Years from now, when historians carbon-date that extinct species known as the celebrity CEO, they will trace its demise to a brisk February morning in 2009 and a wood-panelled room in Washington, D.C.
Eight Wall Street high rollers, their bearing sombre, their faces exsanguinated, were dutifully lined up for a congressional flogging. They had made a few frugal gestures in advance-leaving the corporate jets at home in favour of Amtrak; choosing modest hotels-yet these were quickly derided as posturing by a group of angry lawmakers.
"You come to us today on your bicycles, after buying Girl Scout cookies and helping out Mother Teresa, telling us, 'We're sorry. We didn't mean it. We won't do it again,'" sneered Democratic Representative Michael Capuano of Massachusetts. "America doesn't trust you any more."
Capuano could have put it more dramatically: America didn't revere them any more.
This grilling was many things: theatre, catharsis, political stagecraft. Yet it may ultimately prove to be something more: a definitive rupturing of the cult of the CEO, a kind of secular worship that has been steadily gaining adherents for the past 20 years.
The men who had assembled in Washington-Vikram Pandit of beleaguered Citigroup, Ken Lewis of the suddenly ailing Bank of America, and Lloyd Blankfein of the resilient Goldman Sachs, among others-weren't the worst offenders in their industry. They hadn't been accused of doing anything illegal, and they hadn't been dragged into court.
Yet that is precisely the reason that the financial industry's self-destruction may sound the death knell for the celebrity CEO. These men were disgraced even though they were pillars of the system, not rogues. They were feted in the media and richly rewarded, even as their cavalier bets paralyzed an entire economy. And they did it with full disclosure, not to mention the imprimatur of the boards of directors that were their supposed gatekeepers.
The rot wasn't hidden, in other words, but systemic-and the public's belated awakening to this fact may finally augur a changing of the guard, toward a new, and less transcendent, kind of corporate leader.
Crooked CEOs like Ken Lay and Bernie Ebbers had their day, notes Gideon Haigh, author of Fat Cats: The Strange Cult of the CEO. "But if anything, the excesses of Wall Street are an even greater indictment of the cult. The sums were accumulated in plain sight by the best and the brightest-the excuse that the miscreants represent merely a few bad apples is not available."
On May 9, 1986, Miami Vice aired "Sons and Lovers," the last episode of its sophomore season. As detectives Crockett and Tubbs loitered on a stakeout, Park Commissioner Lido-a tall, bespectacled man with greying hair and an avuncular mien-wandered over with some unsolicited assistance.
"If it's any help," he confided, "I know how to handle a gun."
This was a watershed moment. Lido was none other than Lee Iacocca, the shoot-from-the-hip executive credited with rescuing Chrysler Corp. from the brink and refashioning it as an automotive powerhouse.
Iacocca's visage was plastered everywhere in the 1980s. He graced magazine covers and newspaper pages. He made it onto lists of the most intriguing and influential men in America. His autobiography sold seven million copies. And he anointed himself pitchman for Chrysler's new line of K-cars, boldly telling viewers: "If you can find a better car, buy it."
The fact that a Detroit CEO was offered a cameo on prime-time's hottest series was one thing; the fact that people recognized him was something else entirely. Iacocca had brought the executive suite to Main Street, almost single-handedly creating the manager-as-saviour archetype and reshaping the way Americans thought about CEOs.
Some would argue that CEOs have always occupied a mythic place, for better and worse, in the popular consciousness. A century or so ago, big business was defined by robber barons and self-made industrialists-think Carnegie and Rockefeller-who amassed huge fortunes and later used this wealth to cement their legacies.
But these were entrepreneurs, and the successful ones came to embody the logic of individualism and self-reliance: They had worked hard, harnessed the free markets and grasped the American dream.
As the Depression took hold, however, there was a gradual separation of ownership and control. Widely held companies may have been owned by shareholders, but they were now controlled by professional managers. This was a new breed of leader, one who wasn't self-made, and who wasn't necessarily steeped in the particulars of a given industry, but whose skill was in managing a company's operations and ensuring its healthy future through a kind of custodianship.
According to Rakesh Khurana, a professor of management at Harvard Business School, this was the heyday of the man in the grey flannel suit. CEOs viewed themselves as stewards, and a big part of their job description was to ensure that these companies survived in perpetuity. Shareholder returns mattered, of course, but so did the needs of many other stakeholders, from employees and governments to communities and, more abstractly, the corporate image.
