Antitrust Suits - They Kill Enterprises
By Michael Winston
Michael Winston has worked 25 years as a business leader, change agent, strategist, and leadership development officer for five esteemed Fortune 500 companies. Michael will deliver a workshop at the Annual ACETECH Symposium: "Growing the Growth Corporation"
There he is, the CEO - expensive suit, commanding smile, persuasive communicator, compelling story - standing up front, imploring our continued support. The media is wrong, we are told. We will rise again. In fact, we will be bigger and more profitable than before. We will be the "last firm standing." We are asked to wear tokens and symbols of our undying loyalty to the cause.
We see him again on TV, being interviewed, and his response is the same: The industry is facing huge headwinds, but our company will be fine. Yes, we have borrowed to the limits of our credit. However, our incomparable leadership, unmatched business model, and "valued-employees" will save the day. We have come through tougher challenges.
But we know the truth. We listen to the rhetoric, but the reality is far different. Something inside us has died. This distortion proves that we have long known - employees are not valued at all. We are pawns in a larger game. The motivations at the top are not as stated, not meant to benefit our various constituents - shareholders, employees, and communities. They are selfish and driven by greed. Our belief system has been shattered by The Antitrust Suit.
There was a time when people would have walked through the gates of hell for this individual. But the veil of this Wizard has been pierced. Walk behind the curtain. There isn't much there - all smoke, mirrors, and a litany of "trust me" and "it will be fine."
We're told by the Antitrust Suit to stick with him, and we'll make millions. We're told that those who have done so before are wealthy now. Few people still believe him. Over time, all realize the truth. It is over. It is done.
Credibility Lost
If I were to pick the one characteristic essential to leadership it would be credibility - meaning that the leader says what he is going to do, and does it. The leader keeps his promises.
Credibility is the soul of leadership. Credibility determines one's perceived and actual ability to lead. Credibility comes from the integrity that causes others to place their trust in the leader. Integrity involves a reliability that enables followers to know what the leader will, within reasonable boundaries, be predictable. A leader who is unpredictable will soon loose followers.
Many executives, managers, and supervisors fail in their leadership responsibilities because they lose credibility, either in a dramatic event or in a series of damaging actions, but putting their interests above the interests of their constituents. One executive put it well: "People don't give you their trust, they only lend it to you."
An Oft-Told Tale
I wish this tale were but of one lone institution. Alas, it's a tale about many.
Several years ago, we were shocked when award-winning Enron turned out to be little more that a cash-shredding pyramid scheme. The crucial failing for investors was Enron's use of opaque, "mark-to-market" accounting. The problem surfaces when the market is uncertain or difficult to assess, and so assets are marked to a model, often based on generous assumptions.
In the end, we learned that Enron's accounting was mark-to-fairy-tale, with the company booking enormous gains from assumed future profits on schemes that sounded great, but had little chance of producing anything besides headlines. The misbehavior of Enron's Ken Lay and WorldCom's Bernie Ebbers, gave us our many sweeping reforms.
Why didn't we learn our lessons about fantasy accounting after Enron? That scandal supposedly ushered in an era of corporate responsibility and accountability. We all thought that it would happen, but it didn't. In fact, things actually got worse. Last year's version, the implosion of real estate, got downright ugly. Alas, this dream's "income" wasn't actually matched by real cash flows, just bank loans - this Enron-like "income" was all hot air.
Many stocks have been decimated. The losses at those companies most directly victimized by their own housing-bubble ineptitude - such as Bear Stearn and Fannie Mae - are easy to understand. But, the losses extend far beyond that. These tales represent corporate culture (at its worst). And leave us with chills down our spines at the horror of the deceit and arrogance.
Indeed, we've discovered many companies built on the sands of deceit, fraud, power, and greed.
Dick Thornburgh, examiner in the WorldCom bankruptcy proceedings, says companies aren't doing enough to promote accountability, transparency, and compliance - responsibilities that usually fall on corporate directors, in-house and outside counsel, and internal and external auditorss. "Had gate-keepers of Enron, and WorldCom been more effective, shareholders would not have suffered the huge losses."
After such scandals as Endor and WorldCom, Congress hastily passed the Sarbanes-Oxley Act (SOX) to protect U.S. capital markets and shareholders. "While SOX may have increased investor confidence in the short-term, ongoing compliances with its requirements, as well as the heavy fines imposed by the SEC, have proved extremely expensive for some companies," said Micahel Missal, lead counsel to Thornburgh in the WorldCom case.
The past is often prologue. Confidence in the disciplines in our economy is at historic lows. Clearly, we still lack disciplined governance on accountability, transparency, and compliance. Other examples abound
- May 2008 marked the end of the 85 year-old financial powerhouse of Bear Stearn. Problems appeared in July 2007 after two of the company's hedge funds imploded. After months of heavy write-downs due to the subprime mortgage, rumors swirled. In March 2008, JP Morgan offered a $2 / share for the company and in late May the fifth largest investment bank was no more.
- Arthur Andersen's (1913 to 2002) downfall was its role as Enron's auditor. In 2002, the firm surrendered its licenses to practice as CPAs after being found guilty of criminal charges, resulting in the loss of 85,000 jobs.
- Remember E.F. Hutton? "When E.F. Hutton talks, people listen," chimed its slogan. Well, people stopped listening when E.F. Hutton & Co. was caught check-kiting and money-laundering.
- AIG and Lehman Brothers debacles sitll have people shaking their heads.
Malfeasant practices continue to choke our economic system. We deserve better - and we should demand it of ourselves, and of those in whom we place great trust and power.
Two decades ago, James Kouzes and Barry Posner reported that the most essential element in successful leadership was "honesty". Also in the top ten traits were "straightforward" and "fair-minded." Clearly, some CEOs did not get the memo.
What can we do to repair the eroding standards of leadership? We must turn up the heat on our leaders - and hold ourselves to the highest standards - out of faith that it's the right thing to do, not out of fear of legal consequences. Let us model leadership that exudes these qualities:
- The vision to spell out what we will do for those who depend upon us.
- The drive to share that vision with those who share a stake in our success
- The courage to challenge the status quo, stimulate change, and make decisions that move us forward
- The ability to inspire individuals and teams to action to achieve goals
- The foresight to empower people to learn new skills and stretch capabilities
- The wisdom to translate knowledge into value-added performance
- The willingness to recognize accomplishments and celebrate success
- The integrity to serve as examples in actions that reinforce basic values
Implementing new strategy requires leaders who can energize operations; inspire people; personify the purpose, values, culture, and character; inspire commitment to the strategy and goals; and secure the allegiances required to make any bold purpose succeed. The best leaders evoke trust. They match their promises. They pass the true test of leadership - translating their promises and commitments into consistent, purposeful action. Without character and integrity, and organization is "built to fail." As Edward R. Murrow said: "To be persuasive, we must be believable; to be believable, we must be credible; to be credible, we must be truthful."
