Tuesday, May 30, 2006

Our Corporate Masters

Building corporate character
From The Statesman

Last week, Kenneth Lay, former chairman of the defunct energy company Enron, and Jeffrey Skilling, former president of the company, failed to convince the jury that they had done nothing wrong personally, that Enron was a good company stampeded to death by market panic, speculators, and footloose media reports. Both were convicted on conspiracy and fraud charges.

Good for America, and a lesson for others.
A company that strode like a giant with global footprints, including one at Dhabol, Maharashtra, collapsed in 2001, taking down hundreds of thousands of shareholders, employees and pension holders’ funds. The collapse of Enron was one of the many corporate scandals that hit the USA at the beginning of the new millennium, shaking the faith of the American people in corporate America. Many top corporate executives were hauled to prison, handcuffed like common criminals, as will be the case with Enron’s Lay and Skilling, when the sentencing is done.

Corporate USA functions on command and control, with little internal checks and balances. The political system, however, is based on a built-in checks and balances system along with a free Press that keeps politicians under restraint by exposing them to public ridicule, threatening to impeach them or put them in jail.
Several American presidents, state governors and legislators have been disgraced because of their abuse of power. The notorious lobbyist Jack Abramoff has named names and testified against members of Congress whom he bribed to buy favours for his business clients. It is worthwhile to watch the unfolding American drama of political corruption and how the system cleanses itself periodically.
The functioning of the political system is not left to the innate goodness of the people seeking power. Nor is the development of good political behaviour left to any kind of special education or training in ethics course work in schools or colleges or the culture of the sports arena, for that matter.
The temptation of power trumps everything else ~ transparency and accountability are indispensable to good governance. That, unfortunately, is not the case with corporate USA, where most Americans are vested through their pensions and other retirement accounts. Today, we live in a world where corporate power overshadows most of our activities. The class struggle of workers v capitalists has been replaced by public interest civic groups v global corporations.
Corporate leaders rise to power on the promise of maximising profit, market value and economic health of their companies. Shareholders’ interest is limited to annual returns and dividends. The boards of directors are amoral; their interest is limited to increasing shareholders’ value. They hunker for executives who maximise their investments. So long as an executive performs well and exceeds the expectations of Wall Street, he can get away with excesses.
Last year, former chief executive Bernard Ebbers of WorldCom (now MCI, Inc), whose $11 billion fraud drove the telecommunications company into bankruptcy, was sentenced to serve 25 years in prison. The former financial chief officer of the company, Scott Sullivan, who pleaded guilty and testified against his former boss, told the jury he had warned Mr Ebbers that accounting adjustments, creative accounting or cooking books, whatever you call it, could not be justified.
Mr Ebbers told him the company had to “hit the numbers,” and meet the financial and revenue targets. Underlings were, of course, blamed by Mr Ebbers for the fraud, said to be the largest in the US history. At its peak in 1999, WorldCom had a market capitalisation of $180 billion, and Mr Ebbers was a darling of Wall Street. But it was a reputation built on sand.
When WorldCom’s real earnings could not meet the forecast, Mr Ebbers asked the account department to “adjust the numbers”. Corporate accounting departments are notorious for slouching towards the powerful.
Wall Street analysts and financial journalists who, out of fear or favour, work as paid employees of big corporations rather than as watchdogs of public interests, went along with the web of lies woven by the WorldCom team until the whole edifice began to collapse in 2000, and the share price sank to $15 from a high of $65.
But Wall Street seldom forgives anyone’s trespasses. One cannot get away with lies for too long, but sometimes the price a company and eventually the public pay is too high, and the damage to reputation is irreparable.
Why do corporate executives misbehave? Deborah Gruenfeld, professor of organisational behaviour at Stanford Business School, discussing the psychology of power and leadership in Stanford Business Magazine said: “Behaving badly may be natural at the top.” But why? According to her research, power creates “disinhibition”. In other words, power gives you a feeling of immunity from the consequences of your actions, especially when your salary and bonuses are in a stratospheric region. Consider the pay package of Exxon Mobil Corporation’s CEO Rex Tillerson for 2006, which at $13 million is the highest in US history. What does this man think about the rest of us struggling to fill our gas tanks? Can we make corporate bosses honest, even when we pay them so much?
Can we instill ethics into their souls? May be, the ignominious march of Enron’s Mr Kenneth Lay and Mr Jeffrey Skilling to prison will instill some sense of fear, if not ethics, into our highly paid “disinhibited” corporate masters.

No comments:

Post a Comment