The End of Excellence

Inside the empty thinking of America’s executive class


In 1982, McKinsey & Co. management consultants Tom Peters and Robert H. Waterman Jr. published one of the most influential tracts on management ever written. Titled In Search of Excellence, it quickly became a sensation, and Peters went on to write many more books and sell out countless airport hotel conference rooms the world over.

In Search of Excellence had a fairly simple message for big American businesses: overly analytical, numbers-driven, lumbering corporations were a dead end. The way forward would be forged by flexible, dynamic “bureaucracy-beaters.” The book seemed to tap into the self-improvement aspirations of the ascendant managerial class. (Peters later explained that his core audience was essentially middle managers at Domino’s.) The story throughout is that corporations succeed when they operate with a gentle, humanistic touch. The search for excellence, they write,

comes from treating people decently and asking them to shine, and from producing things that work. Scale efficiencies give way to small units with turned-on people. Precisely planned R&D efforts aimed at big bang products are replaced by armies of dedicated champions. A numbing focus on cost gives way to an enhancing focus on quality. Hierarchy and three-piece suits give way to first names, shirtsleeves, hoopla, and project-based flexibility. Working according to fat rule books is replaced by everyone’s contributing.

The theory is often contradictory, but the authors argued that inspired workers who were liberated from bureaucracy gushed a tangy creative juice from which innovation and profit are made. Twenty years later, Peters admitted to Fast Company that he and Waterman had “faked the data” to create their final list of which companies were truly excellent. But it didn’t matter. What Peters and Waterman were really selling was a feel-good story for the new corporate managerial class struggling to reconcile their place in a world of big business, global competition, and rapid technological change. In Search of Excellence told these managers that American corporations could not only be a force for good but an exciting and humanizing place where we all found meaning; the corporation would be more like a small New England liberal arts college than a soulless paperwork factory. At the time, it was an easy narrative to swallow, appealing to the cultural fears of corporate conformity that had emanated from the 1950s, while also providing a way to help big business adapt to a faster-moving world as the United States emerged from the deleterious economic stagnation and inflation that had recently roared through the country.

The strange thing is that in the nearly forty years since the book appeared, there have been almost no advances in the field of management or organizational theory. Open virtually any book on business published in the interim, from the work of management consultant Gary Hamel (Leading the Revolution, 2000) to today’s popular strategist Aaron Dignan (Brave New Work, 2019), and you will find the gurus chanting the exact same litany: Bureaucracy, we hate thee, devil; Nimbleness, Creativity, and Flexibility, thine are our sacred nouns; Innovation, at thy altar we make this sacrifice, for thou art the sole purpose of business; Turbulence, Volatility, we cling to thee, the only way to describe the climate of modern markets.

Admittedly, it’s hard to argue with these propositions. In a world beset by so many problems, who could say that creative problem-solving is bad? But in fact, these books are shadowboxing an imaginary opponent: while they burst with anecdotes about successful companies that confirm their authors’ hypotheses, they rarely highlight any companies that openly praised bureaucracy post-1980. Corporate planning and the suppression of risk were a huge part of the industrial economy after World War II, a period during which the country produced economic miracles, but it’s not clear which firms, if any, hung on to that way of thinking three decades later. From book to book, there’s also no consistent definition of what bureaucracy is, exactly. Is it paperwork and approval processes? Professional administrators? Managers? Committees? Regulations? Compliance staff? Rules?

This misleading, overly simplified story of the role of American business in American life began as a repudiation of the New Deal order, under which the federal government and labor unions supposedly hog-tied big businesses with all kinds of rules and regulations. And while this repudiation was surely still meaningful in, say, the 1960s, by the 1980s the bureaucratic shackles that unions and federal regulatory bodies once had—regulations that worked to constrain executive pay, enhance workplace democracy, make the financial system more stable, eliminate harassment, and protect marginalized workers—had either been completely tossed off or co-opted. The trend only accelerated over the next two decades as the federal government undermined the welfare state and allowed corporate America to engage in widespread wage suppression.

