Power Failure

In the grand theater of American capitalism, few stories capture the arc of corporate triumph and tragedy quite like the tale of a company that once embodied the very essence of industrial might. Picture, if you will, the moment in 1892 when two titans of invention—Thomas Edison and Charles Coffin—joined forces to create what would become the world's most admired corporation. Their merger didn't just birth a company; it unleashed what they called "The Benign Cycle of Power," a revolutionary concept where every electric appliance sold created demand for more power generation, which in turn created demand for more appliances.

This is the story of how a company built on the fundamental force of electricity—the very power that lights our cities and drives our machines—rose to become the most valuable corporation on Earth, only to stumble spectacularly in ways that would reshape our understanding of corporate leadership and financial engineering. Through the lens of this corporate giant's journey, we witness the evolution of American business itself: from the age of industrial innovation to the era of financial wizardry, from the cult of the celebrity CEO to the harsh reckoning of market reality. The rise and fall we're about to explore reveals not just the fate of one company, but the broader tensions between short-term performance and long-term value creation that continue to define corporate America today.

The birth of General Electric in 1892 was anything but inevitable. While Thomas Edison captured headlines with his revolutionary incandescent bulb, it was Charles Coffin, a shoe manufacturer from Lynn, Massachusetts, who possessed the business acumen to transform electrical innovation into industrial dominance. Coffin understood something Edison didn't: invention without organization was merely curiosity. When financial pressures forced Edison to merge his scattered electrical enterprises with Coffin's Thomson-Houston Electric Company, the result was a corporate entity that would define American industrial might for over a century.

The early decades tested every assumption about corporate survival. The Panic of 1893 nearly destroyed the fledgling company, forcing Coffin to sell securities at devastating discounts just to meet payroll. This near-death experience shaped the company's DNA in profound ways. Coffin emerged from the crisis with an obsession for financial conservatism and operational discipline that would become legendary. He coined the accounting principle "use cost or market value, whichever is the lower," a maxim that survived him by decades.

What distinguished the company from its competitors was Coffin's vision of what he called "The Benign Cycle of Power." The company didn't just manufacture electrical equipment; it created entire ecosystems of electrical dependency. Every power plant built created demand for transmission equipment, distribution networks, and ultimately the appliances that would consume the electricity. This virtuous cycle transformed the enterprise from a manufacturer into an architect of the electrical age, positioning it at the center of America's industrial transformation.

The company's early success stemmed from more than just technological prowess. Coffin pioneered what we now recognize as vendor financing and strategic acquisitions, using the growing balance sheet to fund customer purchases and absorb competitors. When patent disputes threatened to strangle innovation, Coffin simply bought the patent holders. This aggressive approach to growth through acquisition would become a defining characteristic of the strategy for the next century.

By the 1950s, under leaders like Gerard Swope and Owen Young, the corporation had evolved into something unprecedented: a company that functioned as both an industrial powerhouse and a training ground for American management talent. The company's influence extended far beyond manufacturing, shaping everything from labor relations to government policy. This foundation of industrial excellence and management sophistication would prove both the greatest asset and, ultimately, the source of the most dangerous hubris.

When Jack Welch drew his three interlocking circles on a cocktail napkin at a New Canaan restaurant in 1983, he was sketching more than a corporate strategy—he was designing a revolution. Those circles represented the future: core manufacturing businesses, high-technology ventures, and financial services. Everything outside the circles would be "fixed, sold, or closed." This simple diagram would guide one of the most aggressive corporate restructuring campaigns in American business history.

The transformation began with surgical precision. Welch divested 118 businesses generating over $3.5 billion in proceeds, while simultaneously acquiring companies that fit his vision of market leadership. The $6.3 billion acquisition of RCA in 1985 exemplified his approach: buy for strategic assets like NBC, then systematically dismantle everything else. Within two years, the company had sold off RCA Records, the television manufacturing business, and dozens of other units, keeping only the crown jewel of network television and the valuable patents that would generate profits for decades.

