The big boys: power and position in American business.

The Big Boys: Power and Position in American Business.

Newsweek devoted two columns of its June 2, business section to the Ralph Nader and William Taylor book, The Big Boys: Power and Position in American Business.* In an article entitled "Has Nader Gone Soft?' the reporter as much as snickered as he concluded: "[Nader] sets off in search of corporate pestilence but finds excellence instead.'

* The Big Boys: Power and Position in American Business. Ralph Nader and William Taylor, Pantheon, $22.95.

Not in the eyes of this beholder. After reading the book, I was left deeply shaken. I would not have supposed that possible, given my longstanding indictment of the performance of the Fortune 500 chieftains.

No portrait of the nine business leaders Nader profiles in his book is entirely pretty. U.S. Steel Chairman David Roderick abandoned his industry, using time and money largely gained by protectionist policies to acquire Marathon Oil and Texas Oil and Gas, valued at $9 billion. Part of the move out of steel may have been necessary, but his insensitivity is shocking. Roderick explains his repeated failure to meet with community leaders who wanted to develop an alternative use for the about-to-be-closed South Works in Chicago: "Look, I don't want one of these goddamned committees coming in here--a priest, a Boy Scout, and a housewife--telling me what to do. We're here to make money.'

General Motors Chairman Roger Smith was equally insensitive about the destruction of Poletown, the impoverished Detroit community that made way for a new GM plant. He also publicly humiliated on television (on "Donahue') seven governors who groveled to get him to locate GM's Saturn operation in their state, a setup former United Auto Workers President Douglas Fraser called "obscene.' Smith gave speech after speech about forthcoming car models that would have seven onboard computers featuring 38,000 instructions. But now he can't get the cars to work and GM is losing its market share each quarter to Ford, Chrysler, and the imports.

Northrop Chief Executive Thomas Jones is a super salesman, having led his defense contracting firm to outperform the industry by a wide margin since 1960. But are we well served by an exchange that Nader describes during the most recent annual shareholders' meeting? "Jones was asked by our correspondent to reflect on the deadly impact of the product his corporation manufactures. Admiral Hyman Rickover, in his farewell testimony to Congress, told legislators that he would sink all the nuclear-powered ships whose construction he had sponsored were they not a necessary evil. Has the Northrop chairman ever had similar reservations about the wisdom of his work? "I've not had similar thoughts,' Jones said with a smile. The auditorium rang with a chorus of approving shareholder laughter.' I sadly acknowledge the need for weapons, as did Rickover, but I find the topic far short of amusing and I am saddened that any chief executive would behave so flippantly regarding this grave topic.

Even giant-slayer Bill McGowan, head of MCI and humbler of AT&T, is somewhat tarnished. His cause was noble and his outspoken demeanor most refreshing. Nonetheless, Nader suggests that McGowan has simply created one more long-distance telephone company that soon will be part of a new oligopoly of a half-dozen companies in place of AT&T's monopoly.

Then there is William Norris of Control Data Corp. Nader admires his vision, which epitomizes the CEO's power to extend the corporation's aims. Inner-city and farmland ventures dot the CDC agenda, along with the billion-dollar PLATO (Programmed Logic for Automatic Teaching Operations). But Nader's profile depicts at least as much ego and arrogance as thoughtful application of power. Surely shareholder wealth-creation is not all there is to life, but Norris has run roughshod over his board of directors in pursuit of grandiose visions, crippling his balance sheet in the process and making the firm vulnerable to takeover. Specific practices such as the "Shark Club,' which celebrates occasionally unscrupulous sales victories, further blur the picture.

Is this the excellence Newsweek claims Nader has found? In fact, only one of Nader's chief executive officers comes through with tiny blemishes--Dow Chemical boss Paul Oreffice. Oreffice faces a transition that equals Smith's or Roderick's in autos and steel. However, he has stayed with chemicals and quickly transformed the firm from a sluggish, basic-commodity producer to a faster-moving specialty chemical producer that emphasizes pharmaceuticals and consumer products. Moreover, the wrenching transition was accomplished while maintaining, at great expense, a "no layoff' policy. Nader even praises some, but not all, of Dow's environmental policies.

