The Shareholder Supremacy

and future episodes. I want you all to be able to follow along with everything I'm saying. Don't take my word for it, take the many, many links that I've included. It's important that you're just as informed as I am here. But now to the episode, and I promise you, once we're done with this two parter, every thing that's happening will make a little bit more sense, even though it all feels just chaotic and offensively stupid, disconnected from reality

in many ways. I've been working on this episode and its follow up for years, watching these trends, getting steadily more pissed off. As you've probably heard, Unable to see the big picture, because I've been picking up things as I go, even since twenty twenty, when I started writing my newsletter, there was something going on that I just

couldn't quite get. It's been really hard to understand how companies like Meta can run terrible companies with decaying services that are also somehow wildly profitable, or how Meta, Microsoft and Google keep proliferating this unprofitable, unsustainable generative AI tech that takes water from the desert and strains our power grids to produce these deeply mediocre outcomes based on incredibly vague promises, and then see their stock presses go up

despite them not making any money. And I've been craving this way too expe the whole growth at all cost mindset. I've explained what it is so many times, but there is an answer, and it's fairly simple. The customer, and by extension, the service provided to the customer, isn't really the primary concern of many many companies these days. It's

all about shareholder value. And while this may seem a little bit obvious, it requires also a little bit of a history lesson to really explain how profoundly damaging what I call the shareholder supremacy really is. And I know you're probably going to think, well, we all knew the increasing shareholder value was what stocks were about, right, I

really need you to understand what that means. Our journey takes us back almost one hundred years, long before the creation of the Internet, the iPhone, Facebook, the Better Offline podcast, you know, the major things in the tech industry. We're going to talk about the figures that predate the villains I've covered in the past, the Altman's, the Sun Darpichais,

the probagar Ragavans of the world. But despite their historical distance from this current era, these past figures are important to know and understand because they fundamentally shaped the culture and the psychology of today's managerial elite, and crucially built

the incentive structures that guide companies into hell. These stories explain the often paradoxical motivations of modern capitalism, where those who make short term decisions that invariably result in long term pain and in many cases decline, see a big reward, whereas those who built sustainable businesses that actually innovate and don't treat their customers and employees like don't are ignored. If not actively maligned for a lack of growth, but

like I said, it's time for a history lesson. In nineteen sixteen, the Ford Motor Company had an idea to use its surplus capital to invest in new plants to increase productions of Ford's model T car, which the company had continually made cheaper, or keeping wages for its workers.

High Ford, who I should be clear, was a horrible piece of shit thankfully burning in hell right now, intended to cut dividends to shareholders in favor of investing in its employees and infrastructure, which anchored minority shareholders who already incensed that Ford had prioritized the company's success and its employees happiness over making the stock price go up, leading to the famous Dodge versus Ford Motor Company case that would define and ultimately doom modern capitalism and in many

ways birth the growth of all costs rot economy. The Michigan Supreme Court found that a business corporation is organized and carried on primarily for the profit of the stockholders, and that the powers of the directors are to be employed for that end, and intimated that cash surpluses should not be saved to invest in upcoming projects, but distributed

to shareholders. Because Ford had shown that it was good at making money, Ford was directly forbidden from lowering prices and raising employee salaries and forced to issue a dividend by a court. That's the free market, baby, That's how it used to work, and I guess that's how it works nowadays anyway. To be clear, the statement around corporation's

duty towards shareholders was made a beta dicta. This means it was not actually legally binding, despite over one hundred years of people acting as if it was, citing it in cases, using it as a justification to destroy so many lives in favor of growth. This statement not even a legal precedent. A statement was the beginning of what I called the shareholder supremacy. When companies moved away from building lasting, sustainable companies that created things that instead became

these nasty growth bitches that focused on pleasing shareholders. It birthed a short term mindset focused on increasingly abstracting a company away from the production of goods or services and promoting growth mechanics that increased stock valuations and made for better balance sheets. The cult of shareholder supremacy, which some people call shareholder primacy is one disconnected from production, and

