CEOs in the Crosshairs

There is much talk today that the organization is the enemy of the individual, and that while all organizations are enemies of sorts, the archenemy is undoubtedly the business organization.

This quote sounds like it was written yesterday. In fact, it appeared in the pages of Fortune more than four decades ago. I include it here to underscore the fact that we have often regarded corporations and their leaders with a certain amount of suspicion.

At the time of this writing, several scandals are continuing to unfold across corporate America, torching the image of both corporations and the individuals who lead them. Companies like Enron, Global Crossing, Tyco, Adelphia, and WorldCom have become evil icons, and their fall from grace has inevitably cast a pall over the reputation of the once-heralded chief executive. In June 2002, the New York Times made it official, declaring on its front page that "The Imperial Chief Executive Is Suddenly in the Cross Hairs." In December 2002, U.S. News & World Report named former Tyco CEO Dennis Kozlowski its "Rogue of the Year" for typifying corporate "sleaze." Kozlowski, purchaser of the infamous $6000 shower curtain, allegedly misappropriated $600 million from Tyco's coffers. Even the queen of good living, Martha Stewart, found herself at the center of an alleged insider trading scandal.

Politicians responded to the scandals with a predictable array of public postures, ranging from outrage to befuddlement. President Bush vowed to "hold people accountable," but members of his own administration (including himself) were not all that far removed from the kinds of shenanigans that were showing up on the front pages. As for the business world, it was Andy Grove who best summed up the feelings of many: "I've been in business for 40 years," he commented, "[but lately] I find myself feeling embarrassed and ashamed" to be a businessman.

Of course, the vast majority of CEOs were—and are—law-abiding citizens who work hard to achieve their organizational objectives, which almost always include making an honest living. And few newspapers print stories about CEOs doing the right things. For example, in the wake of September 11, Dell Computer held many town meetings with its employees, contributed hundreds of computers to the New York City mayor's office and the recovery site, and donated millions of dollars to the Red Cross (from places as far away as Dell Germany). Dell also did some important work for the Pentagon, and for that act was given a special recognition award by a U.S. Army general in Austin. Michael Dell spoke of how performing these acts was "extremely powerful for people in terms of feeling like they actually could do something that was meaningful."

But these sorts of deeds were of little comfort to those Americans who were seeing their 401(k) plans and stock portfolios shrink dramatically. The numbers were truly staggering. More than one million Americans who had already retired, or who had planned to do so imminently, were forced to go back into (or remain in) the workforce in 2001 and 2002, after their retirement nest eggs went up in smoke.

It's no surprise, then, that the Age of the Celebrity CEO ended abruptly. We love our heroes, but we also love it when they reveal their feet of clay. The demise of the celebrity CEO was accelerated, and sealed, by the first images of executives being taken off in handcuffs—pictures that appeared in virtually every newspaper in the country. Those first arrests (and the subsequent efforts at punishment and restitution) were cheered by Main Street and more or less tolerated by Wall Street. The public demanded that someone be held accountable, and someone certainly would be.

No CEO was above the wave of outrage that was then cresting—not even the man named by Fortune as Manager of the Century. In late September of 2002, Jack Welch found himself at the center of a number of controversies that threatened to tarnish his image permanently. Months earlier, the Wall Street Journal had broken the story of Welch's extramarital affair, and the revelation precipitated a bitter divorce case.

When the proceedings of that case were made public, it was revealed that Welch's retirement package from GE included a $15 million apartment, laundry service, first-class tickets to sporting events, use of the company jet, and endless other perks. In a column in the Wall Street Journal, Welch lamented that the court filing "grossly misrepresented" many aspects of his employment contract. In the same column, Welch announced that he would reimburse the company for the perks he had received since his retirement, and would pay for them in the future. (Soon after, the Securities and Exchange Commission revealed that it was conducting an informal investigation into Welch's pay package.)

The story lingered, nevertheless, because the hero's warts were on full display. Welch's business strategies—and the quality of GE's earnings—were called into question for the first time in years. GE's stock price fell faster than the stock market as a whole in the year following Welch's departure. Newspapers and magazines ran several prominent stories about how the mighty had fallen, and described Welch's fading legacy.

From his public utterances, it's clear that Welch understood that just as he had been a beneficiary of the great bull market, he was now the victim of a new, "post-Enron" corporate fallout. The rules had changed. In a soaring stock market, the press (and investors) took little notice of a multimillion-dollar postretirement pay package. But now, deals cut in the quiet of the boardroom could lead to raucous public controversy, and even the most successful leaders could expect scrutiny.

Executive compensation packages in particular emerged as a natural target, given the fact that the pay levels of large-company chief executives had soared to astronomical levels, contributing to the growing disparity between the corner office and the corner cubicle. According to Fortune, between 1970 and 1999, the average real compensation of the top 100 CEOs leaped from 39 times that of the average employee to more than 1000 times that of the average worker! And although it's far too early to write the final assessment of Jack Welch and his ilk, it seems clear that their reputations are now at risk of being consumed by the same "celebrity machine" that helped to create them.

That would be too bad. You can make a strong case that Welch's compensation was excessive, and that there is a considerable gap between his professional prescriptions and his personal behavior. But his record as a business leader is indisputable. Under his direction, GE was transformed from an out-of-touch, $25 billion industrial manufacturer into an agile, $130 billion service juggernaut. Recognizing the limits of the command-and-control hierarchies that ruled the day, Welch remade one of the world's largest bureaucracies into an organization that had learning and ideas at its heart.

And Welch is not alone. I would argue that when we begin to dismiss all CEOs and business leaders as dishonest or greedy, we are being self-indulgent. We put ourselves at risk of throwing out the baby with the bathwater. There are important lessons still to be learned from certain business leaders, even in an era when business is in disrepute.

The seven leaders profiled in this book are indisputably in that category. No, they are not flawless. They all made mistakes, and most of them came under fire at one time or another for everything from strategic missteps to monopolistic business tactics and, yes, excessive pay packages.

But missteps aside, these people were builders. They created legacies that include some of the most innovative business ideas and concepts of the last decades of the twentieth century. To ignore their accomplishments and overlook the business lessons inherent in those accomplishments would be a serious mistake.

Who are they? Here's the final list:

• Michael Dell (founder and CEO, Dell Computer)

• Jack Welch (former CEO, GE)

• Lou Gerstner (former CEO, IBM)

• Andy Grove (cofounder and former CEO, Intel)

• Bill Gates (cofounder and former CEO, Microsoft)

• Herb Kelleher (founder and former CEO, Southwest Airlines)

• Sam Walton (founder and former CEO, Wal-Mart)

This book is by no means a tribute to the individuals profiled, any one of whom may yet turn out to have feet of clay. (This tends to happen a lot when the rules of the game change.) Instead, it is intended to spotlight their insights, ideas, and innovations, and to show how these can be applied in almost any organization.

At the time of this writing, only one of my seven subject CEOs (Michael Dell) still holds that title. Five others have either retired or taken on a different title, and one (Sam Walton) has died. But I believe that their ideas are as relevant today as they were when they were pioneered years ago. Their companies endure; more important, the concepts behind those companies will be studied and emulated by managers for decades to come.