For CEOs, It’s a Lot Lonelier at the Top
Kathy Bronstein leads a life to envy. As chief executive of Wet Seal Inc., she rules a chain of 584 clothing stores with 7,000 employees. Her weekly paycheck exceeds $16,600, more than some Americans earn in a year. Like most CEOs, she is celebrated, praised, coddled and obeyed.
Bronstein also is proud of how she’s guided Orange County-based Wet Seal. Yet on a recent vacation to Hawaii, she found herself reluctant to reveal her occupation.
“I was embarrassed to tell people I was a CEO,” she said. “It’s like being a big sinner.”
CEOs and other top executives nationwide concede they’re under a spotlight of scorn because of the scandals rocking corporate America. From small firms to the behemoths of the Fortune 500, senior managers find themselves targets of outrage from everyone from President Bush to Main Street investors whose stock portfolios are plunging in value.
“Clearly it’s open season on CEOs now,” said William Clay Ford Jr., chairman and chief executive of Ford Motor Co. “But the broad brush with which everybody is tainted isn’t really justified.”
With their lavish compensation, CEOs may have a tough time getting sympathy--particularly from Americans whose jobs or nest eggs have been destroyed by corporate corruption. But in a series of interviews, CEOs said the fallout from scandal-ridden firms has damaged their companies and their reputations--and many feel angry and insulted.
“I’m infuriated with executives at Enron, Global Crossing, WorldCom and others who have gone way overboard and hurt us all,” said Stephen Baum, CEO of Sempra Energy, the parent of Southern California Gas Co. and San Diego Gas & Electric.
“They’ve created a huge problem for shareholders and employees throughout the economy,” Baum said. “Stocks like ours have been trashed. I’d like to wring their necks.”
A Question of Trust
Most companies have clean books and ethical employees, and the men and women in charge say they are distressed that the new distrust of all things corporate is demolishing the value of companies that many of them spent years building up.
“I don’t know how we’re going to go about restoring trust now that we’ve destroyed it,” said Lewis Platt, retired CEO of Hewlett-Packard Co.
Integrity, represented by a female figure high on the neoclassical facade of the New York Stock Exchange itself, is under assault, and many CEOs are seething.
“There is an assumption that you are somehow less than upright, an assumption that you may be cooking the books or doing something else,” said Mitchell Kertzman, CEO of Liberate Technologies, a supplier of interactive TV software.
And though the job of CEO still is one that many want and few attain, “the great majority of these people are feeling that their reputations are being smeared by the Enrons and WorldComs ... and these CEOs are upset,” said Bill Coleman, senior vice president for compensation at Salary.com, an online site that focuses on executive pay.
Added Jeffrey Christian, himself CEO of Christian & Timbers, an executive search firm in Cleveland: “For many CEOs, it’s just not as fun anymore.”
It’s still not digging ditches, either. Chief executives of major companies enjoy a rarefied, often lavish lifestyle, with plush offices, executive jets, limousines, personal assistants and other perks. A CEO with at least two years’ tenure had a median salary and bonus of more than $1.6 million last year, and that doesn’t include the millions of dollars in stock options many receive, a survey by Mercer Human Resource Consulting and the Wall Street Journal showed.
In exchange, top executives are expected to deal with all sorts of problems, including economic swings, labor strife, regulatory changes, lawsuits and, of course, competition.
But with the wave of scandals this year, CEOs must work harder and find new solutions simply to maintain the credibility they have, executives said. And they must do so in a business and political climate that has changed dramatically in just a few months.
“It’s a new order, a new world,” said Paul Charron, CEO of New York-based apparel maker Liz Claiborne Inc. “You’ve got to be squeaky clean.”
Fred Hipp, CEO of the 137-store California Pizza Kitchen chain, agreed, saying that “if you play the game of being overly aggressive, it’s going to catch up with you.”
Reactions to the scandals are forcing CEOs to quickly switch gears to stem the crisis of confidence, which has sent the stock market tumbling to its lowest levels in five years. Wall Street wants more financial disclosure. Congress wants more independent directors on corporate boards, which hire and fire CEOs. Regulators want CEOs to certify their companies’ financial statements.
And some of the perks may be taken away. The Senate voted last week to ban corporate loans to executives, which often are made to help managers relocate or buy company stock.
The Business Roundtable, an association of CEOs, supports many of those steps. “I’m not sure you can print what I think” about the scandals, said Edward Rust Jr., the group’s vice chairman and CEO of State Farm Insurance Cos. “Businesses have enough challenges day in and day out without the totally unacceptable behavior we’ve seen in the last six to nine months.”
General Electric Co. and Coca-Cola Co., two icons of U.S. capitalism, have been moved by the scandals to change their way of doing business. GE was prodded to supply more information about its quarterly financial results. And Coke said this week that it would start treating employee stock options as an expense to avoid any suggestion that its accounting standards aren’t tough enough.
“When Enron happened, I thought it was just one company,” said Gary Fayard, chief financial officer of the Atlanta-based soft-drink giant. “But every time I picked up the paper or watched the news, the accounting scandals continued. I’ve just been shocked.”
So has Tom Evslin, founder and chief executive of ITXC Corp., a Princeton, N.J.-based provider of telecommunications services. The telecom industry and its investors have been especially shaken in light of the WorldCom and Global Crossing fiascoes, and, Evslin said, “It’s necessary to work harder to get trust.
“It’s not fair to the vast majority of CEOs who are honest, and yet there’s been enough abuse so that you can certainly understand why people feel abused,” he said. “They have been.”
Even executives of privately held companies, which don’t have stocks traded on public markets, are feeling pressure to be more forthright. “I just communicate more often” to investors and employees, said Dan Hesse, CEO of Terabeam Corp., a Seattle-based maker of telecom equipment.
Fear of Overreaction
But Hesse, who also spent 23 years at giant AT&T; Corp., said he also is afraid that the reforms sweeping through Congress will go too far, and “we’ll get government regulations that will make it very costly for companies and therefore for the economy.” Still, the scandals are “extremely discouraging, and in fact almost unbelievable,” he added.
Kertzman of Liberate Technologies said “good companies effectively should get in front of the governance issues” rather than wait for government action, and that he has “committed to our board ... to implement and make sure we are organized and are practicing the highest standards of governance.”
Yet for all the upheaval and new challenges, Liz Claiborne’s Charron said he’s still proud to be a CEO, as did several others.
“This is an honorable calling,” Charron said. “Yes, the dynamics between boards and CEOs have changed. The world has forever changed. But my company and I have reputations of doing the right thing, and as long as we continue to do that, we’re going to be just fine.”
And despite their frustration, CEOs are trying to keep their sense of humor. Tuesday, after Continental Airlines Inc. reported a second-quarter loss of $139 million, CEO Gordon Bethune quipped to reporters: “Obviously if we were going to cook the books, we should have come up with better numbers than this.”
Times staff writers Marc Ballon, Elizabeth Douglass, Leslie Earnest, James Flanigan, Jon Healey, Terril Yue Jones, Joseph Menn and Alex Pham contributed to this report.
