We are experiencing a crisis of confidence in the business world. Even though each accounting incident has a different set of facts associated with it, the cumulative impact of these events has given investors the collective jitters.
While none of us are in a position to say exactly why those who participated in these actions did so, the dot-com mania of the past decade created an environment of expectations that focused investor and media attention on immediate gains, instead of looking longer-term and rewarding the creation of real assets over time.
One of the biggest contributions we can make is to educate the investing public that, in the long term, a company's reputation is built on more than its current financial results. In a recent study APCO conducted of more than 100 attributes people used in measuring corporate reputation and value, financial results only accounted for 40%. Other factors that were important in creating corporate equity and value included ethical leadership (such factors as leadership, honesty, and accountability) and corporate responsibility (employment practices, philanthropy, and human rights).
Thus, as communicators and consumers we need to remind our clients that reputation and trust are built on much more than meeting financial projections and quarterly earnings. We need to create an environment that rewards companies and their leaders who subscribe to the values of ethical behavior and corporate responsibility. Of course, financial return is important, but it is not the only measure. We need to be realistic about what is a healthy return or expectation. If it is too good to be true, it probably is not true.
Measuring ethical behavior is underscored by the need for disclosure and transparency, which has to be the fundamental part of corporate behavior going forward if we are to restore trust.
Although it is not normally our policy to comment on our client work, APCO has broken its silence to talk about WorldCom. We are doing this because we think that what happens in the WorldCom situation could have long-term implications for other companies, both positively and negatively.
WorldCom's management team has been in place only two months. Led by John Sidgmore, the new order came to office pledging to restore trust so they could take the company forward in light of their declining financial performance. In the course of these actions, financial irregularities were discovered and immediately brought to the attention of the SEC.
The company quickly brought this to public attention as well, and hired William McLucas, the former head of enforcement for the SEC, to lead an internal investigation. Then, Sidgmore met with the press to answer questions.
The company then accepted responsibility for the actions of its previous administration.
Short of being able to rewrite history, there is not much more this management team can do, except to continue to be honest and try to take the company forward.
So this leaves us with an interesting dilemma. We say we want responsible leaders with integrity. In WorldCom's case, the company now has that.
It has a leader who is doing the right things - both to save WorldCom, and to make sure, as he said, "the bad guys are punished. Investors, customers, and our elected officials need to make good on their word, too, and give new leaders a chance, and the room, to be accountable and responsible as they move forward.
But what incentives do new leaders have to come in and clean things up if they are treated the same as those who caused the problems in the first place?
In this case, if the company goes out of business, consumers and investors lose because we further consolidate the industry and lose some of the competitiveness, while investors loose any chance of restoring their losses.
So how do we create an appropriate balance that allows for the kind of leadership and responsibility we want to restore trust while taking appropriate steps to punish those who were responsible?
We say we want responsible leaders with integrity. So let's not punish good guys. Let's find a way to encourage and reward the right values in American business. Then, let's keep an eye on them, of course. Verify, of course. But let's make sure there is room to give the responsible leaders in American business a chance to do what they do best.