I'd argue humanity it's solf. It's this weird, continual shell game where companies do things not to produce, like an outcome in real life or a thing that people like and pay for, but to manipulate investors in the markets themselves, though at this point kind of feels like investors and markets are kind of in on the con These tactics should be immediately recognizable to anyone who's followed my work

over the last few years. If a company share price to clients and management smells a shareholder revolt, they can induce their numbers by laying off a few thousand workers or adopting of specious new technology like generative AYI or the metaverse and then doing a big media blitz to show everyone how cool and growth hungry they are. Or they can do the really annoying thing, which is a share buyback program where the company just buys its own stock,

which then bumps the value of the stock. That whole situation I really need to look into more because it doesn't seem good. And also on top of that, that money is being diverted away from research and development. And employees sees. And it was this movement, this shareholder supremacy movement,

that created the nebulous creature known as management. I realize there are many definitions of management, but the manager we see today is a figurehead that exists at increased company value and make speeches rather than have any kind of

domain expertise or bona fides. They're just a person with the ability to move numbers around and point of people and say get this done, even if this, in this case means makes something worse as a means of cutting costs or layoff a few thousand people so that number

go up in the eyes of the shareholders supremacist. The CEO of a tech company isn't someone that builds, or invests in or proliferates technology, but a kind of stage magician accountant hybrid that uses a combination of sleight of hand, and they promises to convince those around them that a company is of future, occasionally resulting in the company developing

something involving technology. Yet it took decades for the damage from Ford versus Dodge to really set in when in nineteen sixty A horrible little Man, a goblin creature worse than hell called Jack Welch would join a company called General Electric, one founded co founded i should say, by light bulb inventor Thomas Edison, to sell things like light bobs and refrigerators, and yes, I know, a bunch of military stuff too, but putting that aside for a second.

Welch originally joined the company as a junior chemical engineer, a job he lasted him for roughly one year before he was given the power of the manager. I really cannot express enough how bad Jack Welch was for the world. He is damaged to the world itself, to global economies, to the hundreds of thousands of people laid off because he taught people how to do this. He is on the scale of a war criminal. I'm sure he has led to actual deaths, but he's definitely ruined lives. He

showed corporate America how unprofitable having a soul was. He is, to quote Robert Evans on behind the bastards. The reason you were laid off, you and every single other person who was laid off to make a company more money.

But I'll get to them. Eight years into his tenure, Welsh would become the VP and head of General Electrics Plastics division, and to quote David Gallis's The Man who Broke Capitalism, believed that business was a Darwinian competition where he was better than the rest, which caused him to

push g to the limits. In practice, this meant that Welch, as the manager of a factory trying to develop a new kind of plastic in nineteen sixty three, continually pushed his team to move faster, run more experiments, whatever it took, which led to a massive explosion at the factory thanks to Welsh pushing his scientists to use an untested process where oxygen moved through a highly volatile solution. If you've listened to the Behind the bar Asked episode, don't worry.

I'm not going to go over all of it, and I have my own nasty little take now. Kind of like Robert said on Behind the Bastards, one would think that you'd get fired for blowing up a factory, especially if it was your decision making that led to the explosion, But this story instead became a kind of noxious management consultant fable about failure and was, to quote David Gellis, a point of pride for Welch, one that demonstrated a

healthy appetite for risk. Welch became g's head of Plastics five years later in nineteen sixty eight, and would use his aggressive and dangerous tactics to grow Moral, a kind of plastic that's well suited for things like electronics, into a billion dollar business, and crucially, becoming head of plastics gave Welch his very first stock options and potentially his first erection, which in turn began his obsession with stock valuations and I'm, of course referring to the stock options

giving him that obsession. In nineteen seventy seven, Welch was one of a chosen few in line to take over the then CEO, Reg Jones, and was handed a series of business units to run as a test to see if he had it in him, including G's appliance businesses and most important of all, ge Credit, which I'll get back to in a minute, because it's extremely bad what

happens with that. As Gellis recounts, Welch decided that despite its profitability and continued growth, Appliances would face competition from overseas and that the right move was to start laying people off. This was a huge success at the company in so far as it boosted profits, and other divisions copied his idea gleefully firing thousands of people from a company that grew successful by investing in making itself a great place to work. It's so good. I love all

of this. It makes me happy. I don't feel angry at all anyway. To quote gallous, Welch dispensed with the notion that mass layoffs were a measure of last resort and labor was a cost, not an asset. Before Welch, layoffs were something that happened when the company was collapsing, not as a means of boosting one's balance sheet. Thank you, Jack Welch, Thank you very fucking much. I'm actually not being angry enough here. There is no way to show how angry a person should be at Jack Welch for this.

