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On the Cutting Edge of Corporate Culture
In the wake of 9/11 and Enron, SOM's Garten envisions a new model for business behavior at home and abroad
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Business New Haven
11/11/2002
By: BNH
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Since 1995 Jeffrey E. Garten has been dean of the Yale School of Management. Before that he held senior economic and foreign policy positions in the Nixon, Ford, Carter, and Clinton administrations. Garten has worked on Wall Street as a managing director of Lehman Brothers and the Blackstone Group, specializing in international finance. Garten is the author of the just-published The Politics of Fortune: A New Agenda for Business Leaders (Harvard Business School Press, 212 pp., $24.95), which he discussed with BNH Editor Michael C. Bingham October 30 in his Yale office. The Yale Bookstore, 77 Broadway, will host Garten discussing the new book, followed by a book-signing, at 6 p.m. November 19. The event is free and open to the public.
Already the outrage over corporate scandals such as Enron and WorldCom seems to have subsided. Are these extraordinary events likely to force meaningful change from within the corporate culture, or will it require the intervention of an outside agent - perhaps like a Teddy Roosevelt a century ago - to force corporate reform essentially at gunpoint?
We've had a remarkable series of actions in a short period of time. Congress moved inside about six months to pass the most sweeping securities regulations since the 1930s. A new oversight committee for accountants has just been created, and there's talk of another oversight committee to monitor research on Wall Street. So there has been in a short period an enormous amount of government action in the form of regulation. I'm on four corporate boards, and governance standards have been tightened in all of them. The real question is: Is this enough? My sense is that we're entering an era where corporate governance is going to be taken such more seriously. And some of the big issues still lie ahead. No one has really dealt with the [executive] compensation issues, and [creating] incentives to look more long-term than short-term. No one has really looked at the accounting system itself and whether it is adequate to reflect the real value in companies - particularly in an information age where a lot of [corporate] assets are intangible. Another issue is the security of pensions, which is what really kicked off the Enron outrage. So there's still a huge agenda ahead. The answer, I think, will lie in a judicious balance between regulation and action taken by the companies themselves.
What force or forces are likely to induce corporate leaders, particularly those of public companies, to begin to take into account broader constituencies than shareholders alone?
Business leaders reflect the underlying society from which they come. In the 1980s and '90s, for the most part all people cared about was shareholders and share prices. I think we're entering a new, post 9/11, post-Enron era in which the values of the society are much broader, and there's a sense that not everything is a question of money. I predict that society will be thinking that there's a lot more to business than just share price. I think there will be [an increasing] recognition that employees are not just a commodity to be bought and sold, and that the company should be an institution where the value is built up over a long period of time - and that business leaders on the national scene ought to be voicing views that are not just about their companies, but about national policies. I think the real pressure on business leaders is not going to be regulation; it's going to be the expectations of society itself.
In the national debate over whether the U.S. should follow a unilateral or multilateral policy with regard to Iraq, you write that 'the voices of America's CEOs are nowhere to be heard.' Why are they silent, and what would they say?
They're nowhere to heard because they don't have any credibility now. They don't want to be too visible for fear of drawing too much attention to their companies. What they would say is, we have to recognize that we live in a world in which all the problems require solutions that involve lots of other countries. If we want to expand trade, we need the cooperation of other countries. If we want to ensure that we have a stable financial system - that Brazil doesn't blow up tomorrow, that the Euro doesn't go through the roof or the floor - that requires a multilateral system. Whatever we want, we can't do it alone. And by taking such an extreme unilateral position on war and peace, we are basically poking a finger in the eye of all other countries. And while Iraq may be very important, the broader issue is being lost - and that is, no matter how this country is, we can't do anything alone, except make ourselves feel good. So I think business leaders would be pressuring the administration - not to cease its actions [with regard to] Iraq, but to make sure the foreign policy is much more balanced. Because all these other interests are still there, and they're going to be there no matter what happens to Iraq. You have some academics and pundits making this case, but you don't have the business world making this case, and [the business world] is a huge part of the United States.
What is the likelihood that the momentum of globalization of business and finance will slow or halt in place of a new era of nationalism and protectionism?
I think we're right at the crossroads, and it could go wither way. The real problem is that, politically, there are no champions right now of continued globalization. It's only the business community that is actually a champion of it. Most Americans are ambivalent, and there are certainly no organized interest groups for it. You have an administration with only one concern right now - invading Iraq - and that has ignored the big economic issues that [have] contributed to globalization. So we're missing a voice that would at least add some momentum. We have a whole continent to the south of us that's falling off the map - Mexico, Colombia, Venezuela, Brazil, Argentina. You've got all of Africa, for practical purposes, gone. Japan has been in the sewer for ten years, and the European community is really starting to slow down. There are a lot of economic problems, and when globalization slows, economic growth slows with it. This is obviously of great import to the U.S., because one-quarter to one-third of all of our growth is related to trade.
One aspect of the 'new agenda' you describe is partnerships between large businesses and government. What form might some such partnerships assume?
The clearest example is in homeland security, where 90 percent of all the assets in the country are owned by businesses - all the power plants, all telecommunications, most of the transportation system - and it is not possible for the government to protect all those assets. In each of these sectors there's a strong case for a partnership, or at least a very close collaboration, between business and government that deals with things like contingency plans, emergency responses, who's going to be responsible for what, how is the information going to be shared, etc. That partnership requires more than just a bunch of good guys getting together. There have to be some laws passed, too. For example, if you asked all the energy companies to get together to create a plan for the protection of the energy-distribution grid, you have to give them some antitrust immunity. Because the minute they get together there will be accusations that they're up to no good. If you want the telecom companies or the computer companies to really share information with the government about where they're vulnerable so the government can do its part, then you have to protect that information so it doesn't get out to the public. Otherwise, nobody's going to [reveal] that information.
Most business are not Enron, or even United Technologies or GE. What does the future hold for smaller companies that are privately held and which have little or no global presence?
For the most part I'm talking about big, global public companies. In many respects, they set a tone, they create a culture within which smaller firms operate. Big companies that have a real sense of citizenship, for example, I think that's easily translatable to smaller companies in terms if their role in the community. What I am saying about involvement in national or international policy has a very clear counterpart on a smaller, community level. I'm talking about a leading edge of a business culture that I would like to see increasingly translated down the line to smaller companies.
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