Jack by Jack Welch & John A. Byrne

Author:Jack Welch & John A. Byrne [WELCH, JACK]
Language: eng
Format: epub
Tags: BUS000000
ISBN: 9780759509214
Publisher: Grand Central Publishing
Published: 2003-09-30T14:00:00+00:00

I was getting ready to leave the office for a long weekend on Thursday night, April 14, 1994, when Mike called with one of those phone calls you never want to get.

“We’ve got a problem, Jack,” he said. “We have a $350 million hole in a trader’s account that we can’t identify, and he’s disappeared.”

I didn’t yet know who Joseph Jett was, but over the next few days I would learn more than I cared to about him. Carpenter told me that Jett, who ran the firm’s government bond desk, had made a series of fictitious trades to inflate his own bonus. The phony trades artificially boosted Kidder’s reported income. To clean up the mess, we would have to take what looked like a $350 million charge against our first quarter earnings.

The news from Mike made me sick: $350 million, I couldn’t believe it.

It was overwhelming. I rushed to the bathroom, and my stomach emptied in awful spasms. I called Jane, who was already waiting for me at the airport, told her what I knew, and asked her to come home instead. That evening I called Dennis Dammerman, who was teaching at Crotonville.

When he came to the phone, I told him: “It’s your worst nightmare.”

Actually, it was my own worst nightmare. I had made a terrible mistake in buying Kidder in the first place. It had been nothing but a headache and an embarrassment from the start—and now this.

Dennis went down to Kidder’s offices with a team of eight others and began working around the clock throughout the weekend. I couldn’t do much because they were doing gritty audit work, checking account balances. I sat by the phone, waiting for updates from Dennis. If I had gone down there, I probably would have driven them nuts.

By Sunday afternoon, I had to see it for myself. When I did, Dennis and Mike said they were sure the paper entries reported as earnings were bogus. We didn’t have all the facts, but with our first quarter earnings release two days away, they were convinced we had a $350 million noncash write-off to deal with.

I spent hours trying to figure out exactly how hundreds of millions of dollars could disappear overnight. It didn’t seem possible. We obviously didn’t know enough about the business. We’d later discover that Jett had taken advantage of a flaw in Kidder’s computer systems.

That Sunday evening, I called 14 of GE’s business leaders to deliver the bad news and apologize to each of them for what had happened. I felt terrible, because this surprise would hit the stock and hurt every GE employee.

I blamed myself for the disaster.

The previous year, 1993, when Jett’s phantom trades accounted for nearly a quarter of the profits made by Kidder’s fixed income group, Jett had been named Kidder’s “Man of the Year.” We had approved Mike’s request to give Jett a $9 million cash bonus, a huge award even for Kidder. Normally, I would have been all over this. I would have dug into how one person could be so successful, and I would have insisted on meeting him.

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