The view from the edge - role of chief executive officers - related article: Outflanking Competitors in a Downturn

Chief Executive, The, Jan-Feb, 2003

As business weather the wrath of disgruntled investor and the stormy winds of a volatile marketplace, the once-lofty post of the chief executive now seems more like a scary precipice.

High-profile CEOs like Worldcom's Bernard J. Ebbers and Tyco's Dennis Kozlowski have gone from being lauded the covers of business journals as corporate heroes to serving as punching bags for a headline-hungry media. Even former luminaries such as General Electric's Jack Welch and ABB's Percy Barnevik have seen their starry reputations tarnished amid swirling allegations of excessive compensation and negligent governance.

The repercussions of the public's sudden zeal for vilifying CEOs--after nearly a decade of celebrating them--continue to sweep across corporate America. No longer visionary giants riding the crest of a bull market, today's business leaders face not only a sobering downturn but also fallout from the slew of scandals that has decimated the reputations of some of their highest-profile peers and the faith of employees, shareholders, customers and other stakeholders.

These combined forces, pointed out Gerard Kleisterlee, president and CEO of Royal Philips Electronics, have landed chief executives squarely in the hot seat. "The world of business has entered into something of a perfect storm over the past 18 months," said Kleisterlee, the keynote speaker at the CEO2CEO Conference, held in November at the St. Regis Hotel in New York. "Never before has the job of the CEO been more challenging. Never before have we been more exposed--and, in fact, there might be no more endangered species than the CEO of today"

To turn the tide, leaders will have to navigate a turbulent marketplace and reassure skittish investors--while at the same time coping with the scrutiny of regulators, the media and their own stakeholders, noted John Brandt, president and editorial director of the Chief Executive Group, which sponsored the conference. "CEOs today are asked not just to lead an organization to profitability but also to serve as visionaries, as strategists, as change agents, as statesmen, as diplomats, as spokespersons and as brand icons' Brandt asserted, "all while still returning outstanding revenues and making sure that our companies, our employees and our partners are good corporate citizens in thousands of jurisdictions around the globe."

But while the current environment is undeniably difficult--even downright hostile--the trying circumstances have also served to clarify the daunting task ahead, agreed both conference speakers and attendees who outlined five critical challenges brought into sharp relief during the seminars and ensuing conversations.

1 Rebuilding Trust

"Crisis of confidence" is quickly becoming an overused phrase, yet there's no denying that the flameout of the dot-com economy and a rash of corporate scandals have taken their toll on the way employees, investors and the public view both corporate leaders and industry as a whole. "We as CEOs are operating in a zero trust, zero tolerance environment," said Kleisterlee, who sees addressing this crisis of trust as the most pressing imperative facing CEOs today "Until we rebuild trust, we will find it difficult to regain the confidence of the financial market."

But restoring trust is much harder than building it in the first place. Just ask Bernie Ebbers or Enron's Jeff Skillings. What's more, as leaders are quick to acknowledge, the real problem runs far deeper than beholden board members and questionable options accounting; addressing it will require wide-scale change.

"As a group we have been all talk and no action," said Kleisterlee. "Yes, we need to look at our boards and clean them up. Yes, we need to be financially transparent. But it's the pressure to manage for the short term that has in large part created many of our problems. It's excessive use of stock-option programs and an extreme focus on next quarter's earnings. We need to start looking again at business growth from a long-term perspective."

That struggle to deliver in the short term drove many companies scrambling to find ways to meet or beat earnings forecasts that were unreasonable in the first place, and to push the accounting envelope--for which they are now paying the price, said Stephen Cooper, who, as interim CEO of Enron, is intimately familiar with that scenario. "When we lived in a world of 2 to 4 percent growth of GDP, to promise to deliver 15 to 20 percent compounded by way of organic growth every year is absolutely crazy," he said. "Yet we've seen senior management, inclusive of the CEOs, setting and then being forced to dance to crazy expectations about growth in earrnngs year over year, quarter over quarter, month over month. They actually put their organizations on steroids for 90 to 180 days and burn them out."

But is Wall Street ready for real-world earnings forecasts? And are investors capable of looking past the quarterly earnings statement to a company's long-term prospects? Probably not, acknowledged Cooper, who believes CEOs must resist the temptation to perform the quarterly rain dance anyway. "Not only does this quarter-to-quarter metric not make sense financially, but operationally what it does is create an enormous number of internal upsets and inefficiencies," he said. "If you look at the gyrations companies go through operationally the last two or three weeks of a quarter, you'll see weird shipping patterns, weird sales patterns."