This "Organization Man," a term coined by William Whyte in a book of the same name, persisted into the 1960s, when a more financially literate breed of chief executive came into vogue-leaders who built conglomerates through aggressive mergers and acquisitions. Yet they largely manoeuvred behind closed doors; members of the wheelers-and-dealers club still remained a faceless lot, at least by today's standards, even though they controlled increasingly powerful companies.
By the end of the 1970s, though, some significant changes were afoot. Companies began switching from defined benefit pension plans to defined contribution plans, so more and more workers found that their retirement hinged on the performance of stock markets. Mutual funds began to gain traction as supplements to-and in some cases replacements for-these pensions, and, over the next decade, their popularity exploded. Even public pension funds got into the act, weaning themselves off the meagre, if safe, returns of fixed-income products, like bonds, in favour of betting on stocks.
As market fundamentalism flourished, the United States became a nation of shareholders, and MBA programs adjusted in kind, laying the foundation for a sudden shift in the sort of leaders populating the country's largest companies.
"In the golden age, business schools taught CEOs to be trustees of companies," says Khurana, who in 2007 published From Higher Aims to Hired Hands: The Social Transformation of American Business Schools and the Unfulfilled Promise of Management as a Profession. "That has been displaced over the past three decades by a shareholder maximization model-[the notion]that CEOs should see themselves as the hired hands of shareholders."
Not surprisingly, as people increasingly saw their financial fate linked to stock prices, they became more hungry for information about the so-called captains of industry. In 1989, CNBC began chronicling executive exploits and turning CEOs into television fixtures-the surest path to stardom. The print media also became a vehicle for glamorization: According to Khurana, BusinessWeek placed only one CEO on its cover in all of 1981. In 1999, the number had risen to 19. The hagiography had begun.
Iacocca exemplified this new order: He was a charismatic manager in whom sad-sack Chrysler investors could place their faith and find a measure of redemption. He was hardly alone. Jack Welch, who was "Neutron Jack" at the beginning of his career (a nod to his habit of ripping out layers of management at General Electric), soon became a corporate demigod; by the time he left GE, its market capitalization had increased more than 5,000%. Al (Chainsaw) Dunlap may be the most famous case. Despite his thuggish reputation as head of Scott Paper (he titled his autobiography Mean Business), investors only cared about his returns. When he joined Sunbeam, the company's stock immediately skyrocketed, but before long it had cratered again, and Dunlap, who was accused of juicing revenue numbers, was fired.
But that did little to dent the cult. Outsized CEOs often dwarfed the corporations they served, and their personalities, as much as their performance, could steer investor sentiment. This wasn't merely the age of Wall Street but of Wall Street, a film that came to define the new-found spirit of corporate excess, and made explicit the growing suspicion that "greed is good."
Many firms felt they needed a name-brand CEO, and they soon realized that star appeal came with a substantial price tag. Compensation was no longer benchmarked internally; instead, it was measured against a peer group chock full of celebrities. In 1980, chief executives made roughly 40 times the compensation of the average worker; last year, they made about 350 times more.
With this hired-gun mentality also came unprecedented movement in and out of the corner office. Welch may have persisted with the same company, but as star CEOs flourished, more of them were enticed to other companies with hefty monetary packages. This itinerant behaviour was mirrored in investing habits. In the era of the Organization Man, investors trading on the New York Stock Exchange held on to a stock for an average of about five years; now they were holding on for less than a year on average-more like renting than owning.
The inexorable climb of major market indexes blunted criticism of outsized pay packages, which continued to swell through the 1990s and much of this decade. The collapse of Enron, and tales of lavish spending at Tyco, created a furor among investors, but this mainly led to more prescriptive rules for corporate governance and accounting. Jeff Skilling and Dennis Kozlowski may have illustrated how celebrity could beget renegade behaviour, but their actions didn't inspire a full-fledged crisis of belief in the markets themselves.
