Winning ways: Jack Welch explains why he's a longtime champion of HR

HR Magazine, June, 2009

Since retiring from General Electric in 2001 as one of the world's most respected business leaders, Jack Welch has stayed active in teaching, speaking, consulting and writing about his experience and views in an unvarnished, plain-spoken style. In advance of his scheduled keynote speech June 28, 2009, at the Society for Human Resource Management's (SHRM) 61st Annual Conference & Exposition in New Orleans, Welch talked with SHRM Editorial Director Leon Rubis.

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When did you develop your appreciation for the human resource function? Was there an event that caught your attention early on?

When I started a business myself, I did all the hiring; we were a one-man band. When I got to a larger business, I saw that appraisals were not candid, that few people really had face-to-face conversations that were real, and so I changed the HR practices. HR was way too focused on benefits and forms--picnics and parties, I called it--and not on the development process, on the leadership process, of making sure hiring and firing was right and fair, so I got deeply involved in it.

I realized pretty early that I was always more interested in HR than I was the finance manager, and I always thought the HR person was at least equal to the finance manager.

Why haven't more CEOs elevated the heads of HR to the same status as the CFOs, or taken maximum advantage of their HR functions?

More and more are. Nevertheless, it's human nature. Some people who don't do it feel: "I'm the HR person, I know how to do this; this is easy." And finance is more complicated in their minds. If you asked a crowd of 100 how many could do a discounted cash-flow rate of return, you'd probably get 20 hands, if you're lucky. And if you asked them how many of you are "people persons," you'd get 100.

So, they don't understand that the job isn't just knowing Harry or Mary--it's developing them, it's being sure they're treated fairly, both with candor and reality. It's a much bigger deal than many people perceive.

What advice would you give a top HR person, perhaps in a smaller company, who does not have the full attention and respect of the CEO or other executives?

Either they get it or they move on. Look at themselves in the mirror. Are they good? Are they performing? Do they want to do more?

Now, moving on in this environment's tougher than a year ago. Nevertheless, if you're not having an impact, why would you want to be the HR person in a place? Your job is to be sure that a great leadership team is built, and you're responsible in many ways for ensuring that managers are candidly appraising people. See, I always say that the appraisal system or the performance management system should be treated with the same seriousness as Sarbanes-Oxley. If it is a fraudulent process, you can't put them in jail but you can sure get rid of them.

You can't have these phony performance management systems. You see some of the tragedies at times like this when you see layoffs occurring and people looking everywhere and saying, "Why me?" because they weren't candidly dealt with. It's awful.

Are there specific skills that HR professionals should build to enhance their standing?

The biggest thing they can get is real trust, so that employees trust them to vent, to talk about their careers, without them thinking they're going to turn them into the boss. And the boss has to trust them to know that the HR person is always having the company's best interest at heart and is not being a phony kingmaker. But the boss has to know that confidence will be kept on their side, and the employee has to know confidence will be kept on their side and used judiciously.

It's a very difficult job. Great HR people, I always say, are both pastors and parents. They have to listen like a pastor and be confidential, and they have to tell it straight like a parent.

What role, if any, do you think specific executive compensation practices have played in the collapses of the mortgage and financial-services industries?

We've got to look at earnings over a longer period of time. In the company I worked for, stock options vested in three years, five years. Restricted stock vested in five years, seven years, and [you] have it at retirement. You've got to get it so it's out there a long time. You can't have one-year-driven compensation. So, to whatever extent compensation played a role--and I wouldn't say it's the total role by any means--it was in driving more short-term behavior.

Do you think there's some overriding lesson from this recession for the business world?

Well, trees, don't grow to the sky. That's always what happens in bubbles.

But there's a great lesson for HR professionals. HR has to step up and be sure that as companies downsize or restructure, people are treated right, fairly, with notice, with as much severance as possible, with as soft a landing as possible. And if they didn't have a good performance plan in place before, they better put one in now so they never get caught again telling people they have to go home without them knowing why. So HR has a big role to learn here--those that were caught, if you will, by being told: "We've got to get rid of 5,000 people." Without having a performance management system in place, you can't really do it.