Four tips that may keep you in office. - Chief Executive U.S - Brief Article - Editorial

Chief Executive, The, August-Sept, 2002

This year -- Chief Executive's 25th anniversary -- marks a tough time for CEOs. Economic uncertainty, geopolitical turmoil and public contempt for business leadership have made sitting atop a corporation, especially a public one, more uncomfortable than ever. Shareholders doubt your word, employees distrust your motives, customers wonder if you're a partner they can trust and even the communities in which you operate, though thankful for the jobs you've provided, wonder how long you'll be around. Just a whisper of bad news can provoke The Question:

Are you another Enron?

Distrust of CEOs reached such a fever pitch that even Congress and the President felt moved to pass a corporate reform bill.

And that's the good news.

The bad news is the reform bill doesn't do enough, at least if its intent is to restore faith in capitalism. More disclosure is needed. Smart CEOs are reacting with initiatives including:

No more voodoo accounting: One of the biggest abuses of the l990s bubble market was many companies' reliance on voodoo accounting -- financial statements that depended on:

* EBITDA (Earnings Before Important Things Damning our Assets).

* Pro forma statements ("If most expenses are ignored or capitalized as customer database development, operations will appear marginally profitable, so buy our stock").

* Special charges ("For the eighth quarter in a row, the company is taking a restructuring charge reflecting the most recent idiotic investments of our executive team").

All any CEO needs to know about accounting standards resides in four letters: GAAP. Fire anyone who suggests reporting in any other format.

Sign off on your financials: The SEC has asked the CEOs of 947 leading firms to do it. You should, too. If you don't stand behind your numbers, shareholders will wonder what you -- and they -- have fallen for. Do it, or make way for somebody who will.

No more cozy boards: Everybody likes to see their friends. Just make sure it's at the golf course or the watering hole, not in the boardroom. The best way a director can be your friend is to run you through the ringer during every meeting. You may not like it, but you'll be more likely to keep your job.

Start expensing options: Lots of CEOs argue that options are vital to recruiting, and that even if they wanted to expense them, there's no realistic way to price options. This is, bluntly, horse hockey. The vast majority of options go not to low-end programmers, but to senior executives. As for pricing, in an era when companies trade complicated financial derivatives to manage currency risks, the idea that the value of options can't be estimated seems positively flat-earth. If you pay someone to do a job, it's an expense. Quit lying to yourself and your shareholders and put it on the statement. Because even if you don't, somebody else will:

Your successor.

John R. Brandt

President & Editorial Director