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Between 1981 and 2001, Jack Welch grew General Electric (GE) into the world's most valuable company, with sales of over $130bn. In 1999, he was named "Manager of the Century," by Fortune magazine. Today, at the age of 70, he is still capable of filling a large room with his larger-than-life personality.

The London Business Forum invited Welch to speak at Westminster Central Hall - a galleried auditorium lined with ornate hardwood carvings, dominated by a massive pipe organ and topped with a colossal concrete dome. He drew a 1,000-strong audience, and was greeted by raucous cheers and applause as he strode on-stage, waving presidentially. Yet the atmosphere quickly became intimate, thanks to his willingness to converse at length with anyone brave enough to ask a question.

This was a seminar, not a lecture, and its chairman was Professor Richard Scase, the leading business futurist from the UK. "What are the essential qualities of leadership?" Scase asked, to get the ball rolling.

Welch's reply was emphatic: "Passion," he said. "Whether your run a pizza parlour or a dry-cleaning store, you need to get that vision under your employees' skin. You've got to excite them to climb the mountain and reward them in the soul and the wallet along the way."

The other prerequisite is transparency, he suggested. "In a transparent system, I really believe everyone has to know where they stand. The top 20% should be rewarded, the middle 70% should be encouraged to try to get into the top 20% and the bottom 10% should be told to move on. That is to say, you tell people constantly if they're in the bottom 10%; you don't just come in one day and sack them." Under these circumstances, he argued, most people will make efforts to improve or leave under their own steam.

Welch became infamous for applying this strategy - nicknamed "rank and yank" - to every manager at GE. Critics argue it promotes cheating, infighting and low morale once it has weeded out every weak performer - it encouraged the obfuscation that ruined Enron, they point out. Others compare it to the system of decimation used by Ancient Rome to motivate its conscripts, under which the lowest 10% of performers on the battlefield would be periodically executed.

Nevertheless, many CEOs across the world have adopted the strategy based on GE's success. "People say it's the cruellest, most Darwinian concept in the world," Welch said. "Let me tell you what's cruel: what's cruel is that 'kind' manager who says 'I would never tell someone when they're going wrong because I'm just too kind'. Then a recession turns up and the same kind manager says to Joe or Mary or whoever, 'We're going to have to let you go,' and they reply, 'But I've been here 31 years. Why hasn't anybody told me [that I've been performing badly]?'."

Welch showed the same candour and conciseness in his responses throughout the evening. "How do you effect change through lower levels of management?" someone asked. "By rewarding those who change and shooting those who resist," he replied, deadpan. Similarly, when asked a question about how he managed the many subsidiary businesses under the GE umbrella, he said: "When I became chairman we were proud of having 157 businesses. Some had lost money for 20 years but they were just part of the mothership. So we drove through a mantra: 'Fix, sell or close.'"

However, if he seemed ruthless, Welch also made it clear he believed a good leader should create a humane and enjoyable working environment for their staff. "There are five things to think about," he said in response to a question about how to recruit and retain the best talent:

1. "Are your people exciting, are they the kind of people you want to be around? If you're trying to keep people they've got to like the crowd they're around.
2. "Are your people learning all the time? Are you letting them grow.
3. "Do you have a brand that allows people to go to another place - is it an exciting brand that people will be attracted to?
4. "Do you have work that turns people's crank? Are you making their jobs exciting?
5. "Are you a bore? Nothing's worse than working for a dull bore... And the last thing you ever want to do is say: 'You've done a great job, I'm taking you out to dinner tonight.' If you've spent all day with the damned boss, you don't want to go to dinner with him."

No matter what general management topic the audience introduced, Welch seemed to have a strong opinion, an anecdote and no-nonsense tip to match.

For example, on mentoring: "The last thing you want is a mentor: he's liable to be a turkey, a dope, get shot. You want many mentors. If you approach every single situation your company faces as a group learning experience then the opportunities are enormous."

On consulting: "I think consultants are terrible. They're a crutch. You're paid to know your business; why should you need to bring in someone from outside to teach you about it? Once a consultant gets in, getting them out is hard: they're like sticky paper."

On bureaucracy: "You have to keep breaking things down; every time to get bigger you have to create smaller divisions. The day I left GE I was still babbling about bureaucracy. My successor will leave in 20 years and still be babbling about bureaucracy. We had a saying: fight bureaucracy and the bureaucrats that create it. Did we win? Probably half the time." On sales: "I think the main job of a sales force is to make the customer more productive. What you don't want is to do a deal and be back two weeks later banging on the door. You want to build a relationship, getting yourself under the skin of the customer."

On human resources (HR): "In Mexico, I once asked 5,000 HR directors how many were regarded in their companies as strategically important as the CFO, and almost none put up their hands. That's ass-backwards! In our company, if you were to ask the question, you'd get almost 100% of hands going up."

Expanding on the last of these topics, Welch said he felt leaders should think more like the managers of sports teams: "If you believe the team that fields the best players wins" then you need to take HR seriously, he said. "In Europe, HR is really a second-class citizen."

Such comments showed that, even four years into retirement, Welch still has his finger firmly on the pulse of global business. Yet the audience was keen to learn from his past as much as from his visions of the future: "What were your biggest mistakes as a leader?" someone asked. "Not betting on the right person in a deal," he said, adding that he also made acquisitions that were culturally incompatible with GE. "Many times you don't spend as much time on the cultural fit as you do on the numbers fit and the cultural fit ends up being crucial to the deal," he explained.

In terms of his personal rewards, Welch sidestepped any mention of his reputed $94m salary and seemed genuinely moved as he recalled "the happy faces of thousands of employees". "Nothing gives you a kick more than looking at an engineer who has previously made $80k a year and suddenly cashes in his stock options for $400k. We changed a lot of people's lives for the better." Reflecting on this point, he added: "We created 55,000 mentors for inner-city kids too."

Yet perhaps the most telling remarks of the evening came in response to a question about how Welch regarded his ability to achieve work/life balance throughout his career. "It was perfect for me," he said, "but I can't tell you what would work for you. I worked hard, I had four great kids, nine grandchildren, I didn't get marriage right all the time, but it wasn't because I worked a lot."

He glanced down and smiled at his third wife Suzy Wetlaufer, a former editor of the Harvard Business Review, who was seated in the front row.

"Your company brochure might describe flexible working," he continued presently, "but try walking into your boss's office when he's got a big report due and telling him: 'Sorry, I can't help, I've got yoga tonight.' You won't do that three times, let me tell you. Flexibility is an earned thing, not a granted thing. If you make yourself indispensable, you'll get what you want."