbox accounting work was that it allowed them to show this continuing growth, never in super stable earnings, and that this was Welch’s hallmark, right was that they always delivered and because they always delivered like him, Ron, and Ron always would manage to beat the the forecast by a penny or two, right, it was always able to just meet the expectation or exceed them slightly. And that was the golden how the stock kept going up was because they never disappointed. Is that is that fair?

Thomas Gryta  23:38  

Yeah. I mean, they were it was sort of surprising is there, it wasn’t really hit it. I mean, they, Welch and even like, Dennis Dameron, like they would talk about, you know, of course, you have to manage, of course, you have to smooth them out. Because no one wants to own a company that has erratic earnings from quarter to quarter. But it’s like, well, that was so like, you’re so then you’re not really you’re not really presenting reality, right? You’re not you’re not you’re not showing the company as it is. You’re, you’re smoothing out all its financial. So it’s

Robert Bryce  24:09  

well, and the other thing that comes to mind is that well, we can explain it to you, but you wouldn’t understand. Right? Yeah, it was, Oh, well, you know, and which was the line that I got when I wrote when I was covering Enron? Oh, well, we’re gonna explain it to you, but you just you know, you’re too stupid. It’s like, Okay, well, right. You’re probably right. So let me talk about jets because this is the other thing that jumps out in terms of the use of corporate jets. And you reported on this. I found your original story from 2017, which is an Enron there was a lot of abuse of corporate jets. There was a lot of abuse at Chesapeake Energy, by the way, as well, but you know, huge fleet of corporate jets, but that you wrote in in 2017, about how during Jeff ml tenure, he would fly in a jet and then he would have another jet. Follow the original jet. And these weren’t just little, little bitty cessnas you know, where you have to duck your head to get into it. It’s a bump RTA global express the operating costs, he said, Well, I looked him up 70 $500 per hour. But according to your story, I think it was that it was an additional $250,000 per trip. I mean, this is a level of extravagance and indulgence. That is truly off the charts when it comes to corporate jets. And I’ve written about this a little bit. I mean, why did it Why wasn’t about doing this? And then he found they found out about any kind of brazen did out? Well, tell me about tell me that story.

Thomas Gryta  25:37  

That was a that was a wild ride, for sure. You know, that was a store we took up. We spent a lot of time on that story. As you can imagine. It wasn’t similarly reported. We didn’t. We weren’t going to go and say something like that unless we were really sure. And, you know, we talked to a lot we really understood what’s going on. And the reaction, of course, people were shocked. But the company itself, they you know, initially they denied it. Jeff denied it. They said it stopped in 2014. We did a subsequent story that show did not that actually there were there were flights in 2017 that were that had backup plans. We did a great graphic of the two planes going around the world. And at one point, we actually had pictures of the two planes. But um, you know, it was it was it was shocking, you know, and again, you know, you don’t, Jeff ml is not. And a lot of people will tell you that that’s not Jeff. I mean, that’s he isn’t this, like chasing money wants to have the best. You know, I just think, to some degree he he didn’t. Well, I don’t know what he wanted, because he he claims that he didn’t he didn’t know, although there’s plenty of how could he not know? Well, there’s a lot of reasons to not have any I’m not gonna get into that. But they you know, it was it was all about he just needed to be where he needed to be. And he goes so many places, he can’t possibly be late for meetings. And if plane breaks down, you have to have a backup one just in case. It defies reason. I mean, it doesn’t like, you know, heads of state Don’t do this. Like nobody has a plane follow them around. It’s that

Robert Bryce  27:27  

it goes back to what you said earlier about hubris, right, that this was this was the way they operated and will of course, I absolutely, positively have to be there. So why not?

