CEOs under the microscope as public questions decisions, salaries of corporate leaders
By Kevin Smith, Staff Writer© Pasadena Star News, December 13, 2008
CEOs have rarely been under such scrutiny.
With the recent bailout of such industry giants as Fannie Mae, Freddie Mac and American Insurance Group, many are casting questioning glances toward the people in charge.
And they're wondering if they are the right people to be leading these companies.
"It's a full moon over every corporation in America,' said Ira Jackson, dean of the Drucker School of Management. "There is no escape from being in the spotlight. It's a very uncertain time for CEOs, but they need to step up to the plate and be honest and forthright ... they need to work harder than ever before."
And there's plenty of work to be done.
Public confidence in corporate leadership has ebbed severely as businesses struggle to remain afloat.
On Friday, General Motors Corp. announced that it will temporarily close 20 factories across North America and make sweeping cuts to its vehicle production as it tries to adjust to dramatically weaker automobile demand.
Granted, GM and other U.S. automakers have been saddled with high overhead costs, including retiree health and pension benefits.
But many feel these companies and many others shouldn't be in such dire straights - despite the nation's economic downturn.
"I think there is a mounting rage building among the populace regarding this," said Gary Kaplan, president of Gary Kaplan & Associates, an executive search firm based in Pasadena. "As more and more people lose their jobs - and more and more will - we have not seen the apex of this problem. I think there's going to be more of a cry for scrutiny for people being placed in the role of CEO."
Kaplan said that scrutiny will increasingly extend to each company's boards of directors, the people who ultimately approve these CEO's exorbitantly high salaries.
Jackson agreed.
"Peter Drucker was one of the first to notice that CEO pay was getting out of hand back in the 1980s when they were earning an average of 40 times the amount an average employee was making," he said.
That meant if a rank-and-file worker was making $30,000 year, the CEO was pulling down $1.2 million. But things have gotten far worse, according to Jackson.
"Today it's 400 to one," he said. "Peter Drucker said it was like watching pigs at a trough. They have their boards sanctioned and they get consultants to validate that this high level of pay is necessary to keep talent in the corner office - to which I say, `Hogwash!"'
The late Peter F. Drucker, a self-described "social ecologist," is considered to be the father of modern management.
Jack Kyser, senior vice president and chief economist for the Los Angeles County Economic Development Corp., said some companies have blatantly flaunted their use of corporate funds.
"AIG didn't use common sense when they had that event in Orange County after they got their bailout money," he said.
The event Kyser was referring to was trip where about 70 of the company's top performing employees were rewarded with a one-week stay at the luxurious St. Regis Resort in Monarch Beach, where they ran up a tab of $440,000.
"Every so often you have problems with the economy and the CEOs come under special scrutiny, but then the subject is forgotten," Kyser said. But this time the economic problems are of such depth and duration that the scrutiny will be not just on the CEOs, but also on the boards."
