Jacking the Hudson River: Welch’s Last Stand

As the new Christine Todd Whitman-controlled Environmental Protection Agency (E.P.A.) struggles to establish its environmentalist credentials, the nation’s richest corporation, General Electric (G.E.), is waging an all-out war over the E.P.A.’s proposal to hold G.E. fiscally responsible for dredging a 40-mile segment of the Hudson River contaminated by P.C.B.s. While the E.P.A. had planned to reach a final decision about how best to remove the polychlorinated biphenyls (P.C.B.s) in May, protracted fight between environmentalists and G.E., along with 36,000 letters and e-mails from locals, caused the E.P.A. to delay its decision until August 17.

In the meantime, as ideological lines are being redrawn in the Senate after the defection of Jim Jeffords, G.E. is lobbying hard to overturn the clause of the 1980 Superfund law that forces corporations to pay for environmental damage when a company is ruled to be a responsible party. While E.P.A. boss Whitman has recently said that she is “eager to hear” comments from both sides, the newly-Independent Jeffords, who is also a staunch defender of Superfund, is seen as a likely candidate for chairman of the Senate Committee on Environment and Public Works. In an E.P.A. that has been taking flak from both left and right, a pro-environmentalist committee on the environment may in fact tip the scales for dredging—or so groups such as the Sierra Club, Scenic Hudson, and Riverkeeper are hoping. “If I’m the folks at G.E., and if Jim Jeffords is the new chairman, I’m stuffing the champagne corks into the bottle,” a Sierra Club spokesman said recently.

The economic and political dimensions of G.E.’s war with the E.P.A. and environmentalists, however, transcend the estimated 100,000 pounds of P.C.B.s still buried in the sediment of the upper Hudson River. The dispute over P.C.B.s—which were originally used as a fireproof lubricant in transformers and banned in 1979 as a “probable human carcinogen”—has been dragging on for decades. The idea that the E.P.A.’s final decision will set a precedent for how to deal with future toxic sites is a prospect that has G.E. cringing.

No one has a bigger stock in winning the war with the E.P.A. than G.E.’s retiring C.E.O. Jack Welch, who cut his corporate teeth fighting government regulations on P.C.B.s in the 70s. In recent months G.E. has raised the stakes in the Hudson Valley, spending up to $60 million in a media blitz designed, in G.E. spokesman Mark Behan’s words, to “ensure that the public has a balanced view.”

As the public comment period drew to a close in May, some observers estimated that G.E. was spending $2 million a week on ads, in addition to lobbying Congress and the New York City Council. G.E.’s spending has so flustered environmentalists that on May 14 two New York legislators—Richard Brodsky and Jack McEnemy—went down to Washington in an attempt to convince Whitman to force G.E. into spending at least one million dollars for “additional public information.” The quaint towns and villages in the Upper Hudson had become so inundated with ads from Hudson Voice, a G.E. proxy, on billboards, T.V., radio and newspapers, that Brodsky likened G.E. to “corporations that sell cigarettes or beer.”

To understand how G.E. has pulled out all the stops to fight the E.P.A. along this relatively small stretch of the Hudson River, one must understand not only G.E.’s unique position in American business but also its corporate philosophy, now dogma for a whole generation of aspiring managers and M.B.A.s. For a company that dwells on the bottom line, this case is paradoxically not about money at all, but about power. “The easiest thing in the world would be for G.E. to write a check,” G.E. spokeswoman Beth Comstock has said. “But that’s not what this is about; it’s about finding the right answer for the river. People admire G.E. because we fight for what we believe in.” And what G.E. believes in, if one listens closely to its C.E.O. and his scions, is its sovereignty over any organization—governmental or otherwise—that attempts to regulate or challenge its brand of capitalism.

The check G.E. would write for the cleanup would not be small change. While the E.P.A.’s final assessment will not be released until the final decision is reached in August, conservative estimates put the cost at $460 million, in addition to the $160 million it has already spent in order to prevent further leakage of P.C.B.s into the sediment. This figure, however, represents only half of 1 percent of its revenue for last year according to the company’s own statistics. All told, the company has spent over $5 billion to clean up its other toxic sites around the country, most of these efforts attracting only a fraction of the media scrutiny now focused on the Hudson Valley.

Many observers have wondered why G.E. has been so unyielding and relentless in its fight against the E.P.A., an organization that, after all, is considered pro-business by many in the environmental movement. Invariably, people who have observed Welch cite his uncompromising approach to business, an approach that he drives home at the “Pit,” his corporate training camp in Croton-on-Hudson. “I don’t give a damn if we get a little bureaucracy as long as we get results,” he is quoted as saying. “If it bothers you, yell at it. Kick it. Scream at it. Break it!”