Thomas Gryta  27:38  

Yeah, but I think that, you know, Jeff thought of himself as like a head of state, you know, I mean, he used to say he could get, he could have dinner with anybody once. Right? That’s what he used to joke there was anybody in the world would have dinner with him? Because he’s the CO chairman of GE. That might be true, you know, you know, but I think he really, you know, the importance that sort of came with the job when Welch’s prominence really blossomed. You know, Jeff came into that, and he sort of inherited the throne, right. I mean, like, jack did a lot, you know, with the company, and it was already done when Jeff came in. Jeff inherited a lot of problems and, you know, also customers, obviously, but Sure. You know, I think that sort of that hubris, right, that self important,

Robert Bryce  28:29  

right, and that was what that was the word I was gonna hit you back with because that that, I mean, it’s in your title. It’s implied in your title about pride delusion in the fall of GE. Right. But that hubris, right, greed was in the subtitle of my book, greed, ego and the death of Enron. Right? It was this greed. It was an overwhelming greed at Enron. No doubt about it. But it was also ego. Well, your portrayal? Let me go back to Welch because there’s one part of it That to me is something of a parallel to Enron, and then we can leave Enron aside, but Welch was paid, you report about a billion dollars over a 20. Well, less than a 20 year period, which is just a staggering sum. But you don’t mention one of the other parts of the wealth story, which is the Suzy wettlaufer story after you know, he, he gets interviewed by her when she was the head of the Harvard Business Review, has an affair with her then gets divorced. And it kind of tarnished his image, along with the other things that were coming out about the accounting right after the his, his tenure at GE left. I’m just curious. You know, it’s a little Peri. And I suppose Ben Welch wasn’t the CEO anymore, but that that personal character issue to me seems relevant, and you didn’t really write much about it. Why leave that part out? I’m just curious.

Thomas Gryta  29:46  

Oh, well, I think you know, you’ll see we definitely, you know, had to sort of get through certain things quickly. I do think I think we mentioned it wasn’t ugly. You’re right, it was an ugly time. It’s not you know how bad it was for the company itself, and what it meant for the company, which is obviously our focus, I think is hard. But you know, I think you’re right, it came out that you know, jack is having gone through this divorce. And it really, I think he miscalculated sort of how that would go. And when all this stuff like all the perks he was getting, right, right, neighbor’s apartment and this and that it

Robert Bryce  30:27  

all came out, in part due to the divorce proceedings, right? That this right, so it took a lot of the shine off of this, the image that he’d cultivated for more than, you know, his whole career, right, have this upstanding, you know, tough Irish man, you know, and, um, you know, and instead, it kind of came out well, now, he’s just kind of not as not who you thought he was, which to me was, you know, disappointing on a personal basis, but it was also like, well, how different is this guy? Really?

Thomas Gryta  30:54  

Right. Yeah, you know, and I think the the counter argument be like, Well, you know, the enormous shareholder returns under him, and he was a legend. And, you know, his book, he sold this book, it was like, a record at the time, you know, he didn’t even need he, I think he gave it all to charity. I mean, he just he was enormously successful. So for that to come out, and for people that like, because it’s like, you’re kind of like, why does he need some of the papers apartment? Like, yeah,

Robert Bryce  31:30  

I got like, fresh flowers. And and you know, this that the other ones anyway, so? Well, I don’t I don’t want to belabor that point. Let me how much of this of geez failure. Now we talked about Welch, we’ve talked some about ml. And ml, it’s also made a tremendous amount of money. I have it in my notes here. You said it was over $160 million, I think, during his tenure. But how much of the failure of GE do you think is due to this celebrity charismatic CEO culture that we’re in where we are in the midst of and have been in the midst of for a long time? How much of it is due to that?

Unknown Speaker  32:09  

Um, I, you know, I

Thomas Gryta  32:13  

think what sort of trickles down from that, and that idea that like, we are so great, right, like we are, we’re so great that our leader is considered the most prominent businessman in the United States. And this company, and

Robert Bryce  32:28  

on the cover of Forbes has been on the cover for over and over.