There is, of course, another purpose to the unending denigration of the bureaucracy and valorization of innovation. It suggests that America still has the potential to lead the world and spread prosperity, driven by American firms creating new technologies and products. This story is that of industrialization—a time in which the country really did invent world-changing drugs, chemicals, and machines, and grew rich in the process—grafted onto a completely different geopolitical context. It’s a story in which America still has a purpose, a clear trajectory. Rising wages, a burgeoning middle class, growth, prosperity: let’s do it all again! But with no unions or bothersome regulations this time.

Today, you’d think that business consultants and management theorists might stop beating the dead horse that is bureaucracy and turn their attention to the political and economic circumstances that we actually live with: a low-growth world that runs on service work. A world in which capital is exceedingly, terrifyingly liquid, and a tiny private equity death-cult controls investment. So what happens when we do what the Crunchbase circuit won’t: look at a big business that defined lumbering midcentury bureaucracy, but then got creative, nimble, and innovative—and still plowed nose-first into the curb of our turbulent times?

Birth of a Corporate Nation

After World War II, few other big businesses defined rigid, industrial management like General Electric, a company founded at the turn of the twentieth century. Going into the Great Depression, GE was a sprawling electrical services conglomerate. While other industrial corporations fought the then-rising labor movement, GE invited the Congress of Industrial Organizations to organize its workers. GE executive Gerard Swope, a Jewish immigrant who participated in the settlement house movement in St. Louis, pushed the government to create Social Security and even authored the first National Industry Recovery Act (colloquially referred to as the “Swope Plan”), which quelled social unrest by, among other things, granting workers the right to collectively bargain. In other words, GE was crucial to the creation of the American corporate state, an arrangement reflecting the fact that, for a time, both progressives and conservatives came together under the belief that big business could be harnessed to provide the basis of a compassionate and peaceful social order.

GE had long been obsessed with indoctrinating its many engineers and corporate managers with business training that emphasized the “GE Way.” This emphasis on training likely had something to do with the fact that corporate management—and the big businesses these managers were tasked with overseeing—were still relatively new institutions in the history of human civilization. Prior to industrializtion, management really did not exist on any scale. Theorists operating in the first half of the twentieth century, like Peter Drucker, frequently noted that businesses were not structured democratically and that managers were unelected, unaccountable, and illegitimate rulers. Drucker, it must be said, didn’t necessarily think this was a bad thing, but he wrote of a world in which managers would be like kindly statesmen of the corporation: active in community organizations, fair to their employees, and, to some extent, caring for society at large.

In the vision created by Peters and Waterman, the corporation would be more like a small New England liberal arts college than a soulless paperwork factory.

Big corporations like GE loved Drucker’s ideas and strove to emphasize the responsibility of corporate managers not only to their employees but to the world. GE built an austere compound in Crotonville, New York. It was a school to train managers, and it offered a rigid set of eight principles, a thick textbook, and a grueling thirteen-week course. While training, managers lived on-site, away from their families. Rumor has it that at least one person committed suicide as a result of the stress.

No matter for the company, however: their profits kept climbing. After World War II, GE was foundational not only to American life but to the story that America was telling about itself. They produced a wide array of products for the new middle class, and employees called them “Generous Electric” for the lavish benefits they received. But this détente between management and labor wasn’t as long or as peaceful as we might think. A strike wave in 1946 swept the country, including seven hundred fifty thousand steelworkers and one hundred thousand workers at GE. After that, GE executives began to sour on the arrangement of the corporate state. They stopped cooperating with unions and pressed the ideology of free-market capitalism on their corporate managers.

In 1981, Jack Welch ascended to CEO and shifted this campaign into overdrive. A boisterous and confrontational man who once called climate change “mass neurosis,” he broke the mold of the well-heeled GE executive and summarily exited or diminished much of GE’s industrial business. The company stopped investing in research, preferring to use its well of capital to buy already successful businesses instead. At the same time, Welch engaged in a ruthless process of downsizing, outsourcing, and expanding the reach of GE Credit. GE Credit was a division of GE that not only arranged financing for customers and suppliers but was involved in a wide array of financial activities, including leasing real estate and even purchasing an oil rig in Brazil. When Welch took over, GE Credit—later renamed GE Capital—had $11 billion in assets. A decade later, the sum had risen to $70 billion. By the year 2000, just before Welch stepped down, GE Capital held $370 billion in assets and was essentially the seventh largest bank in America. That year, GE itself was the most valuable company in the world.

