Under a Watchful Eye: CEOs Discuss How Regulations Will Affect the Future of Business
October 28 2011 by CJ Prince
In the wake of the global economic crisis, and with the sluggish recovery still sputtering, CEOs have had to lead their companies through unprecedented and prolonged uncertainty. They’ve been forced to keep one eye on the road ahead and one on Washington, where politicians debate a host of reforms—regulatory, healthcare, financial—that have the potential to greatly hinder rather than help companies’ ability to get moving again. And the collective lack of confidence in Washington’s savvy to craft stable economic policy has held corporate leaders back from taking the kinds of risks necessary for private-sector growth.
But while those in the boardroom can articulate what’s wrong with the strategy devised by U.S. political leaders, that message is not being heard on Capitol Hill, agreed attendees gathered for a roundtable discussion about whether governance is inhibiting corporations’ ability to help shape U.S. economic policy and recovery. The reasons for that disconnect are manifold, according to CEOs at the roundtable, held in partnership with Korn/Ferry International, a global provider of talent management solutions.
For starters, a mutual distrust and misinformation has plagued both sides. Even top leaders in Congress don’t necessarily know how the private sector functions, said Steve Odland, former CEO of Office Depot, who recalled a meeting with a well-known senator. “He said, ‘You’re a public company. You’re in the public sector.’ And I said, ‘No, Senator. Public companies are actually in the private sector.’ So there’s this confusion here. I think public companies have come under duress from government because they’re viewed as part of the public holdings, rather than as accessing public capital.” Opening the lines of communication between the business sector and government is critical, he added, if for no other reason than education. “If not, I’m afraid that public companies will become more and more socialized, and as that happens, I think there will be less and less access to public companies.”
And U.S. government will likely continue to adopt policies that make it more challenging for companies to succeed. The cost of labor and doing business in the U.S. is just one example. “We manufacture in the United States against all odds,” said Farooq Kathwari, chairman and CEO of Ethan Allen Interiors. “You know what the cost of labor in Mexico is? About $5,000, everything included. In Honduras, it’s $3,300. And people in Honduras are moving to Nicaragua—that’s $2,800. Over here, in North Carolina and Vermont, with everything included, it’s $35,000 to $40,000. And on top of it, our taxes are high, our energy costs are high.”
J.M. Allain, president and CEO of Trans-Lux Corporation, pointed out that 20 years ago, policies in China were unfriendly to U.S. business, but over the past two decades, the conversations with local governments in China brought about significant change. “We took the power as American businesses,” he said. “We took the power that we had and we changed policy and mindsets in China. But we can’t do it here. The government doesn’t listen to us here, but they did in China.”
CEO as Statesman
Part of the problem is that not all CEOs have chosen to engage in the conversation or spent time honing their Beltway skills. “Let’s face it—CEOs have tended to fall into two camps: Those who are open to engaging in Washington, and those who would have to be subpoenaed to come to Washington,” said Nels Olson, co-leader of the board & CEO services practice at Korn/Ferry. “Being astute and having a good understanding of the issues of the day, and being able to be conversant in those issues, are incredibly important.”
And so, too, is spending time developing relationships with leaders in Washington so those channels of communication remain open, Olson added. “It’s not just flying in or having your lobbyist on the ground deal with it, but building those relationships when you don’t have a crisis or a particular issue so that you have sufficiently informal relationships that you are credible when you call.” Companies like Wal-Mart and Microsoft both learned through painful experience that having more than an arm’s length relationship with government can be trouble. “Once you do that, if there’s a feeling that there’s some arrogance involved, there are ramifications for that,” he noted.
Ram Charan, author and consultant, pointed out that the next generation of leaders are not being trained to take an active role in Washington. “For the last 30 to 40 years, the general thing has been the business of business is business. That’s where we have the nose to the grindstone,” he said. “As CEOs engaged in leadership development and succession planning, how many companies really devote time and energy so that these
upcoming leaders have political savvy?”
That will be a key arrow in the quiver for future CEOs, who will need to take a more proactive role in educating the public about how the economy really works, rather than leaving that task to government. “It’s a time for vision, a time for executives who really can see forward, have courage, and be statesmen,” said Melanie Kusin, vice chairman and senior client partner in Korn/Ferry’s board & CEO services practice. The new leader is the anti-autocrat, she noted, a listener who is actively pushing the envelope and taking risks, but also fiscally responsible. “You must be extroverted, you must be out there. It doesn’t work just to stay inside.”
“The whole economy feels like a bunch of turtles with their limbs drawn in right now.”