Thomas Gryta  32:31  

Yeah, companies bulletproof. And I think it’s, you know, we definitely get into this the idea of like, wow, you know, we did a bad deal. We lost a million dollars. I mean, it’s g we can handle it. But if you only do that so many times, right? I mean, anyone, there are limits, and they think they hit those limits pretty hard. You know, with the financial crisis, and then awesome deal, you know, how they sort of unwound GE Capital and just essentially bought back stock. You know, there were a lot of, you know, missteps as far as like celebrity CEOs, and that sort of

Robert Bryce  33:09  

the aura around them, and the rest of it that yeah, these guys are just they’re just smarter and better. And, you know, smartest guys in the room,

Thomas Gryta  33:16  

right? That was, that was ge. I mean, that was certainly how they saw, right they, I mean, they thought if they own the company, it was worth more than if you own it.

Robert Bryce  33:26  

Right. They have the same the same within that same kind of hubris. But that was let me talk about you mentioned that the share buybacks because this is one of the things that I thought was really remarkable. And, you know, of course, Welch wasn’t the only one in ML to buy back their own stock. Lou Gerstner was famous for this at IBM buying back its own stock, right? Didn’t that was helped push up the share price, or rather earnings per share. But you point out that in around 2008, during the financial crisis, in 2008, the company had spent more than 3 billion buying its own stock. And in 2007, it’s been 15 billion, you then you go on, you say over the entire period, GE paid an average price of about $37.50 for a half a million shares worth more than 18 billion. Now, in 2008, you would sell almost 550,000 shares back to the market for $22 a share in order to raise 12 billion. So they were selling back shares to the market at a lower price. It was wiping out more than twice the amount of cash that the deal that they had done with Warren Buffett who invested billions in the company, it was just we bought the shares for a lot of money then then we had to buy again, or we had to sell more shares, dilute the existing shareholders and lose money in the process. truly one of the most remarkable series of transactions

Thomas Gryta  34:50  

it’s almost like exactly what you don’t do, right. I mean, you know, obviously by you know, buying back stock is this. You know, corporations do that. Obviously, last few decades, it’s been very big. Companies fund themselves using equity, you know, so true. repurchasing that is, you know, that’s fine. But you, you have to think about how you do it, right? I mean, you have to, you should be, you know, think of yourself, but if you have a mortgage or so right, like, you know, you’re buying back stock you’re using the extra cash that you have, right, like you’re using discretionary, you know, like, when it’s like a mission, and you’re devoting capital, so you can buy back, so it’s a little, and then also paired with the extra cash has the value of your stock has to be reasonably reasonably valued, according to your

Robert Bryce  35:45  

right, your metrics, right? Or use if you’re going to use if you’re going to expend capital for it, it has to make sense in terms of value. Right,

Thomas Gryta  35:51  

right. So buying your stock when it’s up, you know, makes no sense. Other than that, you think it’s gonna keep going up? You know, I don’t in the end, GE did not. They didn’t do that, well, they just were buying back stock. And to do that, just as like a policy. You know, it’s it blew, it really blew up. I mean, it just, you know, it’s hard to comprehend how much capital went out the door just to repurchase their stock, and then the stock plummets, and it’s, you know, they are strapped for cash, dividends, and then they issue more stock, which was remarkable.

Robert Bryce  36:33  

Well, let me let me ask this question. So would you would General Electric have failed? How? Or rather, let me ask him a different way. How close do you think the company came to? To to going bankrupt?

Thomas Gryta  36:45  

In the financial crisis? Yes. That’s hard. We certainly talked to people who said, they came very close. And even ml will tell you know, he’s sort of likes to tell war stories when he gives talks, and he would say how badly and how close they came. Now, you do have to kind of put like, your realistic hat on for a minute. Because, again, GE makes all this equipment for power plants, jet engines, they make products for the military. He, I don’t think they would be allowed to go under like, I just don’t think I do think they would have been either bailed out or someone would have rescued them. Both because they do have real assets. They’re worth owning, at some price, right? I mean, there’s no, it’s not zero. But also, I could see the government having an interest and say, wait a minute, like this is one of two major jet engine makers in the world. And it’s the United States. And this is important for us to maintain this. And

Robert Bryce  37:50  

so they were too big to fail.

