Mama, don’t take my jet away

This is definitely not a good time to be a corporate chieftan. In the wake of a string of scandals over the past several years boards and stockholders are considering everything from limiting executive runaway pay to stripping CEOs of their corporate jets. I agree we need change, but this is going about it the wrong way.

The low hanging fruit

When searching for a cause for all this “new” scandalous behavior, the easy thing to do is to grab for the obvious things that make CEOs and senior corporate brass different from you and me: they get options, have chaffeurs, tool around in corporate jets, and get paid a lot more than you and me (in 2005 the average CEO earned 262 times the pay of the average worker, according to the Economic Policy Institute). It doesn’t help that scandals are often triggered by shenanigans with options, hanky panky aboard corporate jets, and wildly inflated salaries for seriously ailing companies.

It may be easy, but it’s the wrong thing to do. The bottom line in cases of corporate corruption is that the bad guys were, well, bad. Companies, boards, and stockholders simply aren’t paying attention to the kinds of people they hire and, after they hire them, they aren’t paying serious attention to their behavior and performance.

Being in charge is a risky business

Being a C-level executive in a major firm is a risky proposition, and a difficult job. In addition to steering your company through its competitive landscape on the product front you’ve got to navigate labor relations, international law, intense media scrutiny, and the financial markets. A big failure and you get the pressure of putting thousands of jobs and families at risk as well as the very real possibility that you might never work again.

We live in a market economy where risk is in inverse proportion to reward. Highly risky stocks are priced low; you could lose everything, but some investors buy risky stocks because they believe that it’s at least slightly more likely that they’ll get a huge return instead. C-level executives ought to make a lot of money simply because they are assuming a lot of risk.

They should also make business-related trips using whatever mode of transportation optimizes their time and increases their ability to continue to work. People who can competently lead entire multinational companies are unusual. There are only a few C-level executives in a company, and the work to be done at their level can only be done by them. Their time is extraordinarily valuable, so they shouldn’t be waiting in airport security lines tugging off their belts or cooling their heels in coach on the runway at DFW while the latest summer storm passes.

What to do?

Anyway, back to all the scurrilous behavior we keep reading about in the business press: what’s a mother to do about her wayward CEO?

The problem does not lie in compensation, perks, and benefits. CEOs should make more than the rest of us to ensure that we get the best CEOs. The only limit on salary should be dictated by the market: a salary should be high enough to reflect the value of the CEO’s service to the company and to adequately reward him for the risk he takes in assuming the job. Likewise with benfits: perks should be assessed in terms of the net value to the company. Warren Buffett is probably history’s most frugal billionaire, yet even he approves of private jet travel.

Where we should all be focused is on the character of individuals. In some cases the boards of companies themselves are asleep at the switch, and it shouldn’t suprise us at all that they hire people who break the rules. These boards should be replaced by stockholders. In other cases good boards simply hire bad executives. This is going to happen from time to time even in the best situations, but the lack of accountability and real checks and balances at the top doesn’t provide a way to check for bad behavior before it’s on page 1 of the Wall Street Journal.

And there’s a powerful leadership lesson here, too. If you want to have long term success, focus on behaving ethically and doing what’s Right. Not what’s expedient, or what you can get away with. Do what’s right.

I heard recently that 10% of people don’t need locks; they are just inherently honest. Another 10% of people are getting through the door no matter how many locks are on it. Locks keep the last 80% honest. From time to time most of us will rattle a door and, finding it locked, move on. Companies, stockholders, and boards need to recognize their own responsibility and put locks—effective corporate controls and monitoring—in place to keep the good guys good and to quickly expose the bad guys.

There will always be good guys and bad guys; we shouldn’t hobble all of our top leaders because we’re too lazy to control the few who break the rules.