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Sorry, Mr. Welch.

Sorry, Mr. Welch.

SorryLike all of us, I rely heavily on the media's representation of the facts. In a number of articles I have penned recently, I ascribed the birthing of the "shareholder value" movement to comments made by Jack Welch at his 1981 annual shareholders meeting.

I assumed this was accurate—as I have heard this from many CEOs and directors over the years, as well as reading it in a number of well-respected business journals.

In fact, the Financial Times whom I quote in my previous articles states "The birth of the shareholder value movement is commonly traced to a speech Mr. Welch gave at New York's Pierre hotel in 1981, shortly after taking the helm at GE."

I recently had the opportunity to speak directly with Mr. Welch and I come to find out this is absolutely not true. He contends that there was nothing in his presentation to shareholders that in anyway says that maximizing shareholder value is the number one goal of GE.

In fact, Mr. Welch said, he may be known for many things—Neutron Jack, be number 1 or 2 in your market, and whatever else people might think of his management style, but he never put shareholder value above serving customers and building an organization of talented people to better serve those customers.

He commented that he never saw GE as merely a brick and mortar building rather it was the blood and sweat, the passion of the people that made GE, and resents being ascribed as the father of the shareholder value movement. He commended us on our efforts to further this philosophy with new model, The Living Organization®.

I was embarrassed that I fell prey to the media. I took the time to read Jack's 1981 presentation to shareholders and I have to admit cannot find one statement in there that says GE is committing to maximizing shareholder value as their number one goal.

So I, for one, intend to set the record straight. It was not Jack Welch that set off this torrent that shifted the focus from serving customers to maximizing shareholder value. Perhaps it was the investment community themselves that decided what Jack said meant he was going to maximize shareholder value because that is what served their purpose the best. Or perhaps it was just the time and mood of our society that the investor, who by that point in time became you and me and everyone who had 401k and mutual funds wanted to see our returns grow no matter what.

Whatever the real cause, I am glad to see that our society is beginning to wake up to returns are but the by-products, the result of serving customers. I am glad to see that Jack had a chance in that same Financial Times article to state his real position is quotes, "On the face of it, shareholder value is the dumbest idea in the world," he said. "Shareholder value is a result, not a strategy. Your main constituencies are your employees, your customers and your products."

Jack, I apologize for misrepresenting you and thank you for taking the time to share your thoughts with me.

Norman Wolfe
Quantum Leaders, Inc.
Executing Strategy