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CEO Arrogance

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By BunnyClark
June 5, 2002

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Viewpoint on CEO Arrogance

What went wrong, as we have heard the crash of well-known big companies? Enron. WorldCom. Global Crossing. Kmart. Polaroid. Arthur Andersen. Xerox. Qwest. Lucent. And today, Tyco. A close look at these companies reveal a theme, that of CEO falling into the trap of arrogance with greed and/or deceit. Even though greed can be insatiable, the top dog flaw on the taxonomy of "uglies of doom for CEO's" is arrogance.

The celebrity-driven nature of the media elevated some CEO's to rock star status. That may be part of the problem. While executives' salaries remain sky high, the reputations of some corporate leaders are falling, along with company stock prices. For these flawed executives, everybody steps back, the CEO's are in a room and they are the only one with body odor. Eventually they are banished out the door or leave in disgrace. Scandal has pushed some of the CEO celeb's off their pedestals. For others, there is money to be made by just sticking around while some CEO's collect bonuses or special loans to stay.

The bull market and the wealth effect created the celebrity CEO. The level of hubris of today didn't exist when Fisher wrote his evaluative statements regarding management. The monetary reward status people get today and the celebrity status given some CEO's was to come in the future. Throw into the caldron the stock analyst scandals, which makes an additive to the stench wafting through Wall Street as the analysts helped steer business to their firms.

CEO Arrogance
An old French proverb says, "None are more haughty than a commonplace person raised to power." Arrogance is intoxicating to the inadequate. The more inadequate, the more arrogance on display.

Arrogance was the music that played into the ears of the CEO's screwing things up this last year. How about a list for lyrics of the "Most Arrogant Behaviors?" For example, we can do anything we want to, disobey the law, funny accounting, tell investors/analysts what they want to hear, throw in a little hype and hubris, talk about the companies strengths, never mention a miscue or mistake, disregard good business practices/rules, and refuse to answer pointed questions from within or without. The music and verses played on into their ears. Never once did they hear that "I was guilty of stupidity, arrogance and/or greed" in the lyrics of that music.

The intoxicating song swelled into a love of the game, taking more risks, the sense of mastery and power over many, rising to new heights in the pleasure of being tough, persuasive, shrewd, outsmarting others, and creating illusion. Then the music stopped, in the end we find a cheat and/or a con.

[ Rick Telberg, AICPA]
"Arrogance may be the most dangerous problem," Avey said. "It leads to an abuse of trust. You see how fragile that trust really is when you witness the rapid decline of a great firm like Andersen. When you lose the trust of the public, you've lost everything."

Jack Welch explains the fine line between self-confidence and arrogance. And it pays for us to know the difference. Arrogant people don't ask questions to get answers. They aren't so much looking to expand their knowledge as to make their case.

  "There is a fine line between arrogance and self-confidence. Arrogance is a killer, having no ear to others' words. The true test of self-confidence is the courage to be open-to-welcome change and new ideas regardless of their source. Self-confident people aren't afraid to have their views challenged."

Arrogance Personified
Con artists of modest ambition are fleet of foot, and when they sense the game is up, they collect their gear and fly for safer havens. And here we find the fleetest of foot, Skilling of Enron. Skilling had a Harvard MBA, rose in the company to the position of CEO, and Enron's market capitalization dropped by $25 billion during his six-month tenure. Some record, an excellent example of a fleet footed fleece.

From the LATimes:
"During Skilling's first week at Enron, his secretary brought him a stack of expense accounts to review.

"You've got to be kidding me," Skilling recalled in a 2000 interview for an academic study. "Here the world's just fallen apart around us--deregulation, new customers, new products. And I'm going to sit here line-item by line-item and go through an expense statement?"

Henceforth, he decreed, expense reports would routinely be approved without review.

As Skilling ascended, he overhauled the company culture. He set employees loose, encouraging them to push the edge of every rule, even without their supervisors' knowledge. He instituted a company-wide performance review system designed to weed out the weak. He rewarded fast results with big money. And he said that not only would Enron pattern itself after General Electric, the most sustained success in corporate America, but it would also surpass it."

[ Jim Kennedy, WetFeet]
"There are two kinds of people in the world�those who get it and those who don't," said Skilling. Having said this to "Fortune" reporter Bethany McClean when she questioned some of Enron's business practices, Skilling went on to say, "Our business is very simple model. People who raise questions are people who have not gone through it in detail." A few more questions from Ms. McClean caused him to tell her that the line of inquiry was "unethical" and he hung up the phone. This hostile and defensive behavior caused her to become suspicious, and she became one of the first to raise a red flag about Enron.

Skilling's attitude was further revealed in this statement, "I've never not been successful in business or work, ever." With an attitude like that, how could he be open to any question or suggestion that all was not right in his world?

And much later Skilling's own mother on interview, said that she did not believe that he "didn't know."

One of my favorite columnists, Molly Ivins in her recent writing, never uses the word arrogance but gives another take on the CEO's:

"It's time to connect the dots. If you think the government is having a connection problem on the national security side, you should take a look at the starburst of dots on the economic side for a really stunning scandal. When you start to connect the dots on the business side, you will notice that we're being stolen blind." 

Warning Signs
Some warning signs of arrogance and where to look/listen:

Is the picture of the company painted in such a way by management that there are no improvements that can possibly be made to product/service/venture; that it is perfect as is? One place to look is to check out the letter to the shareholders for self-examination.

Are questions discounted that customers, investors, and interviewers/reporters ask about the business because they "just don't understand"?

Is there evidence of a culture change taking place in the organization or of a "rotten corporate culture"?

Is there absence of humility in the CEO's? Self-confidence yes, arrogance no, risk taking yes, without accountability, no.

How are questions handled and answered during conference calls, who answers them?

Does management try to explain away the facts of misfire or do they choose to confront them head on? If the company has run into difficulties, have they tried a "quick fix" strategy?

What is being said in the news regarding CEO interviews?

Does the corporate board listen passively to reports or does it demand more information? How does the board award the CEO's with perks such as loans, options, gifts? More and more it is being said that shareholders must demand more information. In terms of board members, look at their associations in other businesses, especially financing.

Is the organization exceeding risk tolerance through acquisitions?

How does the 10-K and 10-Q's measure up to accounting standards and transparency?

Obviously, has the SEC had any recent questions for the company? And how have they been answered?

What about the investors/shareholders? What should we take away from this for our investing decisions? What should we be skeptical about? What questions should we be asking? How should we look at in institutional investors in our companies when doing our DD?

These are few of my thoughts on contempt for authority as evidenced in the display of arrogance in CEO's displaying greed and/or deceit with perhaps a few warnings signs. From the dictionary on arrogance: "making undue claims in an overbearing manner; that species of pride which consists in exorbitant claims of rank, dignity, estimation, or power, or which exalts the worth or importance of the person to an undue degree; proud contempt of others; lordliness; haughtiness; self-assumption; presumption."

Today the DOW took a 215 point hit, or 2.2 percent to 9,709. Nasdaq Composite shaved 53 points or 3.3 percent to 1,562.

A few CEO's have blemished corporations to the point that building trust will take some time to build investor confidence. Do you suppose that the time has come for the Corporate Boards members to stop being lap dogs and pet rocks?

Regards,
Ro


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