Scrutiny of CEOs produces a more diligent approach
By Hope Yen
Associated Press
General Electric's Jeffrey Immelt is packing his board with independent directors who can question his every move.
At AOL Time Warner, Richard Parsons stresses teamwork and chastises executives who whine about stock performance.
And Bob Eckert of Mattel focuses on earnings and celebrates his bland personality.
After a year of accounting scandals, humbled top executives — willingly or not — are scrambling to respond to perhaps their greatest challenge ever: Restoring faith in investors who feel cheated by them.
"We're down at the bottom of the heap, with telemarketers," said Immelt, shortly before announcing plans in November to make two-thirds of GE's board independent. "Corporate leadership has lost the benefit of the doubt."
Some of the moves are significant, such as a shift away from big-name executives who hype stock prices, while others may be more cosmetic, reflecting a widespread CEO belief that the recent turmoil came at the hands of a "few bad apples."
But many experts agree that 2002 will go down as a year in which CEOs were forced to rethink how they do business in ways never seen before.
"Most CEOs are only now coming to grips with the significance of all that's happened," said Jeffrey E. Garten, dean of the Yale School of Management. "But no CEO can afford to be on the wrong side of a much more diligent approach to corporate governance."
The anger of investors, who lost trillions of dollars in the stock market following scandals at companies such as Enron and WorldCom, produced a flurry of new laws and regulations in 2002 involving corporate accounting.
They include tougher criminal penalties for fraud and a requirement that CEOs at the 1,000 largest corporations formally vouch for the accuracy of financial reports.
"This was the year where CEOs have said never before have they worked so hard and been less appreciated," said Paul Reilly, CEO of executive recruiter Korn/Ferry International, citing the intense public scrutiny amid an economic downturn and terrorism fears.
"Between the changing demand, the uncertainty of the marketplace and layoffs, managers now have to work much harder and be strategic," he said.
Indeed, many CEOs are hunkering down to focus on long-term growth and earnings while surrendering some of their perks and power.
AOL Time Warner's Parsons, for example, pledges to "underpromise and overdeliver" following AOL's $106 billion purchase of Time Warner, a disappointing merger that many believed hastened former CEO Gerald Levin's departure in May.
Parsons, a Time Warner veteran, has focused on consensus to get the company's disparate divisions to work together, including backing embattled AOL Chairman Steve Case while bringing disgruntled board member Ted Turner, the company's largest shareholder, back into the fold.
When former Time Warner executives complained the deal shriveled their portfolios and options because of the company's tumbling stock prices this year, Parsons chided them to "get over it."
The team approach is a marked change from the 1990s celebrity culture, which cast CEOs as miracle workers who brought immediate gains. That view, and a tech boom which later fizzled, drove up executive pay while lulling investors with the promise of instant stock market riches.
Now CEOs are more modest. After years of resistance, many companies including Coca-Cola and Citigroup have agreed to count stock options as an expense, a reform critics believe will discourage CEO attempts to artificially boost stock prices.
Pressure to reduce executive pay is building among business groups such as the New York-based Conference Board, and is likely to be well received by more independent boards such as GE's.
CEOs typically were drawn from a small pool of candidates that "depends more on whether you are already a CEO at another company rather than on relevant skills," said Rakesh Khurana, an assistant professor at Harvard Business School.
Now, more companies say they will focus on grooming their own future CEOs, at a time when studies suggest that bureaucrats who move up the ranks may perform better and are less likely to be overpaid than "celebrity" candidates.
The new breed may include Mattel's Eckert, who toiled in obscurity at Kraft for 23 years before reaching the top and was brought in to replace the flashy Jill Barad in 2000.
Eckert was prized for his pragmatic leadership. Two years later, the toymaker recently reported a 40 percent jump in third-quarter profits, and its stock price, which Eckert doesn't tout, is up more than 70 percent since he took the helm.