But the real genius lay in what Welch was building behind the scenes. The Capital division, once a small financing arm helping customers buy appliances, was transforming into a financial colossus under Gary Wendt's leadership. Leveraging the AAA credit rating, the division could borrow money cheaper than most banks, then lend it out at higher rates across an expanding universe of opportunities. From leveraged buyouts to equipment leasing, from real estate to venture capital, Capital was becoming the engine that would power the company's legendary earnings consistency.

The secret to success lay in what Welch called "earnings management"—the art of using Capital's vast portfolio of assets to smooth out the inevitable ups and downs of the industrial businesses. When aircraft engine orders declined, Capital could sell some real estate investments. When power plant sales slumped, the financial arm could accelerate collections on outstanding loans. This financial engineering allowed the company to report steady quarterly earnings growth that Wall Street rewarded with an ever-higher stock price multiple.

By the mid-1990s, Welch had achieved something unprecedented in corporate America: he had created a company that seemed to defy the normal rules of business cycles and competitive pressure. The stock price soared as investors embraced his vision of a diversified industrial and financial conglomerate that could deliver double-digit earnings growth regardless of economic conditions. Yet even at the peak of his success, Welch was sowing the seeds of future problems. The relentless focus on quarterly earnings growth created enormous pressure throughout the organization to deliver results at any cost, setting the stage for the dramatic reckoning that would follow.

The selection of Jeff Immelt as Jack Welch's successor in December 2000 seemed like a natural continuation of the winning formula. Immelt possessed the classic pedigree: Harvard MBA, successful track record running major divisions, and the communication skills that Wall Street expected from the leader of America's most valuable company. But the timing of his ascension—taking over just days before the September 11 attacks—would prove catastrophic for both Immelt and the company he inherited.

The challenges facing Immelt were more fundamental than anyone realized. Welch had left behind a company that was essentially a hedge fund disguised as an industrial conglomerate, with Capital providing nearly half of the company's profits through increasingly complex and risky financial transactions. The industrial businesses, starved of investment during Welch's relentless focus on cost-cutting, were losing ground to more focused competitors. Meanwhile, the accounting practices that had enabled the legendary earnings consistency were coming under scrutiny from regulators and investors alike.

Immelt's response was to double down on the very strategies that had made Welch famous, but in markets and circumstances that were fundamentally different. He pursued massive acquisitions in financial services, buying Genworth Financial and expanding Capital's presence in commercial real estate and consumer lending just as those markets were approaching historic peaks. The $358 billion acquisition spree during his tenure included disastrous bets on oil and gas services, water treatment, and renewable energy—sectors where the company lacked competitive advantages and market timing proved disastrous.

The 2008 financial crisis exposed the fundamental flaws in the business model. Capital, which had grown to become one of the largest financial institutions in the world, suddenly found itself unable to access the commercial paper markets that funded its operations. The company was forced to accept a $3 billion investment from Warren Buffett on punitive terms and cut its dividend for the first time since the Great Depression. The crisis revealed that the industrial businesses alone could not support the company's massive overhead and debt burden.

Perhaps most damaging was Immelt's failure to develop a coherent strategy for the digital age. While competitors like Siemens and Honeywell invested heavily in software and data analytics, the company pursued a scattershot approach that included everything from a failed attempt to become a major software company to investments in trendy but unprofitable ventures like 3D printing and the Industrial Internet. The stock price stagnated for over a decade as investors lost faith in management's ability to create value, setting the stage for the dramatic reckoning that would follow.

By 2017, when Jeff Immelt finally stepped down after sixteen years as CEO, the stock had underperformed the S&P 500 by more than 40 percentage points during his tenure. The company that Jack Welch had transformed into the world's most valuable corporation was now worth less than it had been when Immelt took over, despite having spent hundreds of billions on acquisitions and investments. The succession of John Flannery and then Larry Culp as CEO brought long-overdue transparency to the financial condition, but the revelations were devastating.

