NEW YORK (Dow Jones)Being a chief executive officer sure isn't what it used to be. Good thing, too. The way things used to be wasn't good for anyone except the CEO, his ego and his wallet.
Cast your mind back to those long ago days of the late 1990s, when the cult of the CEO ruled the earth. CEOs were rock stars then, their pictures on every magazine cover and their names on every investor's lips. They were the Great Men (and Women) whose ambition, vision and sheer aggressiveness would inevitably lead their companies to great things, with shareholders reaping the benefits.
Does anyone need to be reminded that it hasn't turned out that way?
What we've seen instead, as the economy and market did a nosedive that they still haven't come out of fully, is that CEOs have gone from lionized captains of industry to Rodney Dangerfield. The economic slide has exposed them; they've lost their special aura of success, of being winners. An aura, it's become apparent, that many of them never really deserved to begin with.
This week brought the latest prominent example. Bernie Ebbers, he of the avalanche of acquisitions, resigned from WorldCom Inc. (WCOM) amid a faltering business, a plunging stock price and a Securities and Exchange Commission investigation of the company. Ebbers, it turns out, was so shrewd and savvy that he now owes his former company $366 million the result of loans that WorldCom granted to him so he wouldn't have to sell his WorldCom stock to cover margin calls as the stock plummeted.
At least Ebbers held onto his stock. Gary Winnick, the chairman of Global Crossing Ltd. (GBLXQ), reaped about $600 million from selling shares in the company before it filed for bankruptcy in January. Global Crossing, like Worldcom a telecommunications company whose ambition outstripped its resources, is also under SEC investigation.
More examples:
The board of Kmart Corp. (KM), which is also in Chapter 11, said it's "reviewing the stewardship" of the company by former CEO Charles Conaway and other former senior executives over potential wrongdoing.
The SEC is attempting to hold CEOs and other top executives of companies personally responsible for accounting irregularities at the companies. The commission has already sued Waste Management Inc.'s (WMI) former chairman, its exCEO and other senior officials, and the Wall Street Journal reported last month that the SEC had notified Xerox Corp.'s (XRX) former chairman and ex-chief financial officer that they could face civil charges also.
Investor unrest about exorbitant executive pay packages in the face of market declines appears to be growing. No wonder: While CEO salary and bonuses declined a median 2.8% last year at 350 major companies, according to a study that Mercer Human Resources Consulting did for the Wall Street Journal, the median compensation was still $1.6 million and the decline doesn't approach the median 17.8% tumble that those companies' earnings took, according to the study.
Ken Lay and Jeff Skilling. Enron Corp. (ENRNQ). Enough said. Ditto for the hordes of failed CEOs of failed Internet companies.
Even Jack Welch, the sainted former CEO of General Electric Co. (GE), doesn't escape this trend. It wasn't long after Welch retired a hero that nagging questions about GE's blackbox accounting and potential earnings management came to the fore. While Welch has escaped direct criticism, it's a fair supposition that the GE practices that are under the market's scrutiny didn't just suddenly start under his successor. (And that's aside from the embarrassing revelation of Welch's extramarital relationship with a now-former Harvard Business Review editor.)
The common thread running through all these examples is that the pedestal is gone. No longer are CEOs being treated as a special, elite class whose every utterance is golden and whose brilliance and expertise are indispensable to their companies. They're people. They're fallible, and sometimes they do bad things. And now, finally, they're being held accountable, by investors, boards and regulators.
That's all to the good, because most CEOs never deserved the adulation they got in the first place. The cult of the CEO flourished during a time when a rising economic tide was lifting all boats, and a market suffering from temporary insanity was throwing money at anything that moved. With that sort of help to work with, a chimp in the CEO's suite could have managed some of these companies to big gains. As a result, CEOs were able to take credit for successes that often had little to do with their own ability or expertise and investors bought it.
It's different now. The new paradigm for how CEOs are going to be treated in the future may be HewlettPackard Co.'s (HWP) Carly Fiorina, who faced intense criticism and resistance over her effort to have HP take over Compaq Computer Corp. (CPQ). That the effort ultimately was successful isn't the point here; Fiorina's experience shows that CEOs aren't going to get the benefit of the doubt anymore. They can't expect everyone to simply bow before their vision; they're going to have to sell their board, their investors and the market on what they're planning. And if there's disagreement, the CEOs had better be ready for a rough ride.
With the boom gone, in fact, we're in the kind of situation that may provide a better gauge of who's a good CEO and who isn't. Now, CEOs actually have to manage effectively to produce results for their shareholders, instead of relying on an overheated market to do it. Once again, good business decisions and sound leadership are what's important, not flash and braggadocio and aggressive acquisitions.
Take PepsiCo Inc. (PEP) and Johnson & Johnson (JNJ). Both posted first quarter earnings that grew smartly from a year ago and beat Wall Street estimates, at a time when earnings are down sharply from a year ago. And both have stocks that have posted gains this year in a market that's trended lower. That's good work by anyone's measure.
Don't know who their CEOs are? Maybe there's a lesson there. (Steven Reinemund is CEO of PepsiCo; William Weldon is J&J's CEO, replacing the just retired Ralph Larsen.)
The cult of indiscriminate CEO adulation is dead. Long live smart, capable management.
Michael Rapoport, Dow Jones Newswires, 2019385976, michael.rapoport@dowjones.com
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