Move Fast and Break the Economy

Welch had clearly read the winds of change in the global economy: policy changes on a federal level through the 1980s and 1990s made lending much less regulated and much more profitable, supercharging and liberating finance. Banks were free to push the interest rates they charged through the roof. This in turn made manufacturing, which must constantly borrow money to operate, much more expensive domestically. And when you add the finance-fueled hostile takeover and leverage buy-out spree that began in the 1980s—in which private equity firms used new financial tools to buy businesses, often against their will, and break them into little saleable pieces—America was liquidating its industrial infrastructure to become a bank to the world. GE was at the front of this movement.

GE had long been obsessed with indoctrinating its many engineers and corporate managers with business training that emphasized the “GE way.” That changed under Jack Welch.

Welch, who proudly declared himself the enemy of bureaucracy, engaged in exactly the kind of loose nimble style that In Search of Excellence extolled, though GE was not a business featured in the book. (GE Capital, along with Enron, were featured in Gary Hamel’s book Leading the Revolution, which sang the praises of these firms’ “grey-haired revolutionaries.”) He decimated the managerial training program at Crotonville, reducing the number of training days from thirteen weeks to three days. Managers were simply told to make their quarterly financial targets by any means necessary. Shady accounting tricks and outright fraud rose. Any glimmer of corporate social responsibility was dead.

When Welch stepped down in 2001, his successor was Jeff Immelt, a GE sales veteran and one-time offensive lineman for Dartmouth’s football team. Immelt started as CEO the day before 9/11, and somehow his tenure kept going downhill from there. After Enron was revealed to be a fraudulent company with manufactured earnings, Congress passed the Sarbanes-Oxley Act, which, among other things, empowered the Securities and Exchange Commission to enforce strict new financial reporting rules for non-bank financial entities like GE Capital. Unbeknownst to many in the public, they had amassed truly colossal financial positions and were almost completely unregulated. No one knew exactly what toxic cocktail of derivatives, ill-fated loans, and byzantine structured investment vehicles GE had on their balance sheet, not even Immelt. These new reporting rules threatened to cut into GE’s bottom line.

But GE Capital produced 40 percent of the conglomerate’s profits, so GE did what every big business does when faced with optional guidance that would reduce its profits: nothing. Having long ago given up investing in research, and in order to make up the money they lost on new financial compliance burdens, GE bought a mortgage originator making super profits by playing fast and loose with the housing market. When the financial markets froze up in 2008, GE was in a terrible position. Immelt shamelessly went to the Federal Reserve and FDIC to ask for protection, informing them that without it, unwinding the company’s massive balance sheet would surely drag down the financial system.

The federal financial apparatus protected GE and, in exchange, labeled them a Systemically Important Financial Institution, finally revealing to the world that GE was no longer an industrial conglomerate, but a bank-like holding company. As Thomas Gryta and Ted Man chronicle in their book Lights Out: Pride, Delusion, and the Fall of General Electric, the Federal Reserve regulators who showed up at GE Capital were shocked at what they found. GE Capital’s accounting system was the equivalent of a dusty shoebox full of ketchup-smeared receipts. Nowhere had they written down their parameters for extending credit. They had no available risk analysis for their existing loans, no rationale for their deliriously optimistic projections for repayment, no chain of command for loan approval, and no committees to review deals. There were almost no protocols whatsoever.

“What Capital viewed as flexibility and a culture of savvy deal-making,” Gryta and Mann write, “professional bank supervisors were apt to see as the absence of any meaningful rules at all.” Here the dictates of Tom Peters and his choir of management theorists met reality in the form of the federal government and the people tasked with making sure the entire financial system didn’t collapse in on itself. GE Capital’s “revolutionary” innovation was devising a business that could make bank-like profits without dealing with costly banking regulations. They had access to lower borrowing costs simply because investors thought they were a stable, industrial firm, not a high flying, coked-out investment bank. Financial compliance ultimately cut into GE Capital’s profits, suggesting that the last thirty years of their success were little more than an accounting trick.

Thinkfluencing While Rome Burns

Though plenty of people could see Jack Welch’s hand in the fall of GE, many blamed Immelt for the collapse. Immelt was the pilot when the plane started to dive, and after he stepped down in 2018, more than $140 billion in stock market value evaporated: more than twice what Enron destroyed when it collapsed in 2001.