I hope he burns in goddamn hell with Henry Kissinger, Anna, Ronald Reagan and Maggie Thatcher and the rest of these bastards. I should do a shirt around the assholes. That does sound good, anyway. Forget all that for a second. We have a podcast to record, continuing the story about this piece of shit. Welch would become CEO in nineteen eighty one and in the space of two years, would layoff

over seventy two thousand people. One tactic he would employee with stack ranking, or so known as their vitality curve, or as you'll soon understand why, rank and yank, where high ranking managers were forced to rank their subordinates and fire the bottom ten percent. This tactic later spread to and poison countless other companies, including Amazon, Google, Activision, Blizzard,

and Microsoft, which has since stopped using it. It's worth noting, though, that not every implementation of stack ranking usually results in immediate payroll carts. Those perceived as low performers may be denied bonuses or raises, or issued warnings or put on a performance improvement plan, which is almost always a precursor to a firing, kind of like taking a break from a relationship, or they're just encouraged to leave or bullied

into doing so. But even in the most benign for lack of a better word, form, it's a pretty horrendous management tool. If you have a team of ten excellent workers, but only eight can get a bonus or a positive ranking, you have two left out who were considered inadequate, not based on a lipmus of whether they're good at their jobs, but whether they're not as good at their jobs as other people. You pretty much guaranteed to kill morale and

team cohesion. But perhaps that was the point. Welch's nasty, shitty little philosophies have deeply damaged the concept of management itself, turning managers into these tiny little accountants that see labor, as Welsch did, as a cost center, and managers as this protected class above the fray. They don't do work. They tell you to do work. Their job is showing

your work to someone else and saying it's theirs. They're the ones telling you that you must come back to the office, despite the fact that you can't tell what the hell they're doing all day. They're there all the time, but they don't seem to produce anything other than reports.

These people are a direct symptom of the poison in the veins of capitalism, which I know is far from god damn perfect, but it's so much worse than it was caused by Jack Welch, who reframed the definition of a good company to mean one that grows profits while controlling labor costs, and this is how Jack Welch got the nickname neutron Jack, referring to the thermonuclear bond that kills people but leaves infrastructure intact. But I mentioned GE

credit earlier for a reason. G credit was where Jack Welch would really make his marking get into the guts of the business. General Electric was at a time a reliable, profitable, and sustainable company, and was able to fairly easily mobilize capital, which, of course Jack Welch loved, claiming that compared to the industrial operations, I did know this business seemed an easy way to make money, and that you didn't have to invest heavily in R and D, build factories and bend

metal to make money off of credit. In the first few years of his tenure, Welch would aggressively expand, According to David Ellis, is the man who destroyed capitalism, G credit, buying up companies that had nothing to do with manufacturing, including Kidder Peabody, an investment bank that would eventually turn out to have falsified three hundred and fifty million dollars in profits, a thing that also didn't get Jack Welsh fired.

G Capital would expand internationally, ballooning to three hundred and seventy billion dollars in assets by the time that Welch left the company in two thousand and one. According to Gallison, likely referencing a CNN article and including the links a one point, G Capital was America's largest equipment leaser, leasing hundreds of thousands of vehicles, handling credit operations for companies like Kodak, becoming a backbone of America's increasingly debt ridden economy.

To quote Gallus, by the time that Welch left, G Capital was effectively a giant, unregulated bank investing in all kinds of risky debt instruments, including insurance products, credit cards. I think even like tai auto loans. It's so weird.

