Let us now haze famous men. That’s right, let’s take turns trashing the CEO. CEOs have gone from heroes in gray pinstripes to heels in orange jumpsuits, from visionaries who do road shows to villains who take perp walks. We’ve replaced their cuff links with handcuffs and moved their photos from magazine covers to wanted posters. CEO: business’s four-letter word.
There. Are we all feeling better? Now ask yourself: Why are you so surprised at all of the bad behavior? We got exactly the CEOs we deserved. Look at the table we set. Take a type A personality: hypercompetitive, prone to arrogance, and bursting with an inflated sense of his cosmic importance. Stick him (and, yeah, so far they’ve all been hims) before a buffet sprinkled with sweetheart deals and salted with multimillion-dollar incentives that encourage him to put his own interests ahead of the company’s. Surround him with a bunch of puckered-up underlings, swooning investment bankers, and head-nodding directors. Then banish anyone who dares to question the arrangement. It’s a wonder that these guys didn’t swipe the silverware too.
“It is not that humans have become any more greedy than in generations past,” Alan Greenspan told Congress. “It is that the avenues to express greed had grown so enormously.”
So what’s the answer? Everybody, it seems, has a solution. Toughen the penalties for wrongdoing. Fire the head of the SEC. Fire the treasury secretary. Fire somebody! Then appoint a chief ethics officer — a CEO to oversee the CEOs. Separate the consultants from the auditors. Then force auditors actually to audit — and have a board to audit the auditors.
Okay, okay. Fine. Let’s say that we do all of those things. They won’t be enough. Because the problem runs deeper — to the very heart of our free-market economy. Capitalism works when risk and reward are in alignment. Take more risks, and you might get more rewards — but you also might get nothing. Take fewer risks, and you might cut your losses — but you might also forgo a bigger payday.
The trouble is that at the top of the financial pyramid, up in the executive suite, the alignment has gotten dangerously out of whack. CEOs — unlike any other player in the economy — shoulder almost no downside risk, yet they stand to reap substantial upside rewards. They win big — but, short of being hauled off to the pokey, they never seem to lose. Talk about a win-win situation! It is for CEOs — just not for anyone else.
Consider all of those Enron employees. They took a risk by stuffing their 401(k) accounts with company stock. Their risk didn’t pay off (to put it mildly). Meanwhile, CEO Jeffrey Skilling left stately McKinsey to join a rough-and-tumble oil-patch company — and eventually led the company to the second-largest bankruptcy in American history. He took a risk, he failed monumentally — and he pocketed $90 million. To paraphrase one great business thinker: It’s good to be the CEO.
So how do we perform the financial chiropractics necessary to realign risk and reward?
Of course, there are the old standbys: legislation and regulation. But those efforts often bring nasty, unintended consequences. For example, the well-intentioned 1994 law that capped deductibility of executive salaries at $1 million helped produce the murky compensation packages at the root of today’s rot.
So how about we try this voluntary but more radical proposal instead? A few gutsy CEOs volunteer to take as their base pay the median salary of a worker at their company. For a full year, that’s all they’d be paid. Then, at the end of the year, they’d be eligible for a bonus tied not just to the company stock price, but also to other equally valid measures of corporate performance, such as the percentage increase in sales and revenue and levels of customer and employee satisfaction. No repricing options or other flimflammery. CEOs would be like the rest of us. No performance, no pay. No risk, no reward. (And while we’re at it, let’s compensate corporate boards the same way.)
Think about what this single step would do for employee morale. Then think about the signal that it would send to shareholders, customers, and communities: The company is serious about both ethics and performance. Think about the pressure that it would put on other companies to follow suit.
“The state of corporate governance to a very large extent reflects the character of the CEO,” said the great Greenspan. And these days, character is king. So how about it, guys? America could use a few good CEOs. Who wants to go first?
Daniel H. Pink (email@example.com) is the author of Free Agent Nation and is writing a book about the rise of right-brain thinking.
Sidebar: I’ll Go As Tom Edison!
Like workers across America, many of Agilent Labs’ research scientists and staffers come to work in costume on Halloween. For the past two years, the organization (the central research lab of Agilent Technologies, in Palo Alto, California) has added a little work to the fun. They call it “Tech-or-Treat.”
Nothing haunts R&D managers more than the challenge of producing market-worthy innovation. The problem: Agilent Labs’ 400-plus research scientists are scattered across a three-building complex in Palo Alto and satellite offices around the globe, engaged in 150 different projects at any one time. Which means, says William McAllister, department manager of Agilent’s Life Sciences Laboratory, that “nobody knows what’s going on.”
Agilent’s solution? Jazz up a standard ritual — the annual technology review — to create a vibrant new tradition: Tech-or-Treat. Instead of presenting their work to a bunch of executives in an auditorium, Agilent Labs’ scientists present their work to each other at their own workstations — and turn the downtime of Halloween afternoon into a field of cross-pollination. For the first Tech-or-Treat, in 2000, a team of volunteers created posters, decorated labs with orange and black balloons and recruited 30 presenting researchers, equipping them with cookies and candy. This year marks the third annual Tech-or-Treat; no word yet on the most popular costume. SpongeBob SlideRule, anybody?
For more information, contact Gail Jacobs (firstname.lastname@example.org), or visit Agilent on the Web (www.labs.agilent.com).