Still, none of this stopped Immelt—a failed CEO who flew with a StairMaster in his jet in order to get his steps in and had his advance team stock worksites with his favorite candies and Diet Coke—from sharing his perspective in a book. Inspired by a talk he gave at Stanford’s business school, it’s called Hot Seat: What I Learned Leading A Great American Company. An apologia for Immelt’s disastrous reign, it gives a rare window into the liquified mind of the American executive class in the era of fictitious profits.

The book purports to be a management manual and is littered with the meaningless all-caps subheadings that are a hallmark of the genre: “GET A THICKER SKIN”; “CHOOSE PURPOSE OVER MONEY”; “SEIZE OPPORTUNITY”; “GREEN IS GREEN.” But Immelt has surprisingly little to say about leadership itself, spending most of his time casting blame on as many other people as possible. However, there is one section, set around 2009—when it became apparent that GE would have to sell off GE Capital for all its toxic assets—in which Immelt describes his attempts to jump-start the company through a series of management initiatives. His ideas about training managers, proudly recounted in the text, are varied and strange. GE’s “Chief Learning Officer,” Immelt notes, was tasked with upgrading the rooms at the Crotonville facility, “which at that point had a Motel 6 kind of vibe.” The company hired a marketing consulting firm (“professional provocateurs,” he calls them) who suggested that Crotonville had another big problem: there was no GE sign on the way into the compound. “It took [guests] a while to figure out where they were,” he writes. “Was that the experience we wanted people to have?”

The classrooms, too, were found wanting. “Windowed classrooms encourage more creative thinking,” Immelt notes, “but most of the places where GE’s trainees worked together . . . were window free.” So they added windows. But ultimately, these busy executives did not have time for extensive training, so GE started something called “Leadership Explorations” instead. Naturally, the marquee event is held in Normandy, France, and is organized around the theme of “Do I trust my team? Really?” Participants tour the metaphor-laden environs of D-Day, eat lunch in a bombed-out church, and cry in the pews as they recount their greatest challenges as managers.

Reading about Immelt’s Tough Mudder-ish excursions for executives feels a little like having a chef who just served you a leaky, grey, overcooked omelet proceed to lecture you on the fine points of cookery. You begin to notice that his theory of management is completely devoid of any central goals or pedagogy. Were these GE executives—who were being flown to ashrams in India, and who were given the chance to “briefly” live with the Maasai people in Africa, and who were being taught stand-up comedy in New York City while the company was collapsing in the 2010s—learning anything? What exactly was their responsibility to the company, the workers, their customers, and the world beyond? Unlike the paternalistic authority of the midcentury GE, which considered workers, suppliers, and their communities as groups to be engaged with and bettered, there seems to be no singular reason for GE or its managers to continue to exist, beyond the perpetuation of the brand.

Furthermore, and perfectly in line with the deadened business thinking of our age, Immelt claims to have discovered in 2012 that “bureaucracy was killing [GE].” This was when he woke up to the “existence of a less impressive group I would come to call the ‘quiet caucus.’ These were leaders who held others down with their selfishness or laziness or devotion to bureaucracy.” Why it took Immelt over ten years to realize what even the most unseasoned corporate manager would take for conventional wisdom, he doesn’t consider. But he does claim to have started to “root out bureaucracy” himself by randomly asking managers a “few simple questions.” Immelt says he’s a “systems thinker,” but in a business with tens of thousands of employees, it’s impossible to imagine how this haphazard process could possibly drive systemic change. Nor is it clear what Immelt definitively means by “bureaucracy,” or how a gigantic corporation could operate without rules, regulations, and professional administrators. Most glaringly, Immelt fails to reconcile the fact that the disastrous GE Capital he was desperately trying to unload was almost completely bureaucracy-free.

