ANALYSIS: Media Watch: Revelation of Welch's continuing GE perks rekindles media's ire

For a few weeks following the passage of the Sarbanes-Oxley Act and the SEC's August 15 deadline for certification of financial results by CEOs and CFOs, discussion of corporate governance issues took a backseat to the escalating debate regarding a preemptive strike against Iraq. However, when word leaked about the millions of dollars of perks that former CEO Jack Welch continued to receive from GE, the issue of exorbitant executive compensation packages started making headlines again, creating a "a firestorm of criticism" (CNNfn, September 16) for Welch and GE. Reporters usually framed the story within the context of the high-profile corporate malfeasance that has rocked corporate America for much of the past year. The perks struck a nerve with investors, who have lost billions of dollars in the extended downturn in the markets. While Welch's deal had been struck in 1996, it was widely acknowledged that, in the current atmosphere of abuses at Enron, Adelphia, WorldCom, et al, the previously undisclosed details of the extent of the perks just didn't look good. Fortune (September 30) reported, "In today's news climate, it made him look like another greedy, ethically slimy corporate shakedown artist." Coverage was replete with anger at a man with a reported net worth of $900 million having his former company pay for such trivial items as toiletries, food, and flowers (not to mention more extravagant items such as his $15 million New York apartment and use of the company jet for personal travel). But while there was no question that the revelations of the perks rubbed some people the wrong way, there were slightly fewer reports that defended the perks. Welch and others defended them as something he had rightly earned during his 21 years as CEO, during which time he increased its market capitalization from $13 billion to $480 billion. These reports contrasted this performance with the more hollow "accomplishments" of fly-by-night CEOs who took the money and ran during the stock market bubble. What was particularly galling to GE shareholders was the way in which they found out about the details of the perks - not through disclosure in the proper financial records, but through Welch's messy divorce. The Pittsburgh Post-Gazette (September 15), wrote, "Legal or not, withholding details of Welch's sweet retirement deal wasn't smart PR." In covering Welch's decision to forego the perks, many reports latched onto his comments that although he felt he'd earned them, "perception matters," and as such he'd sacrifice them rather than be seen as having duped shareholders. Reaction to his move was mixed: CNN (September 16) labeled it "a brilliant PR move" for taking the high road, while CNNfn (September 16) reported that Welch "caved under public pressure." Welch's comments go to the core of the role of PR in general and, in this case, PR in IR. The man The New York Times (September 16) hails as having "a better track record than any other CEO in the world" has just given the best possible testimonial as to the importance of good PR. As the CBS Evening News (September 16) reported, there's a further moral to this story: "If Jack Welch can be challenged, anybody can." Companies and their boards can expect their corporate governance policies to stay firmly under the media's magnifying glass.
  • Evaluation and analysis by CARMA International. Media Watch can be found at www.carma.com.

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