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

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.