Thomas Gryta  37:53  

We never got to that point, but I don’t see how they could how they could be allowed to, to fail like that.

Robert Bryce  38:01  

So let me jump back then, because we’re talking about that the 2008 crisis. And this is when they when ml turns to Warren Buffett, who is the quintessential example of the owner manager, right and and, and he has a huge amount of his own money in in the company in Berkshire Hathaway. And he came into rescue 2000. He bought $3 billion in GE preferred stock, collecting this as I’m reading your how you describe this, collecting 300 million in annual dividends, and also received the right to buy 3 billion in GE common stock for $22 a share for five years. Buffett has always had a reputation and well well deserved having cash and being able to spot an opportunity. How important was Buffett’s intervention then at that time for for GE not only in terms of the cash, but as a vote of public confidence?

Thomas Gryta  38:57  

I think it’s the public confidence vote that really was what they needed and wanted, of course, the cash. But they I think they would have had ways to find cash. It’s more about where the cash was coming from. More about that Warren Buffett sees something he likes, right? I mean, he’s, he’s, he’s not, you know, he turned down AIG like he he is not just putting his money everywhere, like he doesn’t make crazy bets. He’s been he’s known to be a very sharp guy. And he he saw and gave his vote of confidence, which he’s fully aware to G. And I think that there’s a justification in that. Like, in some ways, it reminded the market that like wait, this is a real company. Okay, they did not build their business on subprime mortgages or collateralized debt obligations. I mean, this is real assets, real people, real facility, facilities, property, things that are really Money. And there’s value. And I think he,

Robert Bryce  40:03  

but they but gee at that time was in a cash crunch that it was it was needed real money and not not to be able to borrow they needed cash. And Buffett came to the table with a lot of cash.

Thomas Gryta  40:15  

And yes, it I think it’s important to remember that in those times in the in the financial crisis, where it’s it’s hard to put yourself back in that place of how crazy the markets were. And it you know, people did not, people were scared. So the idea that x company may not be able to meet its obligations was terrifying and send people running. So the idea that GE may not be able to make it through, you know, even a perfectly healthy company could start going into a spiral that crushes them, because the market is so scared, and they’re just running. And they know how big GE is. And they know, to a reasonable extent that they have a gigantic financial services operation. And people want thought of GE Capital as a black box. At times like that black box is just scary. You know, so I think having that vote of confidence in Buffett was, was huge. He was the reminder that Wait a minute, yes. You know, what did he used to say is that, you know, financial derivatives or weapons of mass destruction, like he clearly did not want to go into those businesses. But he, he saw it, I think he was commuting to everybody else, like, wait a minute, there’s real, there’s real value here?

Robert Bryce  41:35  

Sure. Well, let me follow up, then, because this is a good time to talk about the GE Capital, and how it operated and explain how they for now, I had to reread the sections a couple of times, but and I’m not going to explain it, I’m going to let you do it. But that that GE had a triple A credit or credit rating, and we could borrow capital at very low cost. So it was borrowing money in the short term and and lending it long term. So and that was one of the weaknesses or vulnerabilities that had during the during the financial crisis. So if you explain it in terms of commercial paper, which is this the the term of art for short term borrowing, tell me can you as succinctly as you can, and I know your Wall Street Journal reporter you’ve been writing about this for a long time? What was the How did GE Capital work in and how and how did it become such a, an important part of their business? G’s business?

