How bashing CEOs hurts the economy.

THE PERCEPTION GAP is widening between chief executives and their detractors among politicians, regulators, journalists, shareholder activists and academics. The popular mood appears to be "hang all CEOs." The legal proceedings against Bernie Ebbers, Dennis Kozlowski, Martha Stewart and Jeff Skilling, while necessary, are being blown out of proportion. Their crimes happened years ago and it's wrong to assume that all CEOs engage in those abuses.

The reality at the top of most corporations has changed dramatically because of Sarbanes-Oxley; more aggressive enforcement by the Securities and Exchange Commission and the Justice Department; a wave of shareholder class action lawsuits; and perhaps new rules on "shareholder democracy" that would cut CEOs out of the process of picking directors.

[ILLUSTRATION OMITTED]

The CEOs who responded to our Confidence Index and took part in our cover story (page 26) and other leaders whom we speak to privately are deeply concerned about this negative climate. One recently pointed out that his company spends $400 million a year complying with regulations globally. Under Sarbox, the U.S. could become one of the world's most expensive regulatory regimes.

The negative climate facing CEOs is compounded by the outpouring of emotion over jobs. Rather than harping on the outsourcing of jobs (which is inevitable and will continue, no matter what laws are passed), CEOs say the national agenda should be focused on capital formation, innovation and competitiveness. What the country really needs is a major burst of innovation that creates jobs and improves the technological infrastructure. It may be hard to believe, but the U.S is losing technology leadership in many sectors, such as wireless and broadband communications. (See "Korea's Broadband Revolution," page 38.)

Kicking off a wave of new innovation would mean that government and the education sector need to shift gears and get serious about creating a climate in which companies want to take risks and can find the best minds. It could take a generation, one CEO told us, to repair the damage that's been done.

CEOs are aghast at the prospect that Sen. John Kerry, the candidate who created the "Benedict Arnold CEO" phrase, could win the presidency. But here's a zinger for President George W. Bush. Even though most CEOs are Republicans, many are not pleased with their ability to communicate with this administration. "I was no fan of Bill Clinton," one major CEO told us, "but at least we had people in his administration we could talk to. Now we just can't get through. I've never seen an administration this out of touch with business."

When we ask CEOs, "Why aren't you communicating your point of view about all these issues?" they say they are afraid to take the risks of speaking out. "We're headed for trouble no matter what we do," confided the CEO of a multibillion-dollar company. Admittedly, there are risks. But there could be even greater risks if the debate continues to lurch in the current direction.

So this is the CEO message to those who are storming the gates: Yes, some corporate leaders broke the law and are going to jail. But the vast majority didn't take part in the shenanigans and shouldn't be tarred and feathered. It's time to wake up and start talking about creating a more competitive economy. Do any of you think that regulations and rules create jobs or encourage innovation? Do you believe that Sarbox is making it easier for growing companies to gain access to the capital markets? Do you think that creating a toxic environment for CEOs will help expand the economy?

The answers are obvious. The bashers are putting U.S. economic growth at risk. In some senses, the U.S. appears to be getting Europeanized, meaning more concerned about regulation and control and entitlement. If America is to find the next leg of growth, it's time to acknowledge that the anti-CEO pendulum has swung too far.