Nader's avowed objective is to weigh the use and abuse of power among American leaders of giant businesses. He observes that chief executive officers are granted exceptionally wide latitude. Ironically, they are granted especially wide latitude when business performance is poor; though they are arguably to blame for such malaise, the historic American tendency has been to leave them alone to oversee the recovery when things get tough.

Nader digs deeper and asks a broader set of questions, to my knowledge, than has ever been asked of chief executives. Even in the case of Roger Smith, for whom there is doubtless little Nader fondness (Nader was once trailed by GM-hired private eyes), his reporting is scrupulously balanced. He draws heavily upon secondary sources and interviews with numerous current and former colleagues and industry participants. Moreover, six of the nine principals granted Nader extensive interviews (Smith and Jones did not). But even in the three cases where the CEOs did not participate, the story Nader pieced together is extensive.

Nader's portraits are complex. His chief executive officers are not simple villains or heroes. They are not one-dimensional men. All are intelligent and a few are strikingly intellectual (Oreffice, Roderick). While some do hide from public view (notably Roderick and Smith), some, even in beleaguered industries and on sensitive topics, are outspoken to the point of bellicosity (Oreffice, McGowan and Norris).

Though lush with compelling data, the book often rambles. Moreover, Nader never really answers his question: Do these men abuse power? Numerous vignettes, sprinkled throughout the profiles, hint that they do; as many anecdotes suggest they don't. The result is that the complexity of these men is revealed. But Nader's steadfast refusal to draw inferences ultimately frustrates his purpose. The nine profiles are presented back-to-back without analysis, other than a concluding paragraph at the end of each 50- to 80-page sketch. Even the introduction and conclusion to the book are skimpy.

In these few analytical lines, Nader's primary concern is not whether the chief executives abuse their power, but that they fail to use it toward the broad social ends Nader would like. He cites, for instance, Harold Willens, a southern California executive and author of The Trimtab Factor, for his support of anti-nuclear policies, and wonders why none of the chief executives he profiled took proactive positions about such vital public issues.

There are limitations to this line of argument. Nader restricts his analysis of the companies to their chief executives. He does not discuss corporate governance--in particular, the fast-changing relationship between CEOs and their boards of directors. In fact, in today's environment of increasing director liability, chief executives arguably have a much shorter leash than Nader infers. Boards have long been accused of existing only to rubber-stamp the decisions by the incumbent chief executive and preserve his power. This is much less the case today than in the past. But even to the extent that it is true, the board provides the rubber stamp only because it and the chief executive agree upon a relatively narrow agenda. I suspect that few boards would stand still for a CEO who became a pro-freeze activist, for instance, even though a modestly active civil rights posture might be admired. The thoughtful stance of James Burke of Johnson & Johnson in the case of two Tylenol tragedies is widely admired. On the other hand, one cannot forget the laughter of Jones's audience at the annual meeting; pro-nuke activism is apparently okay among southern Californian aerospace firms.

Among Nader's profiles, Norris is the only CEO who did appear blatantly to manipulate his board. However, CDC's performance has been so problematic in the last six years that signs of board restlessness have been widely evident. In fact, many analysts suggest that the recent and belated appointment of a Norris successor was done over his strenuous objection.

In some areas, these executives are not shy about the bald use of their power. Nader cites the strong opposition to Political Action Committees (PACs) of Irving Shapiro, former DuPont chairman and top Democratic businessman-advisor to the Carter administration. But the view of Oreffice is much more common: Oreffice loves PACs. Businesses' purchase of politicians via the PACs is an increasingly prominent--and questionable --feature in the political landscape.

In addition to PAC power, business is openly exercising a new-found power. In the face of regional transitions in the manufacturing sector, anything now goes in the name of saving jobs. Once again, