When Eliot Spitzer ran for the office of governor of New York, he said in one of his campaign ads that as attorney general, "I never asked if a case was popular or unpopular. I never asked if it was big or small, hard or easy. I simply asked if it was right or wrong."
Amen, Eliot. With that logic, if I said personal concerns of politicians should be left out of politics as long as the politician in question gets the job done, Spitzer would wholeheartedly disagree. It doesn't matter if your behavior is unpopular or seems insignificant; what matters is if it's wrong. Talk about creating your own destiny.
Democracy -- the idea that the consensus of the majority is more appropriate than the rules of the minority -- certainly has a place in business, too. As a shareholder, you get the opportunity to voice your opinion on corporate issues through proxy votes.
Those votes determine who will run the company, usually through an election of a board of directors, which, in turn, baby-sits the CEO. But as we've learned with former Gov. Spitzer, voting for someone to be a leader doesn't guarantee they won't commit an act that is morally reprehensible.
Bubba, meet Wall Street
In investing, just as in politics, from time to time personal actions of CEOs are held up to public judgment.
- In 2005, Boeing (NYSE: BA) CEO Harry Stonecipher was asked to resign after an alleged personal relationship with a female employee.
- In 2004, Sara Lee (NYSE: SLE) CEO C. Steven McMillan was accused of reneging on a job offer after the job candidate declined to continue their sexual relationship.
- In a more bizarre case, USWeb CEO Joe Firmage was pressured to leave the company in 1999 after writing a 600-page report proving aliens had visited Earth.
Despite making great headlines for gossip magazines, you really need to ask yourself this: If the CEO is running the company well, should his or her personal behavior be any of our business?
If the activities are illegal or unethical, the answer is yes.
Distrust is very expensive
Between flashy charts and fidgety numbers, it's easy to forget that we actually own the companies we hold shares in. CEOs, therefore, are the stewards of our investments. When management proves their personal conduct can't be trusted, the question of trusting them with your money shouldn't get a single thought.
If any CEOs are willing to act unethically to the people they are closest to -- their family members -- imagine what they're willing to do to shareholders they've never met. Former Enron executive Lou Pai pulled a double whammy when he cashed out his Enron shares right before the infamous collapse for money to pay for his divorce, a legal process that started allegedly after he got a stripper pregnant. Not the kind of guy you'd want to bring home to meet Mom. Not the kind of guy I'd feel cozy giving my money to.
Berkshire
Hathaway (NYSE: BRK-A) (NYSE: BRK-B) chief Warren Buffett once said, "Lose money for my firm, and I will be understanding; lose a shred of reputation for the firm, and I will be ruthless." Indeed, a company's reputation can be one of its most vital assets. The once-giant account firm Arthur Andersen was out of business virtually overnight after the Enron scandal vaporized its reputation.
Trust me ... I'll make you rich
Every year, Fortune magazine lists the most admired companies. It isn't a coincidence that this list also serves as a Who's Who of big share gainers as well. Apple (Nasdaq: AAPL), Google (Nasdaq: GOOG), Procter & Gamble (NYSE: PG), and Toyota (NYSE: TM) are all frequent members of the most admired list as well as consistent stock stars. Buffett is wise to preach about the severity of a tarnished reputation; admirability and big returns go hand in hand.
Most CEOs are honest, respectable, and hard-working people in all aspects of their lives. Even more reason to reject the few who prove they can't be trusted, even if it is outside the office.
CEOs are public representatives for their companies. The last person you would want running a company you own is someone who has to explain his or her personal morality to a barrage of press.
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