Thomas Gryta  42:34  

Well, you know, it alls it all starts, I think it was in the 30s when they started a financial services organization to help people buy appliances. You know, things are expensive, and you have to afford them somehow GE saw an opportunity and helping customers do that. So it’s that’s not uncommon, right, I think, I think so GM is now applying to become a bank. You know, I think it’s not uncommon that people, you know, that companies who try to do that, so it was always there. And it really, you know, it sort of grows in, in prominence, obviously, funding a, you know, $60 million power turbine is a lot different than a, you know, microwave oven. But as it you know, as it grows it, they’re feeding into these, you know, they’re they’re they’re searching for, for yield, right? They’re looking for opportunities, where the banks are, like, they’re lending to restaurant franchisees and, you know, they’re doing anything, they’re, you know, almost, there’s almost like private equity stuff going on over there, you know, buying businesses and, and, you know, taking a chance on them, if they fail, they would pick them up and resell them. I mean, it was in some degrees, it was like a giant hedge fund where they were just sort of finding returns and all sorts of quirky ways. That being said, they’re also like a very functioning bank, and they played an important role in lending.

And they were, you know, by by a lot of measures, they were very good at what they did.

But, you know, how many good banks have blown up over the years? I mean, I think it’s, they were not regulated. And the Office of the thrift or when it was the, they were not regulated, like other banks regulated,

Robert Bryce  44:22  

and wasn’t a banker, and neither was emailed. And so it wasn’t something that they necessarily were had great expertise in, but they understood the ability to make make money. Here was the part that I thought was interesting. You talked about Bill Gross, and his note on GE Capital and talking about it. You said that, that that GE Capital was borrowing huge sums via short term debt and commercial paper than lending it out at higher rates for longer terms. At the time of Gross’s attack Bill Gross of PIMCO, Moody’s reported that GE capital’s short term debt covering commercial paper and debt due within 12 months total A stunning $127 billion, and only 24% or 31 billion was backed by bank lines. And that that was that 31 billion was the only credit that GE had or could draw to pay off that short though short term notes. So it was massively exposed in terms of this short term paper, the commercial paper exposure. And yet it was kind of just glossed over, I guess until gross really pointed this out. Were there other people besides gross who are looking at this and making these kinds of remarks? Or was it only that he had the stature to make the these these observations?

Thomas Gryta  45:38  

Well, yeah, I mean, that again, Bill Gross, talking about stature, and especially in those times hugely influenced, influential, calling out god, it’s not like he really changed changed much. But you know, his point was a good one, they’re issuing all this data they don’t seem to be having anywhere near the cash requirements that that other banks would have, and why does it have this rating? And I don’t know what they’re doing with their money in it. You know, I think he really had questions that were relevant. You know, along decades later, there were there were a few other people, I think, who were suspicious or questioning the model. There was, there was an analyst at the time who had sort of poked around and, you know, but it’s not. It’s not, it was not it certainly was not something that was was a popular, you know, popular staff.

Robert Bryce  46:37  

Sure, and wasn’t well understood by people unless they were really digging into the financials. And that was, again, a similar similar story with Enron. Right, and, and MLM, as you were, I think you pointed out, well, if we have to, if our if our financial report or annual report has to be as big as a phone book, so be it or something, he said that something to that effect, right? Well, yeah, it’s complicated. And we’ll reveal it all, but you’re gonna have to read 300 400 pages, or whatever it was, was, most people just simply won’t do.

Thomas Gryta  47:04  

Yes. Yes. And again, you go back to that, that GE that, you know, the meatball logo, the American icon. I mean, that helps a lot. Right. They get the benefit of the doubt. I think a lot of us

Robert Bryce  47:18  

trust us. Yeah. So what is ml doing now? What is it? Welch died in March, ml Tez. Out of the company? I haven’t heard anything from I didn’t Google about it. I haven’t looked around. What is it? What’s keeping him busy? Do you know?