Not like the ongoing saga of Wall Street's meltdown has, at any rate. Everybody seems complicit in the current crisis: lax government overseers, boards of directors and, of course, CEOs who, even when ousted, left with tens of millions of dollars. Stan O'Neal was forced from his perch at Merrill Lynch but took solace in a $162-million (U.S.) compensation package, even though the company was in such bad shape it had to be swallowed by Bank of America. Chuck Prince got turfed at Citigroup, which is now a ward of the state, but he left with $68 million (U.S.) for his troubles. Dick Fuld, Jimmy Cayne-the list of Wall Street CEOs who ran their legendary brokerage houses into the ground stretches on. These brokerages were the linchpin of the global economy-and now that the pin has corroded, the architecture of that economy is threatening to collapse. One needn't visit Detroit to get the picture.
Canada, whose financial system has fared among the best in the world during the downturn, has also stood apart as being more resistant to the allure of celebrity CEOs. (Quick: Name some prominent executives here who have published their autobiographies. Bonus points for those that have sold more than a handful of copies.) There have been a few on Bay Street in recent years-Ed Clark of Toronto-Dominion Bank and Dominic D'Alessandro of Manulife seem closest to the mould-and then, of course, there was the odd one who routinely graced magazine covers during the tech boom, like John Roth. Conrad Black also comes to mind. Yet the fever never quite peaked here as it did in the United States, possibly because so many of our major businesses remain family-run enterprises, or because of a culturally inherent sense of modesty and a lack of star-making machinery.
And then there are the skeptics who might point to the likes of Apple's Steve Jobs as proof that the cult of the CEO will withstand the financial-industry-fuelled recession. There is some validity to this thinking. When Jobs recently announced he was taking a medical leave, the company's stock sank 7%. And one could mention other tech CEOs like Bill Gates and Larry Ellison, whose personalities became inextricably woven into their companies' brands. Yet the distinction here is important: These CEOs more closely resemble the entrepreneurs of yesteryear than they do the managerial gurus typified by Lee Iacocca and Jack Welch. They weren't placed on a pedestal for their ability to navigate corporate bureaucracy, or to cut costs or charm investors. They are entrepreneurs, and the value they created sprang from a mixture of creativity and vision that remains the lifeblood of their companies.
The cult of the manager-CEO, however, will have to come to grips with its own mortality. According to Harvard's National Leadership Index, confidence in business leaders has dropped more than that of leaders in any other sector-about 13.5% last year.
Khurana believes that history will look back on the era of the celebrity executive as an aberration, and that business will gravitate to a new style of leadership: a cosmopolitan, global version of the man in the grey flannel suit. These leaders will still cater to shareholders, but will also understand the needs of a diverse set of constituents: They will be custodians whose mandate takes into account not just the long-term viability of their charges, but their companies' relationships with governments and communities, too.
"The celebrity model has to be replaced with someone who has institutionally minded leadership-who understands that corporations are embedded in society," says Khurana. "You have to spend a lot more time building not just financial capital, but social capital as well."
THE RAPID DESCENT OF THE CORPORATE JET In just over three months, status symbol becomes stigma-Brent Jang
Nov. 18 CEOs of the Detroit Three automakers fly to Washington, each in his own corporate jet, to beg for multibillion-dollar bailouts. That weekend, Saturday Night Live pounces. Will Forte, playing GM CEO Rick Wagoner, apologizes for being late: "Instead of flying, the three of us decided to drive here from Detroit...but we had car trouble."
Jan. 20 Days after filing for bankruptcy protection, Nortel Networks Corp. grounds a Challenger 604 used by Mike Zafirovski. Turns out the CEO, who was supposed to move to Canada, had instead jetted back and forth to his Illinois home. Nortel hands the plane, which cost an estimated $500,000 (U.S.) a month to operate, back to the leasing company.
Jan. 27 Citigroup Inc., the recipient of hefty U.S. government bailout money, cancels delivery of a $42-million (U.S.) Dassault Falcon 7X jet. The decision comes just hours after Citigroup insists it makes sense to take delivery of the plane, despite
the bailout.
Feb. 5 Bombardier Inc. says it's chopping 1,360 jobs because of tumbling demand for its Learjet and Challenger planes.
Feb. 18 Plane maker Hawker Beechcraft Corp. accuses the media and politicians of promoting a "negative stereotype" of business jets. A new ad for Cessna, meanwhile, implores executives to move boldly in the flight department: "Timidity didn't get you this far. Why put it in your business plan now?"
Feb. 24 Despite vigorous lobbying from the jet industry, U.S. President Barack Obama isn't swayed. "This time, CEOs won't be able to use taxpayer money to pad their paycheques or buy fancy drapes or disappear on a private jet. Those days are over."