Are CEOs the fall 'guys' !

3 Aug, 2002

CEO has become a dreaded 3-letter word and the acumen has become the butt-end of corporate jokes. This would be funny if it were not so depth and serious in terms of its fall out. Suddenly the average CEO in Europe, as I noticed last week, does not wish to call himself a CEO and, reluctantly, hands out his business card with that title.

In fact even the undersigned, would rather be now known as Chief Mentoring Officer of EFS and has a good reason for it. 'Mentoring' would denote learning and coaching and is helpfully more in the nature of a trustee for future generation rather than a day-to-day hands-on executive who grinds himself to his own doom by his vaulting ambition and his sins of commission and omission literally.

Indeed, the infectious greed has led to many failures and has put the fear of God in the minds, not only of the investing public, but in CEOs. The CEO's role, in particular, has come under fire literally again literally ! In recent weeks, a number of CEOs, not just in the telecom sector or the lax of Enrone etc. have had to pay the ultimate price of an ignominious exit but has gone to the other sectors, particularly, media and telecom. Where again, the excesses were of a different kind, driven by not so much by fraud as by the 3-G greed and the whole hype about the new economy, media and telecom when huge amounts were paid for licences in Europe which Telephonica has now had the gumption to throw in the towel and, actually, not use the 3-G licence for which it paid about US$ 4 billion.

What has happened is that the retribution has come in swift and sudden to many CEOs who have been recently asked to leave. This includes Jean Marie Messier of Vivendi Universal, Bob Pitman, the COO of AOL Time Warner or Thomas Middelhoff of Bertelsmall or, indeed, Deutsche Telequm's Ron Sommer. These CEOs have become fall guys because they were the rising stars almost meteoritic in its pace when the markets were riding high and when NASDAQ & NYSC was running amok. They were the darlings of the media because of their huge expansion plans, acquisitions using their shares and cash and excess borrowing and leveraging as if there was no tomorrow to fund such acquisitions and the groups plans. They also granted stock options to their staff and the whole thing was an adrenal in charged rise to the fore. They were quoted by not just the print but also the visual media extensively for the brilliant and wonderful things that they were doing and certainly the old school has struck back. The moment the markets fell, valuations collapsed and companies began to flounder and the shareholders became restless. More importantly, the regulators and the auditors and other service providers were caught napping. There is now a reverse retribution almost with a vengeance by the more passive old economy individuals who have quietly cleared the deck.

Partly the politicians have, particularly in the case of Ron Sommer and Messier, some other politicians also saw which side their bread was buttered i.e. with large pool of shareholders and elections looming large on the horizon. The obvious choice was to point out figures at the top man and blame him for everything that went on and quietly ease him out. It's a different matter that the same individual was lauded and feted in the yesteryears by the same political and public opinion establishment.

I am reminded of the poem that I learnt at school by Robert Browning on the Fallen Heroes where their path was mixed with mortal and then suddenly, instead of flowers, stones began to be thrown for the same heroes who came back from the battle, depending on whether they succeeded or failed on the war front. That is happening to the CEOs.

The CEO as an institution is very much an American phenomena that was introduced in the typical aggressive Anglo Saxon way where full blown capitalism was the de rigeour of the day. The continental Europe reluctantly espoused this whereas the supervisory and management board, in more in the nature of a shared responsibility, almost similar to the cabinet style of functioning in the federal political set up of a country. Therefore a CEO was very much like the U.S. President, with almost unfettered authority on whom lacks of expectations were pinned by the major shareholders and the board of a company, who comprise, principally non-executive luminaries with little time other than networking opportunities that they provided at board meetings. Who clearly brought some fresh perspectives into what was being said and done at the board level. But unlike the name 'Supervisory Board', there was little supervision on a day-to-day basis much left to the management rightly. It was felt that management must manage and the Board members ought to really govern in a broader sense for the benefit of the stakeholders.

This was a neat division of responsibility except that depending on the personality of the individuals and their strength of character and conviction, the roles often smudged and fudged into a classic cocktail mix. Therein lay the seeds of destruction. In a sense, modern capitalism is like the rise and fall of the Roman Expire, it is not for smooth progression but more like missile technology with the rockets firing up one day and falling like a below 9 or 13 or like a few of the ill-fated Apollo missions where every other successful space odyssey.

What is annoying is the role of other professionals within the management. Typically like the railway minister or the finance minister, cannot be responsible for every single public sector establishment or every train not running into a mishap, the CEO of a large conglomerate typically became less of a CEO and more of a managing director. He had to rely on his team and if the team misbehaved, as it did in the case of Enrone, then he still took the blame.

The ex-U.S. President, Trueman's famous quote 'the buck stops here' began to be applied to the corporate world with the CEO benefiting immensely in terms of handsome pay out for taking this onerous responsibility. Yet, at the same time, he was often thanked for mistakes, not necessarily of his making. But that sword always hangs over every head of an organisation. In good times, he may or may not be given the credits if the markets pull the organisation up but in bad times, almost invariably, he took the blame and became the fall guy.

If one were to go by the reports of Enrone, it was the CFO who grew larger than his job required and that is where one must say that there is a folly in making auditors and accountants more powerful and investing them with the authority greater than necessary. The organisations could then suffer. Ultimately, the management must manage and professionals, be it auditors or technology or human resources individuals within an organisation, ought to provide service and support. They are specialists and ought to have the qualifications and credentials needed for discharging those professional services but they can't be entrusted with the responsibility for running the business or making decisions that commit the company's balance sheet to operational risks, even if not credit or market risks.

When accountants get bigger in their boots, the organisation suffers from lack of perspectives because of their training and background and this could well impinge on the performance. Not that accountants or others with an MBA qualification have done any better. Indeed, the Enrone Harvard MBA was reported to have confessed that he didn't know what was going on. Sad admission to make for a seasoned management professional. Thus, the role of professionals as conscience keepers and making level headed approaches to businesses, have suffered and their credibility has been affected by what has happened in the U.S. and Europe.

Mostly in the Third World, the CEO does not rule the roost and his role is somewhat hemmed in by the Chairman and he is really counted as more like prime minister, i.e. the head of the cabinet as opposed to unfettered authority. Thus the business schools will have to grapple with the social phenomena and authority of investing huge sums to pamper the CEOs who then becomes a larger than life preposition and on who enormous expectations are pinned. That is a recipe for disappointment needs disaster in the corporate world !

(The author (sureshk@emiratesbank.ae) is a General Manager in Emirates Bank Group. The views expressed in this article are not necessarily shared by the Bank.)

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