Say It Loud, Say It Proud -- `Shareholder Value!

According to Orit Gadiesh, chairman of management consultants Bain & Company, in a WSJ article of August 3rd, 2004, fraud cases not only dominate the headlines; their fallout makes senior managers more circumspect and risk-averse.

Gadiesh argues that because of scandals like WorldCom's, many CEOs shy away from bold pronouncements or actions. Instead, they're preoccupied with mounting concerns, some seemingly outside of running the business, that add up to huge distractions for CEOs:

1. The first is defending themselves against the charge that all senior executives are crooks; crooks, moreover, who justified their crimes by citing shareholder value as their gospel. Many CEOs understand they can't win this debate. So they remain silent. They deal, instead, with the hassles of Sarbanes-Oxley, Congress's attempt to legislate trust, and the Higgs rules in the U.K.
2. The second, related, CEO distraction is corporate image. CEOs are spending more and more time on the reputational front, promoting good deeds in social responsibility in an effort to be seen as "giving back."
3. The third CEO preoccupation encompasses geopolitical risks, terrorism and the state of the global economy. For instance, U.S. companies increasingly worry about the "American-ness" of their brands overseas

However according to Gadiesh, CEOs have to reclaim their agenda. They must have the confidence to set long-term goals and the will to communicate those goals clearly. So it's long-term shareholder value creation that matters and CEOs need to earn the public's trust the old-fashioned way -- through performance. Because ultimately, the trust that companies build through continuous, solid performance outshines every other consideration.

Enron Capitalism

Feudalism: You have two cows. Your lord takes some of the milk.

Fascism: You have two cows. The government takes both, hires you to take care of them and sells you the milk.

Communism: You have two cows. You must take care of them, but the government takes all the
milk.

Capitalism: You have two cows. You sell one and buy a bull. Your herd multiplies, and the economy grows. You sell them and retire on the income.

Enron Capitalism: You have two cows. You sell three of them to your publicly listed company, using letters of credit opened by your brother-in-law at the bank, then execute a debt-equity swap with an associated general offer so that you get all four cows back, with a tax exemption for five cows. The milk rights of the six cows are transferred through an intermediary to a Cayman Island company secretly owned by the majority shareholder who sells the rights to all seven cows back to your listed company. The Enron annual report says the company owns eight cows, with an option on one more.