The company disclosed massive losses in its insurance business, wrote down billions in goodwill from failed acquisitions, and revealed that its industrial businesses were generating far less cash than investors had been led to believe. The dividend was slashed to a penny per share, and the corporation was forced to sell crown jewel assets like its aircraft leasing business and biopharma division just to maintain liquidity. The dismantling of Capital, once the engine of the company's growth, symbolized the end of an era in American business.

The retention of Union Fidelity Life Insurance Company and its long-term care policies represented a fundamental miscalculation about demographic trends and healthcare costs. Immelt and his team believed they could manage these liabilities more profitably than selling them at what they considered an unfavorable price. This decision to keep what seemed like a small stub business would eventually cost the company tens of billions of dollars as people lived longer than expected and required more expensive care than the actuarial models had predicted.

Perhaps most poignantly, the human cost of the decline became impossible to ignore. Hundreds of thousands of employees lost their jobs as the company shed businesses and cut costs. Retirees saw their pension benefits threatened as the financial condition deteriorated. Communities that had built their identities around factories and offices watched helplessly as the company retreated from commitments that had lasted for generations.

The ultimate question that haunts the legacy is whether the company's problems were inevitable consequences of structural changes in the global economy, or whether they resulted from specific strategic and cultural failures that could have been avoided. The evidence points to deeper issues that transcended any individual leader's decisions. The company that once embodied American industrial supremacy had become a cautionary tale about the limits of financial engineering and the dangers of prioritizing short-term performance over long-term value creation.

The rise and fall of this industrial giant illuminates the central tension that has defined American capitalism for the past century: the conflict between building enduring value and delivering immediate returns. From Charles Coffin's patient construction of the electrical infrastructure that powered America's industrial age to Jack Welch's relentless focus on quarterly earnings that made the company the world's most valuable corporation, we see how different approaches to leadership and strategy can create vastly different outcomes over time.

The deeper lesson lies not in the specific decisions that led to the decline, but in the cultural and systemic forces that made those decisions seem rational at the time. The cult of the celebrity CEO, the pressure for consistent quarterly earnings growth, and the belief that financial engineering could substitute for operational excellence all contributed to a corporate culture that prioritized appearance over reality. The story reminds us that even the most successful companies are vulnerable to the seductive power of their own mythology.

For today's business leaders and investors, the trajectory offers three crucial insights: first, that sustainable competitive advantage must be grounded in operational excellence rather than financial manipulation; second, that the metrics we use to measure success often become the very forces that undermine long-term value creation; and third, that corporate culture and leadership philosophy matter more than any individual strategy or decision. The companies that thrive in the coming decades will be those that learn from this example by building businesses that create genuine value for all stakeholders, not just those that can engineer impressive quarterly results.

The rise and fall of this corporate empire reveals a fundamental tension between short-term financial performance and long-term strategic positioning that defines modern corporate leadership. Jack Welch's success in creating shareholder value through financial engineering and aggressive cost management established a template that many other companies tried to follow, but it also created dependencies and complexities that proved difficult to unwind. His transformation of the company into the world's most valuable corporation demonstrated the power of decisive leadership and strategic focus, but it also showed how financial innovation could mask underlying problems and create unrealistic expectations for future growth.

Jeff Immelt's struggle to transform the company while maintaining its financial performance reveals the challenges facing any leader trying to change a successful organization. His strategic vision of returning to industrial roots while investing in innovation and new technologies was sound, but his execution was hampered by the need to deliver consistent earnings growth and the difficulty of unwinding the financial structures that Welch had created. The insurance liabilities that eventually brought down the company were the result of decisions made across multiple decades, showing how long-term consequences of seemingly small choices can compound over time. The transformation of American business over the past four decades can be understood through the lens of this journey from industrial giant to financial services company and back again, revealing both the possibilities and perils of corporate reinvention in a rapidly changing global economy.