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This chapter is from the book

Breaking the Cycle

As we have seen, there have been major changes in the decision calculus of an increasing number of executives. These began with fairly minor shifts in the trade offs and presumptions about what was proper and what was questionable. Over the past decade, the choices of too many executives tipped over into the acceptance of deceit and corruption.

Corporate earnings were fictionalized, relying on deceptive accounting rather than marketplace performance. In some instances, reported earnings have become "designer" products, engineered to meet "The Street’s" expectations or bonus hurdle levels. Worse yet, financial shamans have found ways to hide debt and dissemble the company’s financial health. Incredibly, companies close to bankruptcy have been made to appear reasonably healthy to the dismay of even sophisticated investors and creditors. At the same time, executive compensation packages have gone over the top and miraculously continue to climb.

The widely observed changes in values and practices eat away and degrade the vitality of American business. In a tough global economy, a show and tell mentality won’t "cut it" in the market place. Almost as scary, these trends undercut the reputation of American corporate executives and American capitalism, now dubbed by many foreigners as "predatory capitalism."

There is growing cynicism about top management’s commitment to serving shareholders’ interests versus their own. More critical books are appearing that question whether business goals are consistent with the values of American society. Americans traditionally espouse belief in fairness, candor, and honesty. Where scandals have been rampant, corporate values have shown themselves to be a shocking departure from these beliefs.

Many business leaders still seem insensitive to the widespread public resentment and cynicism surrounding "greedy executives," a term frequently used whenever the subject of business arises in everyday conversation. Public confidence in the financial system, in free enterprise, and in executive integrity is of incalculable value. If found too lacking, at some point, the political system will exact regulatory penalties.

But American business appears eager to forget and forgive the last five years. There is widespread grousing that the Sarbanes-Oxley Act of 2002 requires cumbersome and costly paperwork, and many suggest that procedures and parts of it need to be repealed. This major piece of federal legislation sought to deal with well-known sources of fraud and deception. It was hastily enacted and may need some refinement, but it addressed some major issues effectively and should not be gutted.

Clearly, many corporations need to be more realistic about the seriousness of corporate misbehavior and learn how to attract, select, and compensate a quite different style of corporate leadership. (Something we shall discuss in Chapter 13.)

Change will not come easily. Contemporary American business culture provides a worrisome foundation for the excesses of executive behavior. Playing accounting games, conflicts of interest, and executive self dealing are now deeply embedded in the structure and values of many businesses, as well as their boards, bankers, and "flexible" auditors.

Change requires that both corporate boards and CEOs understand this and become committed to a new look in the executive suite. How to select executives who can practice a leadership style that builds businesses in contrast to engineered "bottom lines" is a tough challenge. Business itself and shareholders have much to gain by leaders committed to building robust and dynamic organizations and staying within both the spirit and letter of the rules. Fortunately, we have no reason to believe candidates are in short supply.

Private business is a major segment of American life. No fixed wall separates these economic institutions from our social and political life, our civic morale and morality. Regrettably, probably not in our lifetime, will senior corporate executives be perceived with the same respect and status they had before the new century began. America is a dynamic country; social and economic problems do get solved.

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