And crucially, Welch's legacy is one where at the time he was considered a genius that had taken General Electrics market cap, which is just the sum of all available shares, from fourteen billion dollars to four hundred billion dollars, all through a very specific kind of financial trickery where g would move things around, laying people off, buying new companies, selling old companies, getting into new industries to match the

numerical analyst expectations and make earnings targets. In a fawning and quite embarrassing piece from nineteen ninety seven, years before Welch would leave and G Credit would actually lead to its collapse in some levels, reporter John Curran describes how G Capital grew by seeing new opportunities and immediately growing a new business in any new market it could, taking

advantage of Capital's low cost of funds. At one point, both leasing equipment to companies and buying it back, refurnishing it and selling it to other companies, which isn't necessarily a bad business, but but at this point, how many goddamn businesses can you be in Jack where you can't be in any You're burning in hell? What a shame.

In the space of a few decades, Welch had taken General Electric from a company that made light bulbs and refrigerators and plastics to one that continually played with the numbers as a means of boosting its stock price, including a ten billion dollar stock buy back in nineteen ninety and The New York Times as John Hallushah noted that g was only investing two point four percent of its revenues in research and development, nearly a full percentage point

below in the national average at the time. At this point, I really want to take a step back and just point at that, which is this was the first company that really just fucked with capitalism. And there's a whole separate episode if I wanted to win. The economist Milton Freeman, who is also a scumbag boy also Hope is burning in hell rant side note, what ge went from, what

G became. G was able to raise these funds. They were able to grow so big and do all this stuff because they come He was so reliable, They didn't have terrible turnover, They had happy employees, they had sustainable products, they had their own products, their own patents, they owned, they had scientists that worked there for decades. And then Jack Welch came along and destroyed all of that while making it quote a better company, what a worse company. This is the man who taught the market how to

eat shit and love it. I am sorry, that's gross, but that's really what we're looking at here. To be clear, at this point, General Electric was an absolute dog of a company. As David Gellis noted in a Reddit thread, Welch operated at a time before Sarbines Oxley a sweeping series of financial reforms instituted after the Enron scandal that required companies to do these annoying little things like disclose

off balance sheet financial arrangements. So you know a series of loans or credit agreements you made with someone that are not on your balance sheet. I have no idea how that was e and many other financial disclosures were also required that would have likely made what Jack Welch was doing before this a lot harder to play, which Welsh claimed in two thousand and two would suck risk out of the system and cause people to not go for their dream gross way of pertinent Jack, but also wrong.

These things only made people get a little bit clever.

But Welch's tenure was one that destroyed General Electric's ability to innovate while turning it into one of the most wildly profitable companies in the world, all through this nihilistic form of capitalism where growth is really all that matters, even if it means making worse products, constantly entering and exiting industries, reducing spending in research and development for the products that made your company's name, outsourcing multiple parts of

the company to avoid paying benefits and higher American wages and generally treating human beings like an inanimate asset. And yeah, if you're thinking this sounds like every company, this is

why this is the guy. As a result of all of this, when Welch left General Electric, it entered a prolonged period of the client as it became obvious that it had become, as Gellis had called it, a giant previously at least unregulated bank one operating in too many industries in a new regulatory environment that worked against them.

General Electric, in its bloated messi asset portfolio, were central to the two thousand and eight financial crisis, with G capital overexposed to the crisis while also invested in subprime mortgages that would eventually see the company find one and a half billion dollars by the SEC. Though g would still make nearly half of its profits from its financial arm in twenty thirteen, it would also sell off most of it for twenty six and a half billion dollars

starting in twenty fifteen. And while one might say wow, this was a great moment where the company moved away from Jack Welch's legacy, the company would then proudly announce that this would allow them to return ninety billion dollars to investors in the form of stockby and dividends by twenty eighteen, promise I'm not actually sure it ever kept, though it recently announced it planned a fifteen billion dollar buyback in May. Ah nah, Well, this just kind of

seems like a con. I realized that this was an extremely long and arduous history lesson, but it's necessary to express the incredible evil and darkness that was Jack Welch and his horrifying legacy is poisonous philosophy, that everything must grow, that the value of the company is only that which it returns to the shareholders, and that human beings are

a cost to be moderated. These are all things that have been inherited by companies you know today, not just in tech as well, but I mean, look at Meta, look at Google, look at Microsoft. Microsoft. I think this week laid off over one thousand people and they posted I think over over ten billion dollars a profit, maybe more than that. It's all Jack Welch. It's all MBAs