Thomas Gryta  47:34  

He’s, you know, I don’t know, I don’t I don’t suspect he’s a big, big fan of our work. But he said, he has been he’s a, I think he’s a partner at a venture capital fund. And I know, just from talking to people that he, you know, he does give speeches here and there, but like, that he’s really working with companies, like smaller companies and helping them develop. And he’s mostly based in California. And as I understand it, and in fact, I’ve actually, like heard some, like good things about that. He’s like, you know, he’s doing what he’s doing well, that like people are, he’s being helpful. So like, a lot of these these companies and using his, you know, his experience. You know, but what specifically his plans are, you know, and I would say, I think Jeff doesn’t, you know, I think Jeff thinks he had the right plan. He did the right things, and it just sort of went against him.

Robert Bryce  48:29  

Right. And now he can do pretty much whatever whatever he wants. I’m assuming as you as you point out, he, as a manager, left the company with, what was it about $160 million? I think that and you also point out that under MLS? Yeah, here it is. Approximately $168 million between 2006 and 2017 alone. And the CFO and and others were also handsomely paid. And you also point out that the number of cars that that underwhelmed top executives got cars fully paid for by GE programs started by Welch for about 125 executives and MLT expanded it to cover another 700 which was then killed by john Flannery. But, you know, it seems to me that’s just another it’s not a jet. Right. But it’s also another perk that’s expensive, that is not essential to making the business work, but discards the notion of being very a being the importance of saving money and being a conservative with the company’s cash. That’s just my observation.

Thomas Gryta  49:35  

I think it’s a good one. I think that’s a good like you would write like, cuz it’s like getting get a company car and it was like, okay, run it into the ground for 20 years. I mean, they were, you got a new car every few years. And you would think of that as almost like more of a perk at a law firm. That’s really raking it in right, you’re like, wow, but from a big corporation like that, especially with some of the issues they had and even like, through the financial crisis, right, like that’s when they’re talking about about cutting costs, trimming fat and sort of amazing some of those things survived.

Robert Bryce  50:05  

Sure. Well, so what if we talked about Larry Culp and the idea of the outsider being needed, but I want to go back to this idea of the of the outside manager versus the owner. Right. And that buffet, of course, is the the, the singular example of the, the the corporate boss who manages a conglomerate, but is still has such a big ownership stake that he’s not going he’s not, he’s not a short termer, whereas the corporate manager culture is, well, he’s going to come in, and he’s going to make as much money as he can, he’s gonna make the company look as good as he can for as quick as quickly as he can. Because he knows he’s not going to stay. Right. So is that is that? Is that a irreconcilable difference? I mean, we have this idea about, well, he can have professional managers, and they can come in and run any kind of company or whatever. But is there an inherent conflict between the the owners of the company and the professional manager? And if it is, is it can it be resolved?

Unknown Speaker  51:06  

That’s a tough one.

Thomas Gryta  51:10  

That’s a tough one. You know, I don’t the sort of Yeah, I’m just thinking like, we can sort of, you know, corporate compensation in general, sort of pretty wild. And I think you’re right, I don’t think a lot, you know, I don’t I don’t know how I don’t know how common it is the CEO is going in there and say like this, is it right? This is my chance. I’m going to fill the coffers as much as I can take a lot of risk. Yeah, I mean, I don’t, you know, and even even Jeff 16 years of CEO long career as an executive, he made about $160 million. Of course, that’s an enormous amount of money, right. But in corporate America, it’s not that uncommon. So some ways, if you’re gonna hear an attack that sort of attack the things behind it. And of course, the people say, Well, if you don’t pay that people are gonna leave. I don’t know. But

Robert Bryce  52:06  

the best football coach, we got to have him and we’re gonna write it is because he’s the best, right? Yeah. But I

Thomas Gryta  52:12  

think you’re, you’re right, like, inherently, like, it’s, the incentives are there to do exactly what you’re saying, for

Robert Bryce  52:19  

the temporary manager to come in and do what he needs to do to jack up the price and, and get as much paid as much as he can, because he’s not gonna be there that long

Thomas Gryta  52:27  

you do whatever you can to make the numbers get the bonuses. How much that happens, I don’t really know. It all sent me with ml. He accumulated a lot of stock over his career, and continue to buy even above and beyond. And he has never even up until now has never sold a share with GE. And he was always proud of that. Right? His father worked at GE like, right. He he he’s made a lot of money, but I don’t I don’t think it was a money game. Sure. But you know, success can be just as toxic eating right.

