News & Insight
August 2003

Q&A With William T. Redgate What Will It Take to Fix The CEO Leadership Crisis?

Two years ago this month, Enron Vice President Sherron Watkins wrote her now-famous memo to Chief Executive Officer Kenneth Lay. Watkins' letter brought to light the crisis of leadership that precipitated the downfall of both Enron and its auditing firm, Arthur Andersen, and led to passage of the Sarbanes-Oxley Act and other measures designed to protect investors from abuses of executive power.

Despite new laws and regulations, corporate America remains ensnared by a crisis of executive leadership, says William T. Redgate, a member of WJM Associates' faculty and founder of The Center for Values Based Leadership, located at Sacred Heart University in Fairfield, Conn. As head of the country's first nonprofit member association dedicated to promoting values-centered leadership, Redgate believes that directors, executives and investors all need to play a role in the solution.

Enron was just the first in a series of corporate scandals resulting from abuses of executive power. Why hasn't this trend abated?

For many years, corporate cultures in many companies were based upon shared values, long-term employment, deep mutual trust and loyalty, clear accountability, and strong leadership. In too many companies today, that culture has been replaced with new cultures characterized by less commitment to a larger purpose, rapid job turnover, self-absorption, a short-term focus, and a lack of a stable, unifying vision led by top management.

The total sum of all these bad symptoms is counterproductive to the achievement of any goal or objective, especially the challenging objectives facing corporate America today. In addition, as Psychologist Kenneth Eisold has pointed out, when "rogue" CEOs are not challenged by their boards, colleagues or investors, they lose their internal conflict and unethical behavior becomes the norm.

How can businesses remedy this problem?

Enacting new laws and regulations alone will not solve the problem. Indeed, all too often, new rules fix past problems, but do little to head off new ways and means of repeating the same mistakes. History has proven that point all too clearly.

Sarbanes-Oxley and other initiatives to strengthen corporate governance will help. Some improvement has been made, but additional and stronger measures are necessary to get at the root of the problem.

Another alternative that was initiated in the early 1990s was the creation of a new corporate position of "ethics officer" or "compliance officer." This alternative helped somewhat, but did not solve the problem. In fact, many corporations that proclaimed strong values and ethics have been among the worst offenders. And even the strongest ethics officer can have little impact if the CEO undermines the code of ethics.

What other steps should be taken?

First, boards of directors must establish the right criteria for selecting, rewarding and retaining directors and CEOs. They must deploy a valid, fail-safe selection process that uses verified past performance to meet these criteria. In addition, boards must overhaul their internal and external assessment and selection methodology for directors and CEOs with emphasis on valid leadership at the core.

Second, institutional investors must use their power to pressure boards to address the leadership problem. They need to make it clear to corporate directors that "good leadership" at the board and CEO level is a top priority for them.

Third, investment banks need to exercise their influence to assist boards in achieving the objectives of developing and applying the right selection criteria for leadership posts.

Fourth, corporations that already exemplify the behaviors that we would like to see all businesses model should speak out against the abuses of poor corporate leaders. They should influence business associations to speak out as well, take a stand and bring the required reforms to fix the leadership problem once and for all.

Finally, individuals, regardless of their stake in corporate America, need to pressure boards, CEOs, investment banks, stockbrokers, and elected officials to recognize that the problem, and therefore the accountability, rests with the leadership of the board and the manager of the business, the CEO. Efforts to resolve the problem, beyond new legislation and regulations, require their attention, support and action.

To achieve true reform, we need a revolution for accountability and leadership driven by strong values.

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