Copyright © 2002 The International Herald Tribune
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Stephen Case, a hero of the 1990s for having built America Online into a multimedia giant, sat on the stage of his company's annual meeting last month, listening to investors mock him for overseeing multibillion-dollar losses. Jeffrey Immelt, following in the footsteps of the lionized Jack Welch at General Electric, has tried to soothe rebellious shareholders by releasing more information than Welch ever did, but GE's stock has still fallen more sharply than most others this year. The imperial chief executive, hailed not long ago as the savior of entire companies and the driving force behind the turnaround of the American economy, is suddenly under siege. With two prominent executives being indicted in the last month, accounting problems continuing to emerge and the stock market stuck near its lowest level in three years, executives are facing their most significant challenge in a decade or more. To respond, chief executives have begun a delicate two-step intended to answer their critics and still defeat efforts at systemic change. While proclaiming their own companies healthy and the recent disclosures about problems at Enron, Tyco International, Rite Aid, Imclone Systems and elsewhere to be a series of exceptions, many executives have become more solicitous of their investors, more open about their finances and more responsive to questions from board members. But few are willing to sacrifice even a sliver of the many privileges and huge pay packages they were awarded in recent years. "We CEOs have to do gut checks," said William Zollars, the chief executive of Yellow Corp., one of America's biggest trucking companies, who has been attending meetings with investors that he once would have skipped. "We have to make sure we're playing it down the middle of the fairway, not close to the lines." Investors and private groups, including the business-sponsored Conference Board and the governors of the New York Stock Exchange, are proposing new rules, including one to limit executives' stock option awards and another to require that many board members have no other connections to the executives reporting to them. Regulators at the Securities and Exchange Commission and elsewhere have become more aggressive about investigating executives' behavior. Americans' perceptions of executives' integrity, meanwhile, have dropped sharply since the 1990s. People now say public officials in Washington are more honest and ethical than business leaders, a switch from earlier years, according to the Pew Research Center for the People and the Press. "We now have too many examples for people not to conclude there's a pattern," said Scott Cleland, the chief executive of Precursor Group, which advises investors. "We have a deep crisis of confidence." At the very least, the most opulent behavior of the last decade has become more difficult to justify. Christos Cotsakos, chief executive of E*Trade Group, the online brokerage firm, had made something of a joke of his willingness to throw away money. During the 2000 Super Bowl, the company ran an advertisement showing a monkey wearing an E*Trade T-shirt and clapping, followed by a tag line saying, "Well, we just wasted 2 million bucks." He could not have expected that his shareholders would consider the more than $80 million in cash and stock he received last year to be a similar waste. It was a tremendous amount of money, to be sure, but it was still only a fraction of the largest awards in recent years. With E*Trade's profit down and its stock far below its high, however, investors rebelled in a way they never did during the 1990s. To settle a lawsuit from one of them, Cotsakos forfeited about $21 million of his pay last month and, when the criticism continued, announced at E*Trade's annual meeting that he would give an additional $16 million to E*Trade's employees. Investors continued to deride him anyway. "Times have changed," Cotsakos said in a recent interview, explaining why he returned some of the money even though he believed that he deserved all of it. By contrast, a decade ago, in one of the first big windfalls, Roberto Goizueta, the chief executive of Coca-Cola, also received about $80 million in pay, and he also used the next annual meeting to explain it. But shareholders did not need much convincing. They interrupted his speech four times with applause, and none of them criticized the pay. Goizueta quickly became one of the biggest celebrity executives in the United States; others followed. In the late 1990s, Andrew Grove of Intel and Jeffrey Bezos of Amazon.com became only the fourth and fifth business executives to be named Time magazine's Man of the Year. Now, by contrast, the image of the chief executive is under attack even from within. "I've been in business for 40 years - 25 or 30 years in senior management," said Grove, Intel's former chief executive and still its chairman. "And I find myself feeling embarrassed and ashamed by what I see in corporate America. The same way the market sentiment shifted toward an unbridled exuberance, the values of a lot of people managing companies in this market environment drifted toward, 'Me, me, me.'" "All of us feel tarnished by much of what has gone on," said John Snow, chief executive of CSX, a transportation company and a member of a committee of executives, former government officials and others that plans to issue corporate-governance guidelines later this year. The strongest sign of the change in chief executives' image may be coming from the companies looking for new leaders. "The No. 1 criteria in every CEO search we do today is integrity," said Gerard Roche, senior chairman of Heidrick Struggles, a top executive-search company. "That used to be assumed. No one had to mention it. Not anymore." Copyright © 2002 The International Herald Tribune |