GE was a mess but pity the man who's repairing the house that Jack built

US Outlook

Is the former General Electric chief executive Jack Welch the Dick Cheney of the business world? It’s a comparison that both would probably take as a great compliment. In terms of being revered by their supporters, their cut-throat world view and their willingness to stick it to the people trying to clear up the mess they made, the similarity is striking. They both made other people lots of money, though – something that can buy plenty of forgiveness. Tony Blair, take note.

The industrial giant reported first-quarter results yesterday, beating profit forecasts but missing on revenue thanks to the oil market’s struggles. But that’s not really the story. The current GE chief, Jeffrey Immelt, is about to complete the largest corporate reorganisation in history, untangling much of what Mr Welch did. He has sold so much excess baggage that the company is set to begin a $50bn (£33bn) share buyback programme, paid for by last Friday’s sale of its banking arm GE Capital and much of its enormous property portfolio. That’s a pretty big chunk of change, even if a special dividend would have been a better deal for ordinary shareholders.

In the past few years Mr Immelt has also sold off NBC (GE’s television arm, presumably much to the disappointment of 30 Rock fans), its stake in Universal Pictures and its appliance division, leaving a core of industrial manufacturing and services. It’s still a huge company but much more streamlined and manageable, leaving GE with a solid foundation that gives it a far better chance of being around for another 139 years. Founder Thomas Edison would surely approve.

Under Mr Welch, GE managed to match consensus Wall Street forecasts on a remarkably consistent basis – 41 quarters out of 46 between 1989 and 2001. How did a company hell-bent on growth through non-stop acquisitions of seemingly unrelated businesses manage to do that? It’s not a rhetorical question, I don’t know the answer. That GE was later forced to restate earnings and pay fines tells its own story.

Mr Immelt has his own legion of critics, most of whom are yearning for the glory days of Mr Welch, when earnings were strangely consistent and the company grew without a blip. It’s hard to blame them; people got rich under Mr Welch’s leadership, when GE’s market capitalisation grew by 4,000 per cent. That’s 40 times their money between 1981 and 2001 – good going by any measure, especially considering that revenue only grew by 385 per cent over the same period. A virtually incident-free 20-year bull market for large-cap stocks helped too.

Good times for shareholders and for Mr Welch, who walked away with a golden parachute worth $417m. Less good for the managers he left behind, who had to deal with a house of cards that began tumbling almost the moment Mr Welch hit the exit.

Events outside the company’s control didn’t help either, like 9/11, the mortgage banking crisis and the Dodd-Frank Act. The coup de grâce was the “systematically important financial institution” designation foisted upon GE Capital in 2013, opening up GE’s shadow banking unit to federal oversight and increased capital requirements. It seems unlikely that GE would have matched earnings estimates quarter after quarter, as it did during Mr Welch’s tenure, in the same circumstances.

Mr Welch remains a staple of the financial television world over here. He’s never afraid to voice his opinions on his successors, never mind his often odious political opinions, all the while embellishing the myth of his own brilliance. The truth is that he was able to get away with creating and running the company in a way that would not be possible in today’s regulatory environment. Buying up companies that were already profitable isn’t genius either, neither is building up its banking division at a time when oversight was, shall we say, understated. Financial wizardry and shipping thousands of good American jobs overseas is his real legacy.

Mr Immelt’s detractors claim that he is destroying GE, pointing to the share price and the sale of assets as clear evidence that he is incapable of doing what his predecessor did. GE investors should be grateful. Mr Immelt isn’t destroying it, he is saving it – from the monstrosity that Mr Welch built.

You only have to read 74,000 pages to understand US tax

It has been one of the worst weeks of the year for lots of Americans: tax week, when every household digs out a year’s worth of receipts to see if they can claw something back from the Internal Revenue Service. Most people file using tax software or pay an accountant to do it. No wonder, the federal tax code is over 74,000 pages long. Yes, you read that correctly.

Most households will get something back from the IRS. So there is an upside to forcing almost everyone to complete an annual tax return, including the fact that American citizens must file returns no matter where they earn their money. That would be a better idea if hiding cash abroad wasn’t so easy and tax evasion wasn’t widely considered a patriotic thing to do.

Overall, completing US tax returns is an awful experience that leaves me yearning for the simplicity of “pay as you earn” and council tax.

However, the assumption here is that if something is done a certain way in the US then by default it is the best way of doing it. Healthcare is the best, infrastructure is the best, even tax is the best.

The truth is that although lots of things are done well here, there are lots that are either comically convoluted or bizarrely out of date.

Believe it or not, people still write cheques here. Americans are stunned to find out that the rest of the Western world started phasing out cheques in the last century. Politicians talk the talk on simplifying the tax code, but in fact there is little incentive to do so – and if it were simplified, a lot of accountants and software engineers would be forced to seek alternative employment. The whole tax return industry is itself an important source of tax returns.

By all means copy the good bits of the US tax system. But good luck finding them buried somewhere in that 74,000-page horror story.