following Jack Welch. During Jack Welch's tenure, by the way, he ran something that I found really gross on top of all the other stuff that was gross, and it was something that David Gallis referred to as a campaign against loyalty, claiming that the psychological contract has to change and that loyalty, to Jack Welch was not giving time to some corporate entity in return for shielding and protection

from the outside world. You know, some kind of value exchange where your labor is traded and they keep you because you're good at the job and you want the job done well. No, no, no. What Jack Welch believed loyalty was was an infinity among people who want to grapple with the outside world and win, I assume by blowing up factories and acquiring fraudulent investment banks, you know, moving fast and breaking things, the meritocracy, making the numbers

look right. All of these things that you hear, all of these things that Jack Welch did, have been picked up and run with by companies that you've worked for, Companies that you've worked with, Companies that you've seen fire people as they make billions of dollars. Where do you

think these people learned it from? Where do you think people gained the ability to run a company that binged and purged assets like Google, taking on entirely new, unrelated business lines as a means of expressing growth to the markets, like Facebook did when it acquired Oculus and WhatsApp. And still, despite your legacy being one of abject destruction and recklessness, like Mark Zuckerberg, you still get called an amazing leader by The New York Times as recently as twenty twenty two.

After hundreds of articles and multiple books talk about how bad you are a business, there's still people telling you you're good. Why do you think Mark Zuckerberg is still celebrated? Why do you think that Wanka gets to fuck around on a goddamn hoverboard sailing across with an American flag and people go ooh, mister Zuckerberg, You're so impressive. Fuck that guy, Fuck them all. I'm sorry, I know i'm ranting.

I'm no, I'm pissed. But when I read this story back, when I see this, it's like watching someone give a disease to someone else deliberately and then check in to make sure they're still sick years later. And the anger I feel, as I've mentioned in other episodes, is because Jack Welch is also the reason why there's not as much money going into research and development. He showed tech companies how to do it. He showed other companies how to do it. This man is the outbreak monkey of

the rot economy. His dark influence has deeply poisoned American capitalism and created an environment where the only good companies

are those that grow forever. His acolytes include David Calhoun, once considered in line to replace him at GE, who later moved on to Boeing, where he worked as a director of the board from two thousand and nine until he became the lead independent director in twenty eighteen and then chairman in twenty nineteen and then CEO in twenty twenty, a period in which he was accused of strip mining Boeing by pushing to cut costs with aggressive outsourcing. Hey,

if you worked out weathers is going yep. During his tenure, two Boeing seven three seven Max eights crashed, one in twenty eighteen just outside of Jakarta, killing one hundred and eighty nine people, and another in twenty nineteen en route Nairobi that killed one hundred and fifty seven, followed by a door flying off an Alaska Airlines fight in January twenty twenty four that led to an investigation where Alaska Airlines claim that it found many loose bolts on its

now grounded Boeing Max nine planes. Bob Nardelli, one of the three finalists at g that competed to take over if the Welch got the job, went on to become the CEO of the Home Depot in two thousand. He boosted profits immediately by aggressively cutting costs, and when the stock didn't stay competitive with lows, which is for non

American listeners. Another hardware store, nar Delli, chose to cut experienced full time employees in favor of part time workers, eroding Home Depots already shaky position in the market, until he was paid two hundred and ten million dollars to leave the company in two thousand and seven. Robert Sophie, I will take two hundred and ten million dollars. That's my cost. Otherwise the podcast will continue. Every single one of these men fails upwards because shareholders supremacy is what

truly dominates the markets and modern capitalism. It's this sense that what matters is growth and shareholder value, even if shareholder value really means making a very specific group of people richer and showing perpetual growth to match the numbers of Wall Street. Welch himself he had this one really disgraceful way of putting it, that you can't grow long term if you can't eat short term, and that the

main social responsibility for a company is to win. The crucial way to summarize Jack Welch was that he was for the majority of his career not actually engaging in the pross of labor or doing any work. He started as a chemical engineer at General Electric in nineteen sixty, but was a high ranking manager three years later, no longer participating in the actual process that made the company rich. As Welch grew more powerful in the organization, he further

