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The Secret Life of the CEO: Do they even know right from wrong?

Why so many good executives make so many terrible choices. The high stakes, the pressure to perform, and the temptation to go for the dough are part of the problem.

Perhaps we understand now. Or we're starting to. The corporate CEO is not the epic hero we once imagined. Now we know: He was never as smart or as right or as, well, together as we had hoped. His teeth aren't perfect either. But let's not go overboard: He's also not an epic sociopath. CEOs are only as culpable for all that has gone wrong with business in the past year as they were responsible for all that went right in the previous years. Which is to say that whatever they have done or failed to do doesn't explain everything. It doesn't even explain most things.

The truth behind the current episode of corporate comi-tragedy has plenty to do with the men (and they are mostly men) who are running the show — but not in the way that we've always thought. All of our post-Enron hand-wringing about CEOs having values and "walking the talk" isn't wrong, exactly. It's just that it's not exactly right either. The truth is more shaded than that.

The truth is this: CEOs are flawed individuals who are operating in a complex, imperfect world. They are no more or less honest than the rest of us — in fact, "honesty" almost misses the point. The point is, they negotiate a razor's edge between knowing one thing and having to say another.

They are intensely driven to achieve and they operate in a marketplace that measures achievement almost wholly in the short term. They confront a world that moves faster than ever before, and really, there is little about their unwieldy organizations that they easily control.

It's not that we've suddenly promoted a new generation of CEOs who are somehow badly flawed. On paper, these CEOs are pretty much the same as the ones who ran companies a decade ago. Today's average big-company CEO is 56 years old, is male, and has been with his company for 18 years, according to a survey by Chief Executive magazine and head-hunting firm Spencer Stuart Inc. As a group, they are very well educated: Thirty-seven percent have MBAs. They know numbers, and they understand the inner workings of their companies: Some 22% have come up through finance, and another 14% have toiled in operations. That's not what's different.

What's different is the sandbox that today's CEOs play in. The sand started shifting in 1993, the year that professional managers took on investors — and lost. In the same week, the CEOs of American Express, IBM, and Westinghouse all resigned under pressure — basically because their companies' financial results were lousy. In the years that followed, executive pay was increasingly tied to company performance: More stock; more options.

For a while, that sort of accountability seemed like a pretty good thing. But in the late 1990s, stocks soared — and so did investors' expectations. If you were a CEO, and you cared about your stock price and your own paycheck, you heeded the complaints and demands of the research analysts at big brokerages whose utterances could send your stock into orbit — or down the drain. Says William George, who retired in May as chairman of Medtronics Inc.: "The pressure is always with you. You can't escape it, even for an hour."

"It was unrealistic," says David Nadler, chairman of Mercer Delta Consulting and adviser to a number of big-time CEOs. "But if you were the CEO, there was the perception that if you slipped, your stock price could plunge. There was the temptation to think, 'If this is a short-term problem, I can shore it up.' There are tremendous temptations from the system to cut corners."

In the face of such demand for short-term results, you could shore up your business. Or you could try. But in real life, big-company CEOs only wield so much authority. "We're just human beings running battleships, and battleships don't turn easily," says Stephen Berger, a former top executive at GE Capital who now heads Odyssey Investment Partners LLC.

For all that's written about CEO charisma, power, and authority, chief executives, it turns out, rarely can make their companies change through an executive edict. Instead, they build coalitions and seek consensus. "A CEO doesn't make decisions," says the founder of one of the most prominent dotcoms of the 1990s. "The job is mostly the art of balancing interests and dealing with shades of gray. CEOs are often frustrated because they can see where they want to take the organization, but they can't get the organization to go there."

Here, then, is the true essence of the CEO syndrome: It's not that chief executives are especially dishonest, corrupt, or inept. The real problem is, they're alone.

"Being a CEO really is a lonely job," says James Maxmin, who has headed Laura Ashley PLC, the consumer-electronics branch of Thorn EMI, and Volvo UK. "With your subordinates and your peers, you need to have a degree of detachment. There's some detachment from your board too, because they are evaluating you. So you become cocooned in your own self-importance."

So let's get down to it: Are CEOs honest?
Well, define honest. Do most CEOs lie through their teeth? Enron's Jeffrey Skilling sure pushed the envelope. But for most CEOs, the answer is no. On the other hand, are most CEOs steeped in institutional corporate-speak? Do they find a way to walk the line between saying just enough, not too much, and never the wrong thing? You bet.

After all, how do you tell employees that business is likely worse than it seems? That layoffs are imminent? When do you let customers know that you're going to make their installed products obsolete? Often, you just don't.

"There's a lot you can't share with anyone," says Anne Mulcahy, the well-regarded president and CEO of Xerox Corp. "I've tried to be fair and honest in my approach, letting people know what to expect. But there's information that you have to retain while keeping up the image that you're feeling no anxiety inside." And while CEOs today are under the microscope when it comes to telling the truth, how much truth is too much? Mulcahy found out on October 3, 2000, when she proclaimed Xerox's business model to be "unsustainable." Mulcahy was trying to be forthright. But her company's stock dropped 26% that day. "That was a painful lesson," Mulcahy says now.

And so, the razor's edge. You are a CEO. You have the title, the visibility, and the responsibility. You're also isolated. You're under extraordinary pressure to deliver results. And you're deathly afraid of failing.

So do CEOs fudge the numbers?
Of course they do. Add it up: There's the pressure, the scrutiny, and the generally accepted accounting practices (which institutionalize a set of standards that don't so much define what must be done as establish the boundaries of how far you can go). Suddenly, playing with the numbers doesn't seem so bad. "It's increasingly difficult to stand up and say, 'I made a mistake,' " says Maxmin, whose new book, The Support Economy: Why Corporations Are Failing Individuals and the Next Episode of Capitalism (Viking Penguin, 2002), derives in part from his own conflicted corporate experience. "One way to show that I never make mistakes is to deliver consistently higher earnings. And one way to do that is with reserve accounting. I knew plenty of executives who thought that it was perfectly proper to have next year's profit — or most of it — already reserved. You're on a treadmill, and you become more and more creative."

