In an interview for the Financial Times' series on the future of capitalism, the former General Electric (NYSE: GE - News) chief said the emphasis by executives and investors on shareholder value since he spelt it out in a speech in 1981 was misplaced.
Mr Welch, whose stellar record in his two decades at GE helped make shareholder value popular, said that it was wrong for managers and investors to set consistent earnings growth and steady share price increases as their overarching goal.
"On the face of it, shareholder value is the dumbest idea in the world," he said. "Shareholder value is a result, not a strategy...your main constituencies are your employees, your customers and your products."
And yet that practice has been the defining strategy of every company I have ever worked for, and as businesses have struggled quarter after quarter to reach increasingly impossible targets while cutting costs and reducing staff and laying off workers we've created an entire economy where no one produces anything of value, provides any useful service, or looks to any future beyond the near term. In the effort to increase the fortunes of the few, they've driven the business world into a ditch and feel no more responsibility than an "oops, my bad."
The Jack Welch's of the world have been wrong about everything for as long as I can remember: the never ending stock market bonanza; the unstoppable real estate boom; the banks; the free market. The list goes on and on.
The dumbest thing in the world right now is to think you can get anywhere by working for a living. Assuming you have a job at all, which thanks to Welchian business practices is increasingly unlikely.
