Former Telecom CEO Leo Hindery on CEO Responsibilities, Pay, and Ethics
You have been the president or CEO of five major media and cable corporations. Can you outline some of the key business challenges you have faced in these roles?
Some of the companies I have run were true start-ups; some were in major need of “repair”, and some required drastic strategic overhaul, which are very different skill sets. The obvious common threads are to find great managers to lead the efforts and to motivate the employees to embrace the tasks and agenda. I feel that I am particularly skilled at these latter roles, while having a strong strategic sense for the company at hand.
Your book It Takes a CEO : It’s Time to Lead with Integrity is described as a “timely wake-up call for today’s business leaders to take stock of their special abilities and responsibilities for making the world a better place.” What inspired you to write it?
In 1981 the Business Roundtable noted that CEOs have multiple constituencies, but in 2004 – after Enron, WorldCom, Adelphia, the NYSE, etc. – that very same Business Roundtable narrowed CEO responsibility back to “shareholders only”. How wrong they are! Unless and until CEOs acknowledge obligations as well to employees, customers, communities and the nation, misbehaviours will continue – and, by the way, management is not a constituency unto itself. We need guidelines for CEOs, thoughtful regulations governing their actions and moral compasses – perhaps my book will provide some of that. Perhaps it will also highlight that some CEOs shouldn’t be CEOs.
What is your take on the issue of CEO compensation?
The ratio of CEO compensation to average employee compensation should not have changed from the ’70s and ’80s, but in fact it rose by a large amount, and with that rise the dam broke on greed and misbehaviours – to the tragic outcomes we have seen in the last decade.
In the ’70s and ’80s, CEO compensation was roughly 15-20 times the compensation of the average employee. But by the end of 2004, that ratio had spiked to roughly 300 times and some analysis shows a figure as high as 500 times – either of which is obscene. In my opinion, this ratio is the root cause of many of the CEO and senior executive misbehaviours over the past five years. And at a time when real wages in the United States have been stagnant for an unprecedented five years, the reality that, according to Forbes.com, the heads of America’s 500 biggest companies received an aggregate 54 per cent pay raise in 2004 is beyond obscene and cannot be justified by any standard.
Excessive executive and CEO compensation belies the principles of a meritocracy and establishes management as a constituency unto itself, which it should not be. Senior management positions are a privilege, but they rise to something akin to royalty when their associated compensation is at totally unjustified levels and when the risks and rewards of employment are not more commonly shared with the general employee base. The ratios of compensation that served the nation so well for so many decades should not have changed to the degree they have, and they must be corrected by a combination of tax policies and regulatory and shareholder resistance.
Some commentators have described the last decade as that of the “superstar CEO”, where many company leaders such as Jack Welch were glorified and became household names. Would you say that CEOs have historically taken too much of the credit at the expense of their employees and boards?
Absolutely they have, starting with the likes of Lee Iaccoca (Chrysler) and Harold Geneen (ITT). But if the CEO makes 300-500 times what his or her average employee makes, it is not hard for him to elevate himself to “superstar” status, with all the benefits and perquisites fitting such.
Quoting from your book, you state that because of the way our society is hardwired, “there are certain very important things that only a CEO can tackle.” What do you mean by this?
The CEO (or the President) is indeed “where the buck stops”, and only the CEO can insist on multiple constituencies being served, only the CEO can imbue ethics and values deep into the organization, and only the CEO can make the trade-offs which are confronted every day. This is why I believe you are a “born” CEO, more than not and why the job can be at once so rewarding and so very lonely.
“Excessive executive and CEO compensation belies the principles of a meritocracy and establishes management as a constituency unto itself, which it should not be. Senior management positions are a privilege, but they rise to something akin to royalty when their associated compensation is at totally unjustified levels.”
Controversially, you have stated that a lot of today’s crop of CEOs are “irresponsible or criminal or both.” What do you think has led to the apparent degradation of moral standards in corporate America?
The “decline”, so to speak, in CEO behaviour can be traced to excessive compensation and aggrandizement, coupled with a concurrent decline in oversight by regulators, boards, auditors, and the financial press.
What would you say are the key corporate governance issues facing today’s companies?
The key governance issue is how to meld serving multiple constituencies at a time when employees and communities (and the nation) are more at risk than ever due to past extreme business consolidations and ongoing globalization.
In your examination of big business you cite the example of Wal-Mart and suggest that huge growth has left employees out in the cold with low wages and “the most-costly-to-employee healthcare benefits anywhere.” How do you think such corporate behemoths could better manage this kind of situation?
Wal-Mart, in my opinion, lost its “soul” when Sam Walton left management and then passed away, and no right thinking ethically-driven CEO should tolerate and accept the combination of low average wages, de minimis benefits, union bashing, and community disrespect which has since come to hallmark the company.
The question Wal-Mart simply needs to ask itself is “when is enough, enough?” – and in an honest answer thereto will come behaviours more like those of its primary competitor, Costco, which is stellar by comparison. Company growth should come with the partnership of employees and not on top of them.
If you had to pull out three key lessons for today’s CEOs to heed, what would they be?
My “lessons” for CEOs, without trying to be presumptuous, are to:
- Reflect on the traits and characteristics of great CEOs;
- Make certain that your skills and values are such that you too would be considered a great CEO, and;
- Recognize that the CEO position is an incredible (short-lived) gift and privilege and that your success as such will be determined by the report cards on you from your employees, your customers, your communities and your nation.Building shareholder value is clearly a mandate and a responsibility, but it is not a CEOs legacy – these report cards are.
Finally, what interests you outside of your professional life, and why?
My interests outside of work, other than family, reside in politics, philanthropy and auto racing. The latter is of appeal because I have done it personally at the professional level for the last ten years, culminating in my winning in June 2005, along with my two co-drivers, the 2005 24 Hours of Le Mans – I love the exhilaration of racing , the camaraderie and the team nature of the sport.
Philanthropy, especially around the issues of at-risk youth education and welfare, has been a constant for me my entire life. And progressive politics is, for me, just another form of philanthropy if it, too, is focused on issues such as jobs, jobs quality, healthcare and at-risk youth