"Do you sometimes try to manage the numbers?" asks Berger. "Yeah." After all, part of what investors expect from CEOs is a best-case financial argument on behalf of the company. But at what point do the best-case scenarios become false accounting practices?

"There's a moment," Berger says. "You're sitting with the independent auditors, and everyone leaves the room — except for the audit committee. And you say, 'Give me the skinny.' And the auditors say, 'There are two or three things that we're negotiating with management.' There's nothing wrong with that. But you have to ask the next question: What are those things? And then you have to go back to the managers and tell them, 'You're right' or 'You're wrong.' The decision itself is gray — but the decision process should be very clear."

And so here's the real question: Do CEOs even know right from wrong?

You have just had to manipulate your financials to make your numbers — anything to keep the analysts smiling. And after you've fudged the financials, you find ways to justify the crime — did I say "crime"? — I meant the practice. It's really not hard. "There are things that happen when you join a company that cause you to believe that the values in one's outside life aren't relevant any more on the inside," says Jeffrey Pfeffer, a professor of organizational behavior at Stanford's Graduate School of Business. "You say, 'The rules are different, and life is complex.' So what has been going on recently really has more to do with an unsurpassed ability on the part of senior corporate leaders to justify anything."

It's no surprise that no one — not Mulcahy, not Maxmin — admits to bending (much less breaking) the rules in illegal or unethical ways. "It's not that complex," says Berger. "If you don't know where the line is by the time you're a CEO, you shouldn't be in that office." Larry Bossidy, the driven and hard-driving former CEO of Honeywell, swears that he never made an ethical decision that left him feeling uncomfortable. "You can't do that," he says flatly.

Maybe. Or maybe CEOs simply feel comfortable with more nuance than the rest of us do. Perhaps being a CEO means that you have an uncanny ability to operate in an ethical murkiness that would drown most people. Perhaps the secret of living with yourself as a big-company CEO lies in seeing all of the grays as blacks and whites. Perhaps the good news about all of today's CEO scandals is that, finally, we're getting closer to the truth about the secret lives of CEOs.

Keith H. Hammonds ( is a Fast Company senior editor based in New York.

Sidebar: The Comic: Defense Attorney for the Damned

Meet Emily Levine
Emily Levine is equal parts philosopher and comic. In her celebrated career, Levine has been part of an improv comedy group, written for television sitcoms, done stand-up comedy, and wrote and performed an Emmy-winning series of commercial satire segments for television. She has earned the greatest praise for her one-woman shows, "Myself, Myself, I'll Do It Myself," and, last month, "Common cen$e." According to the executive producers of The Sopranos, "If Einstein came back as a stand-up comic, he'd be Emily Levine."

Ladies and gentlemen of the jury: I rise before you in defense of the damned.

Let's consider this case on its merits. The prosecution has argued that my clients misstated earnings, overvalued their worth, overreached, overweened, and carried out the wholesale hijacking of their companies' assets — motivated solely by greed. This we categorically deny. Greed was not the sole motivation. Yes, these CEOs wanted more money, bigger cars, multiple mansions, fatter bank accounts, limitless perks, and free stock options — for starters. But they sought those baubles for a reason that was far more elemental than greed. The basis for my clients' actions was, in fact, nothing less than the laws of physics. My clients, big men all, were merely keeping faith with the dictates of an even larger force: the universe.

According to cosmologists, the universe began as a tiny dot that exploded suddenly and that has been expanding — and will continue to expand — for billions and billions of years. I ask the 12 of you seated in the jury box to put yourselves in the shoes of a CEO — say, Jack Welch. You come face-to-face with this vision of limitless expansion for the first time, and what do you see? You see a business plan! As God created the universe, so Jack Welch created the modern corporation. And he looked and saw that it was without boundaries: There was no border between him and his own corporate ends. Nothing tied him down — no restrictions, no regulations, no marriage vows. There was nothing between him and the object of desire. All growth, all the time, 24-7-365.

And where Jack Welch led, others soon followed. "No limits," crowed Showtime. "No boundaries," chimed Ford. Not mere sloganizing but a new faith, based on a new understanding of the cosmos. Of course CEOs don't want to be transparent — 90% of the matter in the universe can't be seen. Sure CEOs inflated their earnings — the universe went through an inflationary period too. It's still expanding. What are you going to do, put the universe in jail?

"But hold on a moment!" my good friend opposing counsel will no doubt protest. What about the law of gravity? How is it possible that CEOs followed the logic of the big bang but not the law of gravity? I can answer that question in two words: quantum physics.

Before science made this quantum leap, a boundary was a straight line drawn down the middle of two things, like the line between "either" and "or." Either things were black, or they were white; either light was a wave, or it was a particle. But in the quantum world, light manifests as both a wave and a particle.

And as in the quantum world, so in the corporate world, where, as quantum expert George Bush recently declared, "Things aren't exactly black-and-white when it comes to accounting procedures." If brokers talk up stocks that they themselves are dumping, well, it's because in the financial world, things aren't exactly right or wrong. They can be both: The stock is simply good and bad — good for my clients, bad for you.

No, if a crime has been committed, it has been against these poor CEOs, men of business, men of science. As they stand before you now, empty shells of the giants they once were, I can only pray that there exists among you some shred of decency. And if indeed, as I suspect, there is . . . my clients would like to buy it.

A version of this article appeared in the October 2002 issue of Fast Company magazine.