KATHERINE MACKLEM December 30 2002


KATHERINE MACKLEM December 30 2002


Canadians have lost confidence in business leaders, and see their lack of ethics behind the past year’s stock-market collapse



AT AN ANNUAL GATHERING of CEOs at New York’s exclusive St. Regis Hotel a few months ago, the executives grappled with the crisis of confidence gripping the business community. As they complained about their fall from grace—they felt hurt, they said—and debated strategies to get out from under the dark cloud that has descended on them, the meeting turned into a massive group therapy session for men with silk ties. “I’m not respected any more,” Cyrus Freidheim, chief executive of Chiquita Brands International Inc., told a reporter. “I’m not trusted any more.”

Cue the violins.

The execs are down. They’ve lost that superstar status, where every opinion was treated as a gem, every ridiculous whim as reasonable. “From heroes to goats,” proclaimed a special issue of the often fawning Fortune magazine. The tumble has been rapid, and steep. Just look at John Roth, chief executive of Brampton, Ont.-based Nortel Networks Corp. from 1997 to 2001. In 2000, as the stock price of the company he led shot through $124, he was an adviser to both the Ontario and federal governments on industry issues, repeatedly calling for lower taxes and complaining of the brain drain. He was the recipient of countless honorary degrees and industry awards. And every time he opened his mouth, his mug was on the front pages of business sections across the country. Today, not only has Roth disappeared from the scene, after resigning in disgrace from Nortel (share price now: $3), his name is mud. At best.

The bosses haven’t merely become the bums—they’ve taken on the status of villains. And Canadians are steamed. The

Maclean’s/Global TV year-end poll asked respondents what caused the stock market to drop a precipitous 25 per cent in 2002. They had a variety of choices—uncertainty surrounding the threat of terrorism and war with Iraq, the U.S. economic slowdown and the drop in corporate profits all figured in the first four reasons. But the main target of blame? The top dogs. Markets had dried

up, the largest number of respondents said, because of a loss of confidence in the honesty and integrity of these business leaders.

Canadians are focused on business ethics— or the lack thereof. No less that 45 per cent view the business world in a more negative light than they did just a year ago. (Roughly half say their views haven’t changed, while a contrarian seven per cent actually look

upon business leaders more positively.) Among those feeling more negative, the ethics and morality issue is the reason most cite—40 per cent say that’s what turned them against business. Older and richer people are most likely to wag their fingers, with solid majorities of critics in the 60-to-64 age group and in households earning $100,000-plus.

It gets worse. The corporate and accounting scandals of the past year aren’t just limited to a few bad apples, according to poll respondents. Rather, the problem is widespread: executives are taking advantage of a system that is failing, say an astounding two out of three respondents. Pollster Allan Gregg, who conducted the study for Maclean’s, says he was surprised to see such a critical response. “It shows how shallow support for business was. When Canadians see this as a systemic problem, that puts a burden of proof on the private sector,” says Gregg, “and business now has to show it isn’t rotten.”

Even John Crispo is appalled at corporate behaviour. The still-outspoken retired University of Toronto maverick and oncestaunch defender of the right banged his fist on the podium last month in a debate at the university over corporate governance. A lot of business trends bug him. The level of executive compensation. Boards of directors acting as “just a little club.” Stock options. Golden parachutes. “What are the guys leading corporations doing?” Crispo asked. “I don’t trust them anymore. They are so far into the trough you can’t see their tails.” The business world, Crispo concludes, needs to be roped in with tighter regulations and stiffer penalties. “The excesses of the last few years are so obscene,” he says, “that if we don’t do something to check it, we could jeopardize the whole darn thing.” Part of what bothers Crispo so much is that he fought all his working life for corporate freedom. And now he sees executive incomes reaching the stratosphere. From 1970 to 1999, the average annual salary in the U.S. rose roughly 10 per cent to US$35,864, says Paul Krugman, a professor at Princeton University. At the same time, the average pay package of Fortune magazine’s top 100 CEOs was up an astonishing 2,785 per cent, to US$37.5 million. “There is no rationale but avarice and greed,” says Crispo. “I believe in the pursuit of self-interest, but look at what they do: they rob us blind.”

It’s no surprise the pro-business bias so evident in polling during the ’90s has petered


Percentage saying that, over the past year, their views regarding the business community have become:

More positive_7_|_

More negative_45 —

Main reason cited for “more negative”: Concern about the ethics and morality

of business leaders_43 —

Consider stock-related scandals to be...

A widespread problem_67 ——

A problem of a few corrupt individuals 29 ■■


Percentage saying the main cause of the drop in the value of Canadian shares in 2002 is...

Loss of confidence in the honesty and

integrity of business leaders_32_

Uncertainty caused by the threat of terrorism and war with Iraq 24 Slowdown in the U.S. economy 24 Drop in corporate profits 7 I


Percentage saying the prime role of a company CEO should be...

Ensure products and services are the

highest quality_20 Ml

Take care of the employees_19 WÊ

Ensure company is a good

corporate citizen_18 M

Ensure company is profitable_16 B

Provide employment for worker wherever

the company operates_13 B

Increase value of company for benefit of shareholders 9 1

out, says Gregg. Seduced by the triumph of globalization and the frothy markets, Canadians turned to business leaders after giving up on politicians. The belief in big business “never had its roots in any hairy-chested freeenterprise-ism,” says Gregg. Now, with the markets in the dumper, major corporations under investigation and CEOs south of the border doing the perp walk, “people believe that not only were business execs not as efficient or as endlessly profit-producing as they thought they were, but they’re venal to boot.” The changing views leave Canadians a little in the lurch. They’ve given up on politicians. “Business leader” has become an oxymoron. So where’s the go-to figure? At this

point, nowhere. In the Canadian imagination, no one has stepped into the leadership breach—contributing to the souring of the public mood and to what Gregg calls “a joyless prosperity.” While they recognize that things are pretty good in the economy-only 29 per cent anticipate a recession, by far the fewest since we started asking that question in 1989—Canadians are nonetheless more pessimistic overall than they’ve been since 1996. A prime reason, says Gregg: “Canadians really don’t think there’s anyone out there they can rely on anymore. In that there is a sense of vulnerability.”

In retrospect, it was naive—perhaps even foolhardy—to have looked to the business world to provide leadership on social and political issues. But for a while there, its leaders were calling the shots. And as ever more Canadians decided to play the money game—either conservatively with an adviser buying mutual funds or by setting up a DIY online account—they were masters of the universe, too. For a while. Tellingly, the stature of the execs crumbled about the same time the stock market floundered and personal portfolios shrivelled. Still, it’s one thing to lose money because of an economic downturn. It’s another to suspect corruption is the root cause.

John Manley, finance minister and wouldbe prime minister, wants to see investor confidence back on track. “This has not been a banner year when it comes to market integrity,” was his recent understatement to the Ottawa Chamber of Commerce. “Large and small investors,” he added, “quite rightly, have grown wary.” He’s thinking about stricter rules, tougher penalties and ways to tackle serious securities offences. He has wondered aloud whether Canada should have a specialized unit for white-collar crime. Given how complex and how easily hidden corporate and accounting offences can be, it’s a wonder there isn’t one already. Manley was clear on one point, though: corporate crime should result in punishment that provides “a real deterrent—not a slap on the wrist.”

A small, make that minuscule, number of business types will go to jail-eventually-and that may provide some satisfaction to Canadians who feel duped. The rest of the exec set, bruised egos and all, will quietly go back to their corner offices and do what they’ve always done: make pots of money.