If Welch’s normal modus operandi within the company seems a bit hotheaded, his brashness with the outside world has been downright scandalous at times. Like a frat boy who refuses to grow up, Welch has cultivated reckless behavior at the Pit. Thomas O’Boyle, author of At Any Cost: Jack Welch, G.E.neral Electric and the Pursuit of Profit (1998) reports that at G.E., “trashing hotels was considered being one of the boys, so was playing demolition derby with rental cars…The damage done at some hotels was so great that G.E. Plastics was asked not to return.” In Welchspeak this might be called “boundaryless behavior”—an unfortunate term that has become the mantra of G.E.’s mid-level managers.

One outsider at G.E.’s corporate office in Fairfield, Connecticut contrasted G.E.’s approach to P.C.B.s with Bridgestone/Firestone’s recall of tires on SUVs. While G.E. has fought the E.P.A.’s proposal to dredge for ten years, the tiremaker not only recalled its product, but even sent its C.E.O., Jacques Nasser, onto primetime T.V. to promise replacement of all defective tires. “Unlike Firestone,” the insider at G.E. says, “our biggest asset is our name. We can’t admit we’re wrong.” Actually, it may not be G.E. that will not admit it is wrong so much as Jack Welch, who built his career chopping heads and so-called “corporate fat” over the past 20 years.

Welch has long been the financial media’s darling. Calling him “far and away the best influential manager of his generation,” Fortune made Welch a finalist for its “businessman of the century” award. And when G.E. recently overtook Microsoft to become the richest in the country, the accolades poured in: “the world’s most respected company” (Financial Times), “America’s Greatest Wealth Creator” (Fortune), and first place among Business Week’s top 1,000 companies.

Such effusion came from results both in the marketplace as well as on the stock market. During the stock market boom of the late ’90s, G.E. shareholders began to rake in the profits as the company’s market value went from $12 billion, when Welch took the helm in 1981, to over $500 billion today. While G.E. had always been a reliable blue-chip holding, it thus became the stock for anyone looking for what financial analysts call “growth and income.” Until recently, everyone, it seemed, was sharing in the good times and getting a piece of the ever-expanding G.E. pie. Company employees, from mid-level managers to pro-union factory workers, were rolling in the dividends paid to the through stock options.

Then, almost overnight, everything changed. In December, just as the E.P.A. completed ten years of investigation in the Hudson by announcing that it favored dredging the P.C.B.s from the sediment in the river, the high-flying market ground came to a halt and people began asking questions of Welch and G.E. that they could previously afford to ignore. And in mid-June, a European Union court challenged G.E.’s proposed merger with Honeywell, sending G.E.’s stock on a downward spiral that seemingly brought all of Wall Street with it.

At G.E.’s most recent shareholders’ meeting in April in Atlanta, seven different proposals were put forth to ostensibly make G.E. a more “responsible corporate citizen.” Among these were plans for the company to democratize the Board of Directors, endorse a code of corporate social responsibility, and disclose how much money was being spent on its P.R. campaign on the Hudson. All were shot down, but it was this last one that most provoked Welch’s ire. He interrupted Sister Patricia Daly, a nun who had endorsed the proposal by saying, “You have to stop this conversation. You owe it to God to be on the side of truth here.”

Soon after the Atlanta meeting, the media, which for so long had swooned over Welch, his “Six Sigma quality initiative,” and his corporate boot camp as saviors of American capitalism from the Japanese, began to report other cracks in the machine. Just as Welch was announcing his crowning jewel in G.E. acquisitions—its takeover of Honeywell for over $50 billion—and his subsequent retirement later this year, Business Week reported that there would be as many as 75,000 layoffs. Welch sent a memo on Feb. 21 to G.E.’s 350,000-odd employees assuring them that “there are no such plans for company-wide actions.” He did state that G.E.’s buyout of Honeywell would create “some redundancies,” however, and many G.E. employees, from the corporate to manufacturing levels, began to fear for their jobs. This was the same man, after all, who had slashed over 100,000 jobs in the early to mid ’80s, earning him the name “Neutron Jack.”

Welch’s high profile in the press, along with G.E.’s largesse and its ownership of NBC, make the company’s relationship with the media unique—no other corporation at once cultivates and shuns the media spotlight quite like it. While Welch seems to attract a new glossy profile piece every week (see Business Week, Talk, and Fortune for starters), the company itself is impervious to criticism from the media. G.E.’s maneuverings behind the scenes on the Hudson issue at the New York City Council in April—with NBC President Robert Wright acting as G.E.’s frontman—did attract the attention of the New York Times, the New Yorker, and the Nation, but G.E.’s corporate offices hardly panicked. “That stuff isn’t even on our radar screens,” said a corporate officer at G.E. who did not want to be named. “The only criticism we pay attention to comes from institutional investors.”

As its August day of reckoning with the E.P.A. nears, the company that “brings good things to life” is facing mounting pressure on all sides to do the right thing on the P.C.B.s still buried in the Hudson. It remains to be seen, however, whether G.E.’s unprecedented wealth, power, and influence will trump the unlikely concurrence between a Republican-controlled E.P.A. and a handful of grassroots environmental groups.


Contributor

Russell Cobb

Russell Cobb is a leading artist illustrator based in the U.K.

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