Robert Bryce  53:05  

Let me ask a different question. I’m gonna put you on the spot here, Tom. So what? Maybe, you know, given your position, maybe you don’t want to answer it. What corporate heads do you admire? ones that are either active now? Or historically? Who do you mean, you’ve written a book that’s been very critical of some corporate bosses? Who do you think has done a good job either in the past? Or is it in working now?

Thomas Gryta  53:29  

Um, I’m gonna pass on that question. I am still a reporter. I still no worries. You know, I don’t want to know, I haven’t, you know, haven’t really graded, you know, this person is graded, that person’s great.

Unknown Speaker  53:46  

You know,

Thomas Gryta  53:48  

it is also about, you know, people, you talk about founders and like, the ability for someone like Fred Smith from FedEx to, like, start the company, and then grow it and then evolve it through various things. I mean, that’s exception. I mean, that’s like, that is

Robert Bryce  54:06  

Jeff Bezos, Jeff Bezos the same. I mean, what do you like your manager? Right? Yeah,

Thomas Gryta  54:11  

yeah, I don’t have feelings in other companies where the people either but just doing that, I think is a is a is a pretty amazing, right, you know, damn well, whenever people who really who like sort of start it and they grow it, and they are still still run it, you know, is probably the hardest companies to actually then you know, be the successor to right.

Robert Bryce  54:33  

So let me let me shift gears a little bit and talk about the issue of ESG. Because I just looked at G’s website, and they’re very big on environmental, social governance and so on. Is this. I have this broader question. Are we entering a new era in terms of corporate governance in America and around the world that is going to be excuse me, more defined by the whole ESG rubric is that How do you see that playing out? Or is that something else that you’d rather not rather not discuss?

Thomas Gryta  55:04  

No, I mean, I, we’ve written about it a little bit. I don’t have like, strong feelings about it one way or the other. I do think it’s, you know, it’s driven by this idea that stakeholder value versus shareholder value, right. Like it’s not, should getting that extra penny of ups be the primary goal of the corporation? Some people argue, Yes, right. But but but then there’s this other idea of like, taking into account everything that the company does, and having a more sort of wholesome view. You know, and I think that’s where the sort of the ESG side, I think there is no, I think that is, I think that is happening, right. I mean, Jamie, jamie diamond wrote a letter that was famously sort of breaking that out, and,

Robert Bryce  55:49  

and BlackRock has made it.

Unknown Speaker  55:51  

Yeah, think

Robert Bryce  55:52  

about this. And I think it’s I think it’s stronger in Europe than it is in the us right now. But it seems like it’s, it’s going the the trends that appear to me, particularly looking at the from this from the energy side. Sure. That pressure seems to be growing and quite significant.

Thomas Gryta  56:08  

Yeah, I mean, I think it’s the psychology that people care about what they’re investing in, and they want, you know, they they’re, you know, more concerned that companies are doing the right things, you know, I don’t it’s certainly an area, you know, and I think you’d like before the pandemic, for sure. You know, it’s certainly an area of, of discussion.

Robert Bryce  56:32  

Sure. Let me just have it just a couple more things. My guest again, is Thomas Greider. He’s on twitter at t grider. I said, Thomas grider. t graded t GRYTA. On Twitter. his new book, along with Thomas with Ted man is lights out pride delusion in the fall of General Electric. I’d like to ask my guests in just a couple more things. Great. I’m sorry, say again,

Unknown Speaker  56:59  

great Christmas gift.

