It is no small thing for a Republican President to publicly admonish America's Corporate Elite to take personal responsibility for the conduct of their companies, as George W. Bush did recently. This is the second time the President has used the bully pulpit to demand that, post-Enron, business be "held to the highest standards of conduct," as he said in his State of the Union address. This is strong language that CEOs and board directors would be wise to heed. In defending investors and employees against top executives, the President is sending a strong signal that something is wrong with America's business culture.
We think it goes beyond the obvious chastising of ex-Enron CEO Jeffrey K. Skilling for sitting before Congress denying he knew what was going on in his own company. The truth is that too many chief executives live in a kind of CEO-land, a separate culture apart from employees and shareholders. There, CEOs break the cardinal rules of leadership by insulating themselves from risks borne by those they lead and serve, benefiting disproportionately from those around them, and showing little loyalty to the organization to which they all collectively belong. In CEO-land, what really matters is the peer group: how other CEOs live, what they do, and how they are compensated.
In this rarefied world, boards proffer personal loans that are forgiven, options are repriced down when performance fails, and compensation is based on profits puffed up by endless one-time sales and off-balance-sheet debt. Executives in CEO-land don't play by the same rules as the rest of us--and the public is getting sick of it. That's why Bush, whose party faces elections in November, is doing what no other President has done in decades: He is publicly shaming those who lead our largest corporations.
Bush has proposed that CEOs vouch for the accuracy of their companies' public disclosures, be forced to return bonuses and option profits based on false financial statements, disclose personal transactions in company stock, and be disqualified from holding other corporate roles if they abuse their positions. These are tough measures.
Bush is telling SEC Chairman Harvey Pitt to implement them. In private life, Pitt represented the Big Five accounting firms. His initial vision for the SEC emphasized self-policing, voluntary compliance, and quiet negotiation. Enron changed the business landscape, but Pitt was slow to respond. In his first effort, setting up a new accounting oversight group, he was too cozy with former clients. Now, the reluctant reformer is getting more spine, strictly enforcing the law with Enron, cracking down on errant CEOs, and demanding better financial disclosure from corporations.
The President has said that CEOs must take responsibility for those they lead and those they serve. Pitt must make sure they do.