Because of the tumult in recent years, many CEOs and directors have, in fact, stayed hunkered down, managing for recessionary times to get through the crisis, and ultimately ceding the megaphone to the media. The 24-hour news cycle has taken the role of educating the public, greatly impacting consumer confidence with just a single sound bite. “Our interest rates are all over the place, daily, and it’s all based on consumer confidence,” said Allain. “We have no ability to know what will happen tomorrow because of that bloody 10-second spot that’s going to come on. Will it be positive or will it be negative? And we have to react, every six seconds. More importantly, we have to deal with what our consumers and our employee reactions are, and that’s what’s tough.”
Thanks to the prolonged recession, increasingly short-term outlook and harsh regulatory environment, CEOs and boards have been thrown on the defensive, far less willing to take risks. “Boards are becoming like turtles,” said Odland. “The turtle is a marvelous reptile, but the turtle needs to have its limbs and its head out of the shell to move ahead. Boards have drawn in and become less and less risk-taking in investment, not only in how they spend their money, but how they act and confront. And as a result, we’re sitting here in our shells and not moving. The whole economy feels like a bunch of turtles with their limbs drawn in right now.”
In that climate of fear, management has misplaced its focus, added Bill Hickey, president CEO of Sealed Air. “What we have here is a structure where we’re forcing companies and boards to focus on the three C’s—control, compliance, and compensation—when they should be focusing on strategy, talent and execution,” he said. “Until we break that model, we’re just not going to get out of the problem we have.”
Speaking with One Voice
Olson pointed out that the growing membership in the Business Roundtable—more than 200 now from about 134 a year ago—does illustrate an awareness among CEOs that they need to be involved in the dialogue. But even when they engage in the political debate on key issues, CEOs often differ on the message. Hickey recounted his efforts as a member of the executive committee of the National Association of Manufacturers to get government attention and help rebuild manufacturing in the U.S. “It’s amazing that even within the business community, there’s a lot of disagreement, there are a lot of different approaches,” he said. As a result, government hears a muddled collection of messages that is easier to ignore. “I remember going in with four CEOs to meet with one senator. We spent probably a good hour and 15 minutes with him. At the end, he said, ‘I’ve heard what you said, but somebody will come tomorrow from business with a different viewpoint, and someone was here yesterday from business with a third viewpoint. So I’m not going to react.’”
Chris Kearney, chairman and CEO of SPX, suggested that CEOs need to lead the debate by speaking in a unified voice through the credible organizations that exist. “And then all of us having the courage to take advantage of the opportunities we have to voice those opinions, either through television media or through op-ed pieces, to try and help educate people,” he said. Government has become largely irrelevant with regard to business in the U.S., he and others pointed out. “It doesn’t work. The only time decisions are made is when we get to the brink of very dangerous situations like we are right now—and look what’s happening. I think business, through the right forums, has to step forward and be the reasonable broker that government fails to be, because they’ve abdicated that responsibility.”
Kathwari added that CEOs have to not only participate in the conversation, but set the agenda for the debate. “If we allow government to set the debate, if we allow these analysts to set the debate, we deserve what we get.”
By taking a more active role, business can begin to heal some of the rifts between various constituencies to move the debate forward. “There’s a lack of trust between government and business. There’s a lack of trust between investors and Wall Street. There’s a lack of trust between customers and business,” said John Foley, president and CEO of LEVEL. “Until we address the idea that we have to rebuild trust, this conversation really doesn’t go anywhere.”
J.M. Allain, President & CEO, Trans-Lux • Ram Charan, Speaker & Author • Wayne Cooper, Chairman and President, Chief Executive • Ana Dutra, CEO, Leadership and Talent Consulting & EVP, Korn/Ferry International • John Foley, President & CEO, LEVEL • Frances Hesselbein, President & CEO, Leader to Leader Institute • William Hickey/strong>, President & CEO, Sealed Air • Farooq Kathwari, Chairman & CEO, Ethan Allen Interiors • Chris Kearney, Chairman & CEO, SPX • Melanie Kusin, Vice Chairman, Board & CEO Services, Korn/Ferry International • Steve Odland, Former Chairman & CEO, Office Depot • Nels Olson, Chairman, President & CEO, Snap-on • Dr. Thomas J. Saporito, Vice Chairman, Co-Leader, Board & CEO Services Practice, Korn/Ferry International • Thomas J. Quinlan, President & CEO R.R. Donnelley & Sons • Jeffrey Sonnenfeld, CEO of the Yale Chief Executive Leadership Institute, Yale University’s School of Management