William D. Cohan on the Rise and Fall of GE

Episode Summary

Executive Summary: Barry Ritholtz interviews journalist and former banker William D. Cohan about Power Failure, his history of GE’s rise and decline. They examine Jack Welch’s leadership, GE Capital’s growing influence and opaque accounting, the company’s earlier industrial and technological legacy, and the succession failures that followed Welch. Cohan also reflects on Wall Street, investigative reporting, and the value of deep research.

Main Topics: GE Capital and GE’s changing business model: Cohan explains how GE Capital grew from a financing arm into a vast financial business, exploiting GE’s low borrowing costs and eventually contributing a large share of company profits. Its complexity made GE harder for investors and analysts to understand. Jack Welch’s leadership and legacy: The discussion weighs Welch’s charisma, ability to influence analysts and media, and record of growth against criticism of his management style, earnings practices, and succession choices. Cohan says Welch later admitted he had mishandled the selection of Jeff Immelt. GE’s origins, innovation, and antitrust history: Cohan traces GE’s roots to the 1892 merger of Edison General Electric and Thompson-Houston, emphasizing that Edison opposed the merger. The conversation covers electrification, wartime technologies, RCA, and an early electrical-equipment price-fixing conspiracy. Accounting transparency and the 2008 crisis: Ritholtz challenges the idea that GE’s earnings management was merely ordinary asset monetization, pointing to complex accounting and poor comparability. Cohan is more sympathetic to the difficulty of managing GE’s mix of industrial and financial assets, while acknowledging the opacity. Succession, corporate culture, and environmental liabilities: They discuss Welch’s forceful personnel decisions, the executives who left GE for other leadership roles, and the problems inherited by Immelt. The Hudson River PCB cleanup illustrates how an initially inexpensive settlement grew into a long-running, costly liability. Cohan’s career and approach to reporting: Cohan recounts moving from journalism into investment banking and back to writing. He describes his books as deeply reported histories and credits a journalism professor’s principle that strong writing depends on substantial reporting.

Key Arguments: GE’s financial arm became central to the company’s performance, but the combination of industrial operations and a large finance business also made its results unusually difficult to interpret. Welch’s success rested partly on his ability to manage perceptions among analysts, shareholders, and media, as well as on business performance; that influence could make persistent earnings consistency seem more reassuring than it warranted. Cohan argues that monetizing GE assets to meet earnings targets was not automatically fraud, while Ritholtz counters that complicated transactions and shifting accounting categories obscured whether underlying businesses were delivering comparable results. GE’s history is broader than the Edison-origin story: its formation was a corporate merger Edison opposed, and its growth involved infrastructure, technological advances, acquisitions, and periods of anticompetitive conduct. Welch developed capable executives, many of whom became CEOs elsewhere, but his handling of GE’s own succession—especially his choice of Immelt—was a major weakness in his legacy. Cohan’s central lesson about nonfiction is that reporting comes before prose: extensive documentary work and interviews are necessary to produce credible, detailed narrative.

Data Points: Cohan’s investment-banking career: 17 years - He says his move from journalism into banking was not a brief detour; he spent 17 years at firms including Lazard, Merrill Lynch, and JPMorgan. GE market value under Jack Welch: About $12 billion to about $650 billion - Ritholtz and Cohan discuss the increase in GE’s market value during Welch’s tenure. GE Capital share of GE profits: Up to 50% - Cohan says GE Capital became an increasingly important contributor under Welch, at one point providing roughly half of GE’s profits. GE earnings record: About 80 consecutive quarters - Cohan says GE met or exceeded analysts’ estimates for roughly 80 straight quarters, a record that helped reinforce confidence in Welch’s leadership. GE Capital assets: About $650 billion - Cohan invokes the scale and diversity of GE Capital’s assets when explaining the difficulty of managing results across the business. GE–RCA repurchase: $6.4 billion in 1986 - Welch led GE’s purchase of RCA, which had been spun off decades earlier; the deal also brought NBC to GE. Initial Hudson PCB settlement: $3 million - Cohan says GE’s initial agreement with New York over PCB pollution was later overturned and replaced by much more extensive cleanup obligations. Estimated total Hudson cleanup cost: About $1 billion - Ritholtz characterizes the eventual cost of GE’s Hudson River PCB obligations as roughly $1 billion; the conversation also mentions about $500 million for dredging. GE’s formation: 1892 - The year Edison General Electric and Thompson-Houston merged to form General Electric, despite Edison’s opposition.

Pivotal Quotes: "You can't write writing. You can only write reporting." — William D. Cohan: Cohan recalls advice from his Columbia Journalism School professor, describing the reporting-first method behind his books. "It was easier to make money from money than from making selling widgets, making jet engines, making power plants" — William D. Cohan, describing Jack Welch: Cohan explains Welch’s rationale for expanding GE Capital and shifting GE toward financial earnings. "And this is on me, and this is going to affect my legacy." — Jack Welch, as quoted by William D. Cohan: Cohan recounts Welch admitting he had made a mistake in choosing Jeff Immelt as his successor.

Implications: GE’s story cautions that a celebrated CEO, strong share-price growth, and consistent earnings do not replace transparent reporting or robust succession planning. For investors and executives, complex conglomerates require careful scrutiny of underlying results, liabilities, and how leadership incentives shape what stakeholders see.