The Economist - USA (2021-11-13)

The Economist November 13th 2021 Business 69

W

henberndosterloh, the

mightybossofVolkwagen’scoun­

cilthatrepresentsworkers,announced

hisresignationinAprilmanyinvestors

breatheda sighofrelief.Frequent,

acrimoniousclashesbetweenhimand

HerbertDiess,thegroup’sno­less­

mightychiefexecutive,hadbecomea

distractionfromthebigchangesre­

quiredtopushvwintotheelectricage.

TheculminationwasMrOsterloh’s

attempttotoppleMrDiess.

Yetonlysixmonthsafterthedepar­

tureofhisnearnemesisMrDiessis

againlockinghornswithlabourrepre­

sentatives.Thistimeobserverssaythe

brashBavarianmayhavegonetoofar.

Afterall,Volkswagen’sworkershave

enormousclout.Theirrepresentatives

occupyhalftheseatsonthegroup’s

20­membersupervisoryboard.They

cancountontheloyaltyofthetwo

boardrepresentativesofLowerSaxony,

thewesternGermanstatethatownsa

fifthofvw. TheVolkswagenlawfrom

1960 thatlimitsvotingrightsofany

shareholderto20%givesLowerSaxony

a defactovetoonanybigdecision.

Howdidtherelationshiphitbottom

soquickly?Thebiggestboneofconten­

tionistheextentofchangesrequiredto

enablevwtorivalTeslaasa leading

makerofelectriccars.Inanemailthat

wasleakedtotheworkscouncil,Mr

Diesssuggestedcutting30,000jobs,

whichwouldmostlyaffectthebloated

bureaucracyatvw’s headquartersin

Wolfsburg.Yetjoblossesarelikelytobe

anunavoidablepartoftheelectric­

vehicleage,becauseevstakelesstime

toassemblethancarswithinternal

combustionengines.Amidtheensuing

outcry,MrDiesstoneddownhisplans

forjobcuts.

Butthedamageisdone.A four­

membermediationcommitteeisdis­

cussingMrDiess’sfutureeventhough

hiscontractwasextendedto 2025 only

inJuly.Mostagreeheistherightmanto

steerchangeatvw,butsayhelacks

diplomacy.Variousnamesofpossible

successorsarecirculating.Tesla,of

course,facesnosuchheadwinds.Its

boss,ElonMusk,hasusedsocialmedia

towarnworkersagainstunionisation.

TheAmericanfirm,whichisbuildinga

gigafactorynotfarfromvw’shead­

quarters,presumablyviewsGermany’s

systemofpowerfulworkerrepresenta­

tiononboardsasa cautionarytale.

Volkswagen’slabourrelations

Golf ’s course

B ERLIN

Unionsandthebossareatitagain

GeneralElectric

Not so general

P

erhapsthemostremarkablecharac­
teristic  of  General  Electric  (ge)  over  its
129­year  history  has  been  how  thoroughly
it reflected the dominant characteristics of
big American business. Most of its history
was  a  chronicle  of  boisterous  expansion,
then  globalisation—followed  by  painful
restructuring away from the now­unloved
conglomerate  model.  On  November  9th
Lawrence  Culp,  its  chief  executive,  an­
nounced that gewould split its remaining
operations into three public companies. 
Each  of  these  entities  will  be  large,  es­
sential and very modern. One will make jet
engines,  which  ge reckons  already  power
two­thirds  of  all  commercial  flights.  Its
power  business  will  provide  the  systems
and  turbines  generating  one­third  of  the
world’s  electricity.  The  health­care  divi­
sion  will  continue  to  be  the  backbone  of
modern hospitals. Yet it speaks to ge’s re­
markable  role  that  this  is  a  modest  reach
given its past sprawl. From the late­19th to
the  late­20th  century  its  products  lit  dark
streets; provided the toasters, fans, refrig­
erators, and televisions (along with the sta­
tions beamed to them), which transformed
homes;  delivered  the  locomotives  that
hauled  trains;  and  then  built  a  huge  busi­
ness financing all that and more. 
The ambition to be everything was en­
abled by the perception that it could man­
age  anything.  The  21st  century  punctured
that perception. Jack Welch, an acquisitive
chief executive reputed to be a managerial
genius,  retired  in  2001  after  receiving  a
mind­boggling  $417m  severance  package.

Ever­better resultsduringhistenurebe­

guiledinvestorsandsenttheshareprice

soaring. But problems soon arose. The

structureWelchleftbehindwasineffect

bailedoutduringthefinancialcrisis.Loss­

esatgeCapital,thesprawlingfinancial

unithefostered,wereblamed,thoughthe

company’s industrialcore turnedout to

haveplentyofproblems,too.

Recentyearshavebeenspentspitting

out one notable businessafter another.

Thetimingofthebreak­upannouncement

wasdeterminedbythesaleofa largeair­

craft­financing unit.The transaction re­

duceddebtbyenoughtoprovidethethree

soon­to­be independentcompanieswith

an investment­grade credit rating. Mr

Culp,thefirm’sbosssince2018,speaksof

the “illusory benefits ofsynergy” to be

tradedforthecertainbenefitsoffocus.“A

sharper purpose attracts and motivates

people,”hesays.

Having boasted of its management

nous,it nowseemsthatpoormanagement

iswhatdiditfora unifiedge.Thecontest

toreplaceWelchwaswidelyseenaspitting

thebestglobalexecutivesagainstonean­

other,withthelosershiredtorunotherbig

firms.Buthissuccessorsstruggled.Jeffrey

Immelt, Welch’s hand­picked replace­

ment,retiredundera cloudin2017.John

Flannery,onceseenasa wizardbehindthe

riseofthehealth­caredivision,tookover

butwasfiredafterlittlemorethana year.

MrCulpwasbroughtinfromoutside,a

steplasttakeninthe19thcentury.

DuringmuchofWelch’stenureandits

immediate aftermath ge was the most

valuablecompanyintheworld,reachinga

peakmarketvaluenearlyfivetimesitscur­

rent$121bn.Itistemptingtoconcludethat

ge’sfailureillustratesthedemiseofthe

conglomerate.Thatisrefutedbythediver­

sificationoftoday’smostvaluablecompa­

nies:techfirmsthathavebranchedoutin­

todriverlesscars,cloudcomputingandso

on.Rather,ge’s storyreflectshoweventhe

mostvaluableAmericancompaniesmay

be flawed—andifflaws emerge,maybe

thoroughlytransformed.n

N EW YORK

An iconic conglomerate breaks up

And then there were three

Share prices, January 1973=100

Source:RefinitivDatastream

4,000

3,000

2,000

1,000

0

2110200090801973

S&P 00

index

General

Electric

Jack Welch

CEO of GE