That’s because in the end, “bureaucracy” is just a convenient slur that can describe whatever element of the business Immelt doesn’t like; it’s the inverse of the way “creativity,” “nimbleness,” and “innovation” are applied, which is only in the positive sense. He never reflects on the fact that innovation, especially when it comes to finance, can be pointless or potentially dangerous. There’s nothing about how loose money and creative financial tools led to escalating accounting fraud and the financial crashes in 2000 and 2008, both of which slammed the door to wealth on the fingers of millions, foreclosing any chance of a brighter future. He definitely doesn’t reckon with the fact that when an industrial conglomerate like GE converts itself into a bank, whose operations could be effectively run like a public utility by a small group of people, there may be no point to many big corporations or holding companies anymore. Immelt, the man who spent more than twenty years at ground zero of the managerial elite, came away with almost zero ideas.

Zombies in the C-Suite

Today, corporate managers run institutions that simply own chunks of our society and do nothing in return for this privilege. Instead of investing money in research and development, or maybe even figuring out a way to pay employees decent wages, they launder their corporations’ profits to investors through stock buybacks. Management theorists won the war of ideas against the New Deal’s strictures; executives have been completely liberated by financial tools. Now, they don’t know what to do. Indeed, American business has become increasingly plotless. Making large amounts of money through finance, which requires little staff to produce large profits, provides no coherent story about the trajectory of our society. And lest you think that GE is one big bumbling exception, they’re not. Big business’s widespread, painfully unimaginative conversion to finance is the rule. Apple is now an intellectual property broker and, primarily, a hedge fund. Airlines make money by selling their own currency: airline points. Major retailers like Macy’s rely heavily on profits from their proprietary credit cards.

Management theory has never come to terms with the detrimental role that finance—the prime agent of flexibility, creativity, and nimbleness—plays in our society. The field is a stagnant pool of ideas, a fantasy land of entrepreneurial heroes and bureaucratic bogeymen that enables a total avoidance of our reality. This is because management theory is above all a conservative political philosophy. It exists to legitimize an undemocratic social arrangement in which bosses, owners, and managers have near-total control over workers’ lives.

GE Capital’s accounting system was the equivalent of a dusty shoebox full of ketchup-smeared receipts. Nowhere had they written down their parameters for extending credit.

The genre oscillates between two closely placed poles. On one side are theorists who believe workers are dumb mules who should be measured, surveilled, and shackled to their machines. On the other side are theorists who believe managers should be benevolent rulers and, instead of using force, focus on workers’ humanity and use psychology to compel their underlings to do what they want. But both agree with—or at least never challenge—the idea that bosses should be unaccountable and workers should have little power. They are arguing about the minor difference between brutal and “enlightened” autocracy. It’s a field that is defined by the narcissism of small differences.

This same dynamic plays out in the “debate” between bureaucracy and flexibility, an increasingly one-sided proposition. No one participating considers that both sides might be wrong: that business has exhausted its role as a principal agent for changing our society and that the best we can do is democratize firms and raise wages as much as possible without expecting much innovation.

Management theory’s stasis endures because it bolsters the simple, quaalude-like story we want to tell about America. That we are a nation of endless, upward progress. That we are always striving for a freer society, imperfect but evolving, forever nearing a state of complete equality for all. It’s no wonder our politicians, in election cycle after election cycle, promise to bring manufacturing back to America and simultaneously goose innovation which suggests the resurrection of the idealized midcentury defined by companies like GE. Of course, the continuing existence of a usurious financial sector makes this return impossible, not to mention the fact that the midcentury New Deal state was deficient in all kinds of ways that make it undesirable as well. Finance has become so thoroughly triumphant that one of our largest, most consequential exports is not GE washing machines or turbines but the $100 bill. From a certain vantage point, the United States is not much more than a central bank to the world, with an ailing, dysfunctional country attached to its hip.

But banging the gong of American manufacturing is useful because it allows politicians to sidestep the real task at hand: to make the work that Americans actually engage in—hotel and restaurant jobs, health care work, and retail sales—better paid, safer, more fulfilling, and fields in which it is possible to realize democracy, autonomy, and whatever the supposed goals of this society are. Politicians are the corporate managers of public life; their only remaining function, just like real managers, is to guard and reproduce their position in society while zealously maintaining the tenuous status quo.

Management theorists and their acolytes can never describe a world in which groups of people other than themselves have power, and thus, will always be obstacles to a more egalitarian social order. If we hope to find an actually inspiring story about the future, we’ll need to look elsewhere.

Robin Kaiser-Schatzlein is a journalist who writes about economic life. Follow him on Twitter @robinsreport.

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