distanced himself in production. By the time he was CEO in nineteen eighty one, Jack Welch hadn't done a real job in nearly twenty years. Under Welch, General Electric distance itself from producing things too, and taught the economy that one didn't have to run a good business to be

a good company, just one with the right numbers. And Knowing all of this, it's important to note that Welch was until fairly recently, as I've mentioned, considered a hero, and somehow one of the first people to criticize him was Malcolm Gladwell in October twenty twenty two, only a couple of weeks before The New York Times would publish a piece calling Welch an amazing leader who inspired his

colleagues to accomplish more. Because Welch's horrifying methods were so effective at boosting stock prey, he was at a time considered one of America's greatest CEOs, with Forbes calling him a managerial genius and one of the greatest business minds of the time. No hate to my friends at Forbes, but you also put Sam Bakmanfree Elizabeth Holmes on the cover you gave the Clink, or Guy thirty under thirty, despite that all being made up to you gotta lie.

Actually check these companies out anyway. The problem is that the Moniker greatest CEO, in part thanks to Welch, no longer means somebody who makes a good company with happy customers and sustainable profits that will stand the test of time.

A CEO is no longer a person that built a company and runs it to provide a service, but the person that can make the company look good on paper, meaning that the company in question looks like it's growing, either in quarterly earnings or when presented to a dipsh adventure capitalist that hasn't participated in any kind of work

or production in years or decades. Executives of companies are no longer people that built things, that take that expertise and maybe try and build it further on a national or global scale. But this rotating cast of like skexist style people from the dark Crystal with Masters of business administration from Ivy League universities that all have had jobs with product in the name for ten years or twenty

years beforehand. People that have the right credentials who can continually fail at their jobs, much like prabagar Ragavan did when he took over Google Search after running Yahoo into the ground, because they're not measured at being good at anything, because really, what is a CEO at this point? They're

not measured on efficacy. They're measured on their ability to increase numbers, to make the number go up, and these metrics are often esoteric ways to express growth, something that David Gellis reports was commonplace in Welch's world, where senior management would just adjust inventory to show the appearance of profit. Feeling that and this is a quote that the only way to achieve the enormous increases in sales and profits

was to bend the rules. Little note for edheads here, go back to the Facebook episode the Facebook two party did, but specifically the people killing Facebook. There was a bit in that episode where I mentioned how people were trying not to gain the system, they were afraid of being allowed to gain the system because Mark Zuckerberg wanted ten percent year over year perpetual growth in these growth metrics.

It's the same thing, and it's all thanks to Jack Welch, who gave birth to this monstrous fake business person and this culture of the overpaid and ever distant manager and chief executive, a con artist that moves numbers around to make rich people happy, one that will never and maybe never has participated in the value exchange that makes them rich, or while lacking any real appreciation or respect for labor or the products, or the company or really anything, all

while demanding complete fealty from the workers that they have no respect for. These people have now mentored themselves across generations of business freaks, hiring them and training others to be like them, poisoning private and public companies and investment firms and landlords. And they're everywhere now, these people, these people who find ways to abstract themselves away from creating

value while extracting as much of it as possible. And it's exactly this type of person that's currently destroying Silicon Valley. In the next episode, I'll show you exactly how damaging Jack Welch's growth. The all cost legacy has been to the tech industry, leading to the rise of a special kind of specious management consultant personality that creates nothing while taking everything. Here's a preview, though. Want to know who recommends Jack Welch's winning yet, Sam Oltman. Anyway, see your

next episode. Thank you for listening to Better Offline. The editor and composer of the Better Offline theme song is Matasowski. You can check out more of his music and audio projects at Mattasowski dot com, m A T T O. S O W s ki dot com. You can email me at easy at Better offline dot com, or visit Better Offline dot com to find more podcast links, and

of course my newsletter. I also really recommend you go to chat dot Where's youreed dot at to visit the discord, and go to our slash Better Offline to check out our reddit. Thank you so much for listening. Better Offline is a production of cool Zone Media. For more from cool Zone Media, visit our website cool Zonemedia dot com, or check us out on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts, wos, Sponge,