Restoring investors confidence and Value Based Management
Arthur Levitt Jr. (former chairman of the U.S. SEC) states in the Wall Street Journal of November 23st, 2004 that "The single greatest impediment to the restoration of confidence in corporate America is continuing instances of extravagant non-performance-based compensation. These huge paydays bolster a system in which executives have incentives to manage the numbers for short-term gain and personal payout, and not manage their business for long-term growth and shareholder value". (...) "The boardroom culture is fraternal, rather than skeptical. Therein lies the crux of the problem".
Levitt's statement reminds me of something President Bush said 2 years ago: "At this moment, America's highest economic need is higher ethical standards - standards enforced by strict laws and upheld by responsible business leaders" (Corporate Responsibility speech, July 9th, 2002).
I agree with Levitt that the crux is rather that some CEO's in the past have been allowed to get away with managing for short-term incentives (by over-cozy boards and over-greedy shareholders) than an ethical problem per sé.
Some business ethics education surely doesn't hurt for those who need it, but indeed the core of the strategy for corporate America to restore investors confidence must be implementing Value Based Management: managing corporations for long-term shareholder value. Boardroom culture, executive compensation, corporate laws and accounting methodologies should all be in concert with this paradigm.