Bashing the bosses for the wrong reasons

Not long ago, chief executive officers (CEOs) were lauded as heroes, leaders of the brave new economy. Bill Gates and Jack Welch were the two most celebrated American CEOs, hailed as geniuses, superstars and revolutionaries.

Talk about 180 degrees. As part of the severe backlash to Enron and other scandals, CEOs are now vilified – even criminalised – like never before.

Microsoft founder Gates is considered an ego-driven leader of a monopoly – and even $23.5billion in charitable donations (almost five times more than what the next most generous philanthropist gives) can’t repair his image (1). The reputation of former General Electric chairman Welch has been badly tarnished by revelations of generous perks and retirement provisions.

The ‘imperial CEO’ has been downsized (2). Today’s CEOs find themselves under siege for a variety of sins – and not just in the USA. Enronitis has spread farther and wider than SARS, taking CEOs as its victims across the globe.

It seems that CEOs are now disposable. High-profile titans have fallen: Bertlesmann’s Thomas Middlehoff (Germany); Vivendi Universal’s Jean-Marie Messier (France); Tokyo Electric Power’s Nobuya Minami (Japan). A record number of CEOs worldwide were sacked for performance reasons in 2002, up 70 per cent on 2001 and nearly four times the number forced out in 1995. In the Asia-Pacific region, where CEOs were relatively immune from such actions, firings have now reached American and European levels (3).

CEOs who still have jobs have been criticised by shareholders, unions and the media for their greed and big pay packages. In the UK, shareholders of the pharmaceutical giant GlaxoSmithKline voted in protest against the severance arrangements of CEO Jean-Pierre Garnier (described by The Economist as the firm’s ‘gallic, magnificently haughty boss’) (4). US shareholders have put forward hundreds of resolutions at annual meetings this year, demanding restraint on executive pay practices. In France, Alcatel’s CEO Serge Tchuruk was condemned by shareholders for his high pay.

CEOs are often considered to be potential criminals. Thanks to the media-conscious law enforcers, the image of the American CEO is a middle-aged man being led away in handcuffs. The latest CEO to be hauled off is a middle-aged woman: Martha Stewart, America’s A-list celebrity homemaker and founder of the company that bears her name. The circus around Stewart (hardly a typical CEO) is the most obvious attempt on the part of the authorities to convince the public of their anti-corruption mission (5).

But since Enron and other scandals, Americans don’t need much convincing when it comes to mistrusting business leaders. A recent poll in Investor’s Business Daily found that only eight per cent of Americans have high confidence in the honesty and integrity of corporate CEOs, and only four per cent hold CEOs in ‘high esteem’ (6).

In today’s CEO-bashing environment, executives’ actions are more scrutinised and regulated than ever before. In the USA, Congress has passed the Sarbanes-Oxley Act, which, among other things, requires CEOs to personally certify to the accuracy of the company’s accounts.

In Britain, investment banker Derek Higgs has proposed a new code of corporate governance, spelling out new responsibilities and liabilities for executives and boards of directors. France has a new corporate governance code produced by Daniel Bouton, chairman of the Societe Generale bank, and Germany is debating the relationship between its supervisory and management boards.

All this disparagement of CEOs misses the mark. CEOs are criticised for being arrogant and over-reaching – yet they are more modest, risk-averse and ethically aware than ever.

Fortune has praised the ‘new breed’ of CEO: ‘The latest crop of CEOs is disciplined, deferential, even a bit dull. What a relief.’ (7) Less self-reliant, today’s CEOs turn to counsellors to help ‘rehab behavior’ to become ‘self-aware, ever-improving’, ‘the opposite of the Enronesque narcissist’ (8).

CEOs have responded defensively to the onslaught on their profession. As Eric Schmidt, CEO of Google, warily puts it: ‘I find that all of a sudden I am a member of a class – CEOs – that is held in lower repute than priests.’ (9) The opportunity to run a major company used to be an executive’s highest aspiration. Now more than half (54 per cent) of senior executives surveyed said they would turn down the CEO position (10).

It appears that most CEOs have decided to lie low, hoping that the storm will pass. The Business Roundtable, an association of CEOs, has been relatively quiet of late; as Fortune reported, during key debates the organisation ‘chose to work behind the scenes – and then mostly to water down reforms’ (11).

As an indication of this defensiveness, few seem willing to stand up for CEO pay levels. It seems that the business class are reticent to use the word ‘market’, as in there are market forces that determine the pay of executives as well as other employees.

Here’s a market-based argument you rarely hear these days: in recent years, a significant number of CEOs were hired from outside companies. These individuals were in the driving seat in negotiating their pay, like free-agent athletes. That’s also why they could negotiate deals that included multi-year severance payouts (the so-called ‘rewards for failure’). Over time, even CEOs promoted internally would be paid at similar levels, to avoid having them leave. When the socially active ice cream maker Ben & Jerry’s sought a new CEO, they publicly refused to pay the going rate, only to learn that they couldn’t find a suitable candidate.

Executives are aware of such arguments; they just don’t feel confident enough in the current climate to respond to charges of greed.

A bigger problem than defensiveness over pay is that the CEO class is gripped by risk-aversion. As Benjamin Hunt points out in his new book The Timid Corporation, such conservatism has become institutionalised within business (12). Today we can see that, despite a pick-up in economic growth and an end to the fighting in Iraq, CEOs are steadfastly postponing new investment and hiring. Federal Reserve Board Chairman Alan Greenspan recently complained to Congress that ‘lingering business caution’ could hold back an upturn (13).

Some might feel little affinity with CEOs – their roles are not, after all, altruistic or public-serving ones. But in slamming CEOs, critics often knock values worth defending in everyone – like leadership, individual achievement and ambition. Even the pursuit of self-interest and simply wanting more can be progressive. On the other hand, caution and modesty have their place, but they are not likely to produce innovative technology, build great cities or fight disease.

Geniuses, superstars, revolutionaries – we could do with some.

Read on:

Risky business, by Sandy Starr

(1) The new face of philanthropy, John Byrne, Julia Cosgrove, Brian Hindo, and Adam Dayan, Business Week, 2 December 2002

(2) ‘Downsizing the imperial CEO’, New York Times, 9 August 2002

(3) ‘CEO succession 2002: deliver or depart’, Strategy + Business, Summer 2003

(4) ‘Have the fat cats had their day?’, Economist, 24 May 2003

(5) ‘Wrong poster-girl for a greed crusade’, Financial Times, 26 May 2003

(6) Investor’s Business Daily, 12 May 2003

(7) The new breed, Patricia Sellers, Fortune, 3 November 2002

(8) CEO coaches, Michelle Conlin and Kathleen Kerwin, Business Week, 11 November 2002

(9) New York Times, 17 July 2002

(10) Press release, Burson-Marsteller, 30 September 2002

(11) From heroes to goats…and back again?, Jerry Useem, Fortune, 3 November 2002

(12) The Timid Corporation, Benjamin Hunt, John Wiley & Sons, 2003. Buy this book from Amazon (UK) or Amazon (USA)

(13) ‘Greenspan predicts recovery, but warns about pessimism’, Wall Street Journal, 1 May 2003