|When ?Corporate Visionaries? Lack Accountability|
|1-Mar-05 [ by Larry Chao ]||15009 Read and 1 Comment|
Formulating lofty corporate visions and strategies does not absolve chief executives from WorldCom and Enron of their duty to manage business performance and deliver financial results‚ writes Larry Chao.
Two upcoming court cases this year involving accounting fraud that led to the destruction of WorldCom and Enron‚ will showcase the brutal damage caused when chief executives claim their role is limited to painting grand corporate visions of their companies‚ without accountability for financial results. Regardless of the outcome of these cases‚ what they should demonstrate is that chief executives must be rewarded for sound strategic decisions that deliver healthy financial growth over time‚ and penalized for creating opportunistic‚ self-serving results.
As the US$11 billion (Bht.429 billion) accounting fraud trial against former WorldCom chief executive Bernie Ebbers unfolds this month‚ Ebbers?s lawyers are preparing the following defense: Because Ebbers was so engrossed in WorldCom?s big picture strategy and major acquisitions‚ he was unaware of the accounting shenanigans that were taking place within his business. Instead‚ his lawyers will argue‚ the erroneous financial and accounting disclosures that toppled the company were the sole workings of Ebbers?s underling ? former WorldCom?s finance executive Scott Sullivan.
But can the defense make a compelling case that Ebbers?s narrowly focused job description precluded him from knowing about key aspects of his company?s operation? Can they prove that he was oblivious of the enormous financial wrecking ball that crippled the company and disrupted an entire industry? The prosecution will try to provide evidence and argue that despite Ebbers?s aloofness from day-to-day operations‚ that he did in fact know and encourage Scott Sullivan to misstate the company?s balance sheet.
Similarly‚ later on this year‚ Kenneth L. Lay‚ the former avuncular chief executive officer of Enron will go on trial for his possible involvement in the accounting scandal that besieged Enron. Lay has already claimed that he had no idea ex-chief financial officer Andrew Fastow had been concealing millions of dollars of debt and allegedly conspiring to commit securities and wire fraud behind his back. He will plead ignorant innocence.
But what Lay will have more difficulty explaining is why he talked so enthusiastically about Enron?s bright future and attractive share price‚ while simultaneously selling his own Enron shares. All this happened while the company was imploding.
In both cases‚ Ebbers and Lay will seek to convince jurors that their main role was corporate soothsayer ? to create grand corporate visions and to lure investors. They will argue that execution and day-to-day operations were not part of their responsibility and therefore‚ they were not privy to the nitty-gritty misdeeds that plagued their companies.
Beyond making a legal case‚ however‚ the idea that a chief executive?s role is to create grand corporate visions‚ with limited accountability for financial results‚ lacks credibility for two reasons.
First‚ corporate visions per se are pure fantasy. Back in the 1990?s‚ the concept of corporate visions took on exaggerated importance. Many companies claimed that without a corporate vision‚ they were rudderless. Employee survey after survey seemed to point out that a company needed a vision to inspire staff and move magically forward.
But time and experience has demonstrated that all the brouhaha surrounding corporate visions was more hype than reality. Rather than ?corporate visionaries‚? what companies need are differentiating strategies that are tangible‚ specific and grounded in reality.
Second‚ in addition to competitive strategies‚ chief executives need to be accountable for results of those strategies. They are paid to deliver financial targets and create shareholder value‚ not fantasize about business possibilities. Divorcing strategy from financial results might make an effective legal defense‚ but it reflects incompetent management.
If Lay and Ebbers can prove they were innocent bystanders while gross misdeeds were being committed under their watch‚ then something is drastically wrong with the way executives manage today. The Sarbanes-Oxley Act of 2002 affecting corporate governance and financial disclosure will go a long way to correcting this problem‚ but holding chief executives squarely accountable for the long-term profitability of their business‚ regardless of extenuating circumstances‚ is the name of the game.
Larry Chao is managing director of Chao Group Limited‚ a strategic organization change and training boutique located in Bangkok and New York (larry@chaogroupcom).
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