Power Failure | William D. Cohan

Summary of: Power Failure: The Rise and Fall of an American Icon
By: William D. Cohan

Introduction

Enter the rollercoaster ride that is the story of General Electric, as chronicled in ‘Power Failure: The Rise and Fall of an American Icon’ by William D. Cohan. Witness GE’s journey from its origins in the early electrical industry to its transformation into an industrial powerhouse, navigating changing markets and wartime opportunities. Learn about GE’s expansion into radio transmitters, the consequential problem of monopolies, and the varying strategic approaches by the company’s executives. As you traverse this tale of growth and decline, you’ll gain insights into the importance of careful financial management, the role of CEOs, the power of effective dissent, and the impact of incentivizing corruption.

The Rise and Fall of General Electric

General Electric (GE) was not always the complicated conglomerate it became. From its origins in the early electrical industry, it evolved into a corporate juggernaut that put an emphasis on strategic thinking for the future, finding places to make money wherever it could. However, over time, it went from a nimble market leader to a lumbering dinosaur overly dependent on its capital business. The pressure came fast in the early 2000s, starting with the September 11 terrorist attacks, which hammered GE, and continuing in the shaky market afterward. A changing corporate environment meant GE and other companies were no longer permitted to run amok with little oversight. The company’s lack of transparency, along with accounting practices that had long propped up its image, began to raise eyebrows. GE fell because of many factors, and entrepreneurs would do well to learn from its rather vivid object lesson: if making a huge profit requires too much flexibility and depends on risky ventures, other ways of making a profit should be considered.

The Rise and Fall of GE’s Financial Management

General Electric, in its early stages, valued careful financial management that enabled it to survive and grow. However, things changed later when pride and ambition swept that away. The legendary CEO Jack Welch oversaw an accounting department that delivered profits every quarter by clever use of the company’s sprawling assets. Welch also relied heavily on GE Capital, a division of the company that dealt with loans. It delivered vast and seemingly easy wealth but did so by taking on cheap short term debt to finance profitable long term loans. Coffin, an early leader in GE, demanded careful financial management, refusing to inflate the value of the company’s assets. Had they stuck with the company’s earlier credo of sound finances and conservative money management, the company’s history may have been far different.

Leaders & Legends

A CEO’s decisions and leadership skills can significantly impact the fate of a corporation. Jack Welch’s self-confidence, business acumen, and leadership helped GE thrive, but his successor, Jeff Immelt, lacked Welch’s ability to make wise decisions and build team loyalty. Immelt’s poor choices, such as investing in subprime mortgages, and his neglect for the advice of his executives, ultimately led to GE’s downfall. A CEO’s success depends on their ability to be a good leader and make wise decisions.

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