HOUSTON, Feb. 9 (UPI) -- Among the more embarrassing cartoon strips lampooning corporate CEOs over the last several years was cartoonist Rick McGee's sketch of two burglars breaking into a house. Holding his loot from the window, one anxious burglar turns to the other and asks, "What if we get caught?"
"Easy," his partner in crime says. "Plead the fifth and blame it on Arthur Andersen."
If it wasn't so true, is wouldn't be as funny.
It is patently unfair to paint all CEOs with the broad brush of malfeasance. Most of the United States' 17,000 public companies are led by ethical chief executives. The sad reality is, however, that only 23 percent of the American public trust them, placing them just above used car salesmen and HMO's. Andy Grove, founder and chairman of Intel, said the number left him, "embarrassed and ashamed to be a businessman."
The high-profile CEO fraud trials now underway sadly reinforce the caricature. But they also should reinforce the idea that American business is fundamentally a moral activity and has always been so. Corporate America should look at the attention it is being given in 2005 as giving it an opportunity to restore the public's confidence and trust.
It as not as though these incidents happened of their own accord without any signs of the potential dangers up ahead. To identify those signs now, rather than being a case of locking the barn door after the cow is gone, is a perfect chance to learn the lessons that should have been obvious.
First, there is the danger of pragmatism.
In the 1990's economic boom, a period U.S. Federal Reserve Chairman Alan Greenspan cautioned was produced by "irrational exuberance," what may have been the most destructive trend was the increase in cases where corporate ends were apparently used to justify the means of improper business practices.
A contingent philosophy, "it all depends," led to abuses of accounting rules, manipulations of corporate earnings to meet expectations, and the creation of special purpose entities whose special purpose was to hide corporate debt. None of these are examples of commonsense pragmatism like focused diversification, globalization, or turning a business around. These legitimate contingencies must be handled around core values and within moral boundaries, particularly where shareholder assets are concerned.
That also means, something that should be obvious but seems in some cases to have been forgotten, that people must be treated with respect and that honest communication should also be the first impulse rather than the last resort.
The rise of pragmatism tended to supplant the long-held belief that free-market capitalism is a moral activity. If we agree with management guru Peter Drucker's belief that the purpose of business is to "create a customer," then it imposes a responsibility upon CEOs to respect the natural rights of those customers -- both internal and external. The obligation of business, therefore, is both a social and a moral contract.
Earnings and revenue growth are essential tasks for a competitive enterprise. How one achieves those results are even more consequential, as most former employees and customers of Enron, Arthur Andersen and WorldCom would no doubt say.
Second, there is the danger of impotent boards.
In practically every recent case of corporate malfeasance, the CEOs in charge were governed by complacent rather than vigorous boards. The linkage here should be clear. A company and its shareholders are well served by a corporate board that is willing to tell a CEO to rethink proposals and to ensure that the corporation does not take a hit below the water line thanks to poor strategic decisions.
All boards are not created equal and, appallingly, many of those created over the last decade were simply collegial and productive if not outright unengaged. As Berkshire-Hathaway's Warren Buffet has said, the tendency was to put Cocker Spaniels on corporate boards instead of Doberman Pinschers.
For some directors, the consequence has been out-of-pocket payments of millions of dollars to settle U.S. Securities and Exchange Commission and civil suits against them for failing to govern both their enterprises and their wayward CEOs and CFOs. The resulting corporate chilling effect will no doubt lead at least some capable potential board members -- such as sitting or retired CEOs from successful and well-run companies -- to refuse to serve where their experienced-based knowledge might do the most good. Corporate boards and CEOs must be reminded that the most effective leaders and lasting enterprises have always submitted themselves to the criticism and governance of others. CEOs must rely on the collective experience and judgment of their management team and board.
Third, there is the danger of impressionistic leadership.
One of the appealing social activities of CEOs over the last decade was to swap ideas in off-site conferences around the globe. Many of them invariably became captivated by those who ventured into ancillary businesses that had as much to do with their core businesses as a marathoner trying to run a sprint. Call it the corporate lemming effect.
Lemmings, it should be remembered, are small, furry-footed rodents known for recurrent mass migrations into the Norwegian Sea and a watery demise.
With Enron leading the way and management consultants preaching the Enron model as the only successful path to the future, other U.S. energy giants like Dynegy, Williams, and Reliant changed their business models so they could expand into non-core businesses like merchant trading and broadband. In the process, they almost drowned their customers and their employees. In the future, CEOs must resist the insatiable desire for unsustainable growth and restrain this brand of pragmatism by staying true to their core business and doing what they do well.
Fourth is the danger of talent.
One of the perhaps clearest lessons of the last few years is the obsession to only hire "top talent" led to a proliferation of senior managers who were overrated rather than smart. Consider the parade of CEOs now entering courthouses in different parts of the United States. Some are among the most innovative minds in business but, as Malcolm Gladwell put it, "smart people are overrated."
There is always a need to hire top talent. The more urgent need is to create cultures of integrity. U.S. corporate leaders now have visible evidence that they can only be the best and brightest if they are also the most moral and the most modest. Corporate cultures troll for the top MBAs without asking if their moral compass and people skills are commensurate with their degrees from the best colleges and university business schools. Failing to link these core issues can be financially devastating and can lead to the creation of practices and behaviors that draw unwelcome attention from the SEC, the Federal Bureau of Investigation and the United States Department of Justice's Corporate Fraud Task Force.
The final danger is the one posed by unbridled ambition.
Successful CEOs and enterprises must be ambitious, but that ambition cannot exist in a vacuum. For whom do they aspire to excellence and profit: their shareholders and employees, or for themselves? Self-absorbed CEOs misplace their ambition when they chase headlines and profiles and the profits that will land them on a magazine cover at the expense of investing in their people.
Humorist Erma Bombeck famously said she would never go to a doctor whose office plants had died. Likewise, no one should follow a leader or serve in an organization that doesn't nourish and develop its people: All its people, not just management. Corporate leaders must be ambitious for those on whose behalf they have been given a trust and must leave a legacy of leadership development behind long after they have moved on.
As the indicted CEOs get their day in court, the caricatures will certainly be resurrected, an aide memoire to corporate stewards of lessons learned and -- more importantly -- of hazards still lurking. If amnesia sets in, the distrust and the ridicule will persist and will only bring undeserved dishonor on the thousands of U.S. CEOs who are true to their values and who remain dedicated to creating and serving customers, employees and shareholders.
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Archie W. Dunham is the recently-retired chairman of ConocoPhillips. He is also a member of the Union Pacific Corporation, Phelps Dodge, and Louisiana-Pacific boards of directors. Les T. Csorba is a partner with Heidrick & Struggles, Inc., an executive search firm and is the author of "Trust: The One Thing that Makes or Breaks a Leader."
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United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.