Robert Bryce  57:00  

Absolutely. Great. So what are you reading? Now?

Unknown Speaker  57:04  

You know, I

Robert Bryce  57:05  

know that you’re a reporter and writer. What, what authors do you admire? And what business writers which business writers do you admire? What’s on your nightstand?

Thomas Gryta  57:19  

Oh, that’s a tough one I admire you know, I have a lot of I have a lot of colleagues that I have to be honest. Like, we’re hit the wall street journal. Constantly. I mean, you know, Bad Blood by john kerry rue, like he came out of the journal. Like, it’s some of that amazing reporting. You know, I mean, I wouldn’t get, you know, people to people, but like, I mean, so many of my colleagues have written great books this year, whether it’s about you know, the college scandals or housing, or it’s really humbling, and I do try to support and read their work. I mean, it’s almost it’s a, it’s, it’s staggering. You know, and I love being in the journal newsroom. I think it’s just an amazing place to sort of cultivate all those ideas, you know, but there’s obviously you know, others others are classic books out there. You know, barbarians at the gate. I’ve already mentioned that, you know, Jim Stewart is brilliant, you know, I mean, it’s, it’s, uh, but to be I, you know, I don’t I like reading about, you know, histories, you know, like, we were for this book, it was fun to read a bunch of books about Thomas Edison, you know, he’s fascinating guy. And it was interesting to sort of learn about his role in JPMorgan, or Florida, all these sort of early founders in their own, you know, financiers. But I think, you know, and then

Robert Bryce  58:50  

that’s good. That’s good. I don’t want to beat it to death. So last question for you. What gives you hope?

Unknown Speaker  58:57  

gives me hope. Yes.

Thomas Gryta  59:04  

Well, I mean, it’s kind of a deep question. I mean, I

Unknown Speaker  59:07  

took a

Thomas Gryta  59:10  

lot of hard questions. It’s like human right. I mean, humans inherently good. You know, but my children you know, seeing their world and how they look at it, the questions they ask and how they think about, think about things and you know, I could see, just in my own life, how things have been, you know, our lives, right? Anybody lives today, life has changed so drastically, just over the course of our lives, you know, to see people entering the world and my oldest is 10. My youngest is six, you know, to sort of be that place in the world and like wow, like you’re you’re coming into this world where it’s so different, you know, like trying to describe you did you

Robert Bryce  59:51  

didn’t know the world. We didn’t have an iPhone.

Thomas Gryta  59:54  

We’re just trying to describe them like not that long ago, the big scheme of things of like, you know, when I was in school, travel through Europe or something, and it was like, he sent a letter. I tried to call home on your calling card. So like, it blows their mind. Like why, you know, like is that mean, I think that gives me like seeing humanity’s ability to sort of adjust and solve problems that gives me hope. That’s a good question. Yeah. Do you think people are good or bad? I think, you know, ultimately, Let’s all try to leave this place better than we found it.

Robert Bryce  1:00:27  

That’s a good way to stop. Many thanks to my goodness. Go ahead. You have some good. Thank you.

Thomas Gryta  1:00:37  

Thanks for having us on.

Robert Bryce  1:00:39  

Yeah, Ted. Would love to be here. Unfortunately, it could be a family issue can make it but no problem. We’ll all mentioned Ted. He’s on Twitter as well at tea man WSJ on Twitter. The book is lights out pride delusion in the fall of General Electric by my guest, Thomas grider. And Ted man, it’s available at all major retailers, so by all means, buy a copy. Tom, many thanks for your time today. It was great fun. Congratulations on the book. It’s very readable and brisk, I would say brisk reading about one of the most interesting companies in America. So congratulations on that and all of you in the podcast world. Thanks for tuning in. This is the power hungry podcast. If you like it, rate it on your favorite podcast platform and make sure to tune in for the next edition of the power hungry podcast. Thanks

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