Enemies of a CEO?

If personal investing was America’s passion in the high-flying ’90s, CEO bashing has surely supplanted it at a time of plunging stock prices and appalling scandals. Never before have corporate chiefs faced so much criticism on so many fronts. Believing in the adage that it’s always best to know your enemies-even those who can actually help by broadening your perspective and keeping you honest-Chief Executive decided to explore just who is leading the charge and what they hope to accomplish.

For starters, perennial adversaries of corporate America-union bosses, muckraking journalists, class-action lawyers-are attacking with striking vigor. These critics consider the collapses of Enron, Global Crossing and WorldCom, not to mention arrests of executives at Adelphia and Tyco International, as evidence that the current system of corporate governance is flawed. They’re pushing for a host of reforms, including: dividing the roles of chairman and CEO; giving automatic board seats to stakeholders in labor and the local community; and bridging the widening pay gap between chief executives and average workers.

At the same time, corporate scandals have spawned newer foes (again, using the term loosely). They include certified fraud examiners: namely accountants, auditors and investigators specially trained to pore over financial documents and interview employees to pinpoint the source of fraud. Then there are independent directors who, through perseverance and politesse, can convince even a rubber-stamp board to reverse course and oust its CEO. Even workaday members of the general public, after seeing their stock-laden pensions and mutual funds shrink, consider CEOs a public enemy. At firehouses and Little League fields, they curse executives who cook their books. Why invest in the stock market, they tell one another, when you can’t trust the decision-makers who drive it?

Congressional investigators also have carved out a role as watchdogs of Wall Street, as shown by their tireless probe of Martha Stewart. And having passed the Sarbanes-Oxley corporate reform act, House and Senate panels plan to vigilantly monitor its effectiveness and oversee its enforcement by the Securities and Exchange Commission.

And then there are enemies driven by a single, deep-rooted cause-groups such as animal rights activists. Last year, the People for the Ethical Treatment of Animals went so far as to sue the venerable Ringling Bros. and Barnum & Bailey Circus, accusing its star animal trainer of abusing an elephant (see “The Greatest Show on Earth,” p. 44). And who can discount the threat of terrorists, an insidious, unpredictable force that, with a single well-planned attack, can bring entire industries, like airlines and travel, to a halt?

As the Ringling case shows, some embattled CEOs have begun to fight back. Kenneth Feld, CEO of the circus’ parent company, Feld Entertainment, lashed out at PETA, placing a full-page open letter to the group in major newspapers, challenging its leaders to disclose how much they spent on “politically motivated lawsuits” and “violent and sexually titillating ads.” While Feld’s campaign triggered a counter attack by PETA, it also inspired hundreds of supportive letters and emails. As one leading crisis management expert saw it, the fight between Ringling Bros. and PETA heralded a sea change in the relationship between activists and the companies they target, one that continues to play out.

The following are highlights from interviews Chief Executive conducted with some of the fiercest enemies of CEOs, in no particular order. Consider them talking points (and lessons for errant CEOs) on current and future battles.

Muckraking Journalists Around the turn of the 20th century, as America was shifting from an agrarian society to an urban, industrialized nation, a breed of journalists began chronicling newfound corporate and social ills. In picture and word, Jacob Riis documented the squalor of tenement life. Upton Sinclair exposed alarmingly unsanitary conditions in meat-packing plants. Ida Tarbell attacked the monopolistic practices of Standard Oil. Muckrakers, these and other writers came to be derisively called. While investigative journalism has hit highs and lows over the past hundred years, lately the muckraking spirit has risen anew. Books like Eric Schlosser’s best-selling Fast Food Nation and Barbara Ehrenreich’s Nickel and Dimed have importantly shed light on labor and public health abuses in some of the nation’s largest industries. A more personal, but no less critical outlook emerges in Selling Ben Cheever: Back to Square One in a Service Economy. After getting laid off as a high-ranking editor at Reader’s Digest, Benjamin Cheever spent five years pursuing one menial job after another: security guard, computer salesman, sandwich maker, bookstore clerk. What Cheever, now 54, discovered was a treadmill of dead-end jobs where workers are exploited and opportunities for advancement prove a hollow promise. “These people, unless lightning strikes, they’re going to be working for eight dollars an hour their whole lives,” says Cheever. “They’re always going to be hoping for more. They’re never going to get a shot at it. It’s a democracy-the doors are supposed to open to people-and these jobs just don’t open the door.” Cheever considers journalists an essential watchdog, but worries about their effectiveness. Given the daily pressure reporters face, they often opt for easier rather than harder stories. And it’s easier to pursue public officials than well-guarded corporate chiefs. “There’s nobody to turn in CEOs,” laments Cheever. “They don’t have a natural enemy within their corporation. They have power over everybody. It’s a very limited oligarchy.” Cheever sees certain similarities between the corporate abuses of today and those that spurred the trust-busting of Theodore Roosevelt a century ago. But in some ways, he suggests, today’s CEOs bear little comparison to Gilded Age industrialists like John D. Rockefeller and Andrew Carnegie. “Those guys were owners; they weren’t CEOs,” notes Cheever. “And as owners they turned out to be hugely responsible citizens.” Both in their lifetimes and through their heirs, Carnegie and Rockefeller gave away enormous amounts of their wealth. With a few exceptions, today’s CEOs “aren’t in the same position-they aren’t as colossally wealthy,” says Cheever. “But also I haven’t seen them feeling very responsible.”

Class-Action Lawyers It’s one of the truisms of a capitalist system: During periods of extreme conditions, economic or otherwise, one person’s misery is another’s market. Sales of low-risk government bonds soar as confidence in the stock market plummets. Air-conditioner salespeople thrive when there’s a heat wave. As evidenced over the past year, class-action lawyers see their caseloads balloon during eras of corporate fraud. “We’ve got our hands full at this time,” says Fred Isquith, the lead securities litigator at the New York law firm of Wolf Haldenstein Adler Freeman & Herz. Seldom does a week go by that Isquith doesn’t announce that he’s filed yet another class-action against a major corporation and its CEO, alleging securities fraud. The list of defendants includes Enron, Walt Disney and Halliburton, the Texas oil company that Vice President Dick Cheney used to run. When Merrill Lynch agreed in May to pay $100 million to New York and other states over allegations that its stock analysts misled investors, Isquith was quick to say the settlement would bolster a suit he’d filed against Merrill. Although Merrill admitted no wrongdoing, he said, the investigation by New York Attorney General Eliot Spitzer would help dispel notions of “investors as sore losers and lawyers as scrambling after dollars.” To be sure, class-action law can be a highly lucrative business. Two years ago, Isquith’s firm won a $100 million-plus settlement with MicroStrategy, a database software maker in McLean, Va., after its stock tumbled from $313 to $17 in just two months. Roughly a fifth of the settlement went to the firm. But as the 54-year-old Isquith sees it, class-action battles are about more than money; they’re about righting corporate wrongs: “Government and law regulate our otherwise nasty behavior to each other.” Isquith attributes his brisk business to Congressional reforms in the mid-to-late-1990s that weakened federal oversight of Wall Street. A number of CEOs personally took advantage, he says, acting out of greed and in the process losing billions of dollars of shareholders’ savings.

Terrorists By almost any account, a year after the September 11 attacks, terrorists continue to pose one of the gravest threats to CEOs, to say nothing of their potential danger to the world as a whole. No one can predict when, where or how the next major terrorist strike will occur, in America or abroad, and which industries will be impacted the most. But what is clear, given the plight of the U.S. airlines, is that a single set of terrorist strikes can decimate an entire industry. The nation’s airlines, the industry hardest hit, have lost $10 billion, laid off more than 100,000 workers and ousted several of their CEOs since September 11. Business-class travel, a key revenue source, continues to lag far behind its earlier levels. Meanwhile, massive efforts to tighten airport safety have largely failed on two fronts: Security breaches remain, as news accounts of reporters managing to smuggle weapons onto planes make clear; and baggage checks are so copious that many Americans eschew air travel, especially short-haul flights. Cyber terrorists, meanwhile, represent an entirely different threat. Experts say that computer hackers, working anywhere around the world, may have the ability to carry out such catastrophic acts as shutting down an electrical power grid or silencing America’s telecommunications network for several hours. A recently seized Al Qaeda computer was found to contain software that simulated the destruction of a dam. In certain ways, corporations have reacted quickly in preparing for future attacks. When the consulting firm KPMG recently surveyed 135 large U.S. companies, two-thirds had their “chief risk officer”-a position almost unheard of a year ago-answer the questionnaire. But the same research also indicated that many companies remain ill-prepared to deal with a crisis. Nearly half of them reported having no preparedness plan in place, while an overwhelming majority said their organizations remained vulnerable to a serious breach in operations should another terrorist attack occur.

The Public As a fire investigator for the city of Vista, Calif., George Lucia reviews construction plans, does annual inspections and sifts through the charred, sodden remains of burned-down homes and warehouses to determine the cause of the blaze. Like so many other workaday types, Lucia might seem as if he’d have little concern for the boardroom deals brokered over polished conference tables. But as news of one accounting scandal after another arrives with the morning paper, his interest becomes more and more piqued. Lucia, 49, who grew up in suburban New Jersey, can’t help but think back to when companies, by and large, were community fixtures. They offered stable jobs and boosted the tax base, sponsored Little League teams and pitched in for new firetrucks. “We kind of look at that as old-fashioned,” Lucia says. “That’s the picket fence and the apple pie, so to speak. Now, with all the mergers and regionalization and consolidation and takeovers, we don’t even know who the people are or what the connection is anymore.” The recent flurry of scandals, he says, has eroded what little trust Americans still had in major corporations. For example, the California firefighters’ pension fund had invested in Enron. Although the fund had a diverse portfolio, some firefighters wonder whether they’ll ever recoup the losses from Enron’s collapse, Lucia relates. He says the idea of putting hard-earned money into the stock market no longer carries much appeal. Instead, Lucia says, most people he knows would rather invest in a small business or back a friend on a project. “You want it to be local,” he says, “and something you can touch and see and trust.” If Lucia could send a message to CEOs, it would be that integrity, not share price, is important above all. “Whether it’s the president of the United States or it’s the police chief or fire chief or whether it’s the president of a large corporation, I think that goes with the territory,” Lucia asserts. “These people who have succumbed to the temptations of cooking the books and just become greedy at the expense of the people who trusted them-there’s no excuse for that.”