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Jack Welch Changed Role of In-House Lawyers at General Electric

March 3, 2020, 10:31 AM

Former General Electric Co. chairman and CEO Jack Welch Jr.'s death was met mostly with accolades about his role adopting business strategies that shaped a generation of corporate leaders.

Welch and his hand-picked former general counsel Benjamin Heineman Jr. also revolutionized the role of the in-house law department during his 20 years as CEO, several former GE colleagues told Bloomberg Law.

“It’s hard to overstate how dramatic the changes at GE were in terms of their impact on corporate law,” said Centrexion Therapeutics Inc. CEO Jeffrey Kindler, a former vice president of litigation and legal policy at GE.

“For my generation of lawyers, the ultimate job was to be a partner in a law firm. It wasn’t even on your radar screen to go in-house. Ben persuaded Jack to pay to get these people and give them the authority and ability to practice law at the very highest levels.”

Heineman’s focus on recruiting top-tier legal talent and heeding Welch’s desire to work with regulators to clean up corporate messes helped change the role of lawyers inside and outside of GE.

“Inside the company we became part of the management team, and outside the company we shifted power from the law firms to the law department,” said Heineman, who retired from GE in 2005, having previously spent 16 years as its general counsel. “That was due to Jack. He allowed me to hire an inside law firm, which changed the relationship for law firms outside the company.”

Heineman, a Rhodes Scholar and U.S. Supreme Court litigator who had worked at Sidley Austin and Williams & Connolly in Washington, had never met Welch until they sat down in 1987 at the GE Building, the company’s former headquarters at 570 Lexington Avenue in Manhattan. Within a half-hour, Heineman accepted Welch’s offer to succeed Walter Schlotterbeck as general counsel.

“I wasn’t a corporate lawyer, but he had the faith in me to make a rather unorthodox choice,” said Heineman, noting that Welch gave him a mandate to clean house and ramp up the level of in-house talent in the company, where many lawyers had been in their roles for years.

Within a few years of taking over the legal group, Heineman said he fired or retired 30 of his 33 direct or indirect reports from 13 operating divisions. He then embarked on a recruitment drive to hire new lawyers from major law firms or positions in government.

Building the ‘Yankees’

That hiring spree would cost money, but Heineman said Welch—who was once married to former Shearman & Sterling M&A lawyer Jane Beasley (the couple divorced in 2003)—saw the value in adding and promoting in-house talent. Welch personally interviewed all top legal hires, Heineman said, many of whom would eventually move into prominent business-side roles, either at GE or elsewhere.

Making in-house lawyers, rather than senior law firm partners, the drivers of legal decision-making was a significant shift. Kindler, a former partner at Williams & Connolly who after a half-dozen years at GE would go on to serve as general counsel of McDonald’s Corp. and general counsel and CEO of pharmaceutical giant Pfizer Inc., recalled his wife jokingly asking him whether he was going to be a “light bulb lawyer” when he told her about his GE job offer.

But Kindler couldn’t resist being part of what he called “the best law firm in the world” assembled by Heineman, whom he knew from private practice.

He recalled a private dinner hosted by the former GE legal chief in the 1990s. Sitting at the table were some of the best lawyers in their field: Ronald Stern (antitrust), Stephen Ramsey (environmental), John Samuels (tax), as well as top GE lawyers like William Lytton, Henry Hubschman, and Richard Cotton. Few other places could assemble such talent, said Kindler, ticking off other leading GE lawyers like Pamela Daley and Frank Blake, the latter of whom would eventually become CEO of The Home Depot Inc.

“Jack recognized the importance and value of obtaining the best legal advice possible,” said Ramsey, a former Sidley partner who retired from GE in 2008 after serving as vice president of corporate environmental programs. Samuels, another high-profile Heineman hire and former partner at now-defunct Dewey Ballantine, told Bloomberg Law that joining GE felt like joining the New York Yankees.

“We became part of the fabric of the company and that allowed us to be much more effective than outside counsel, because we were closer to the facts and understood the business strategy,” said Samuels, who retired from GE in 2015 and is now a senior managing partner and chairman of global tax at The Blackstone Group LP.

Heineman said many of the top lawyers that he and Welch hired were actually paid more than the business unit leaders they worked with, salary numbers that GE closely held in its headquarters. Samuels credited Heineman with instilling a “partnership ethos” in the law department, one helped by the company’s closed compensation structure. “Our compensation was measured in stock, so if the company won, we all won,” he said.

Valuing Integrity

Heineman, who now lectures at Harvard Law School, said Welch also sought to address corporate scandals head-on. In the early 1990s, the Pentagon sanctioned GE for its role in a bribery and kickback probe involving the Israeli military. Heineman said on Welch’s order GE cooperated with the Justice Department, Securities and Exchange Commission, and a congressional oversight committee.

“In the old days, corporations would kind of hide behind a wall and say, ‘Come get me copper,’” Heineman said. “Jack believed in the importance of integrity. Notwithstanding the fact that he was a tough manager, he always said, ‘You can miss the numbers and survive, if you miss on integrity, you’re gone.’ He said that endlessly to senior managers.”

Kindler told Bloomberg Law about a diamond price-fixing case that GE faced in Columbus, Ohio, during the early 1990s with DeBeers plc. Kindler called Welch each day after trial, which GE eventually won. His reward from Welch: a case of Dom Perignon and a dozen red roses for his wife. “It was really exciting, until I thought for a minute what he might have done had I lost the trial,” Kindler said.

Managing legal and compliance problems is critical for any company, but especially one the size of GE. Kindler and Samuels said that Welch enjoyed and sometimes even relished the back-and-forth he had with his in-house lawyers led by his top consigliere in Heineman.

“Jack understood that the law, like everything else, was not just about the rules but the human beings that were implementing the rules and how they were being enforced,” Kindler said. “He had an incredible instinct to look at a problem and understand what the key issue was, which helped the lawyers and pushed them to be the best and get results that they otherwise would not have achieved.”

To contact the reporter on this story: Brian Baxter in New York at bbaxter@bloomberglaw.com

To contact the editor responsible for this story: Seth Stern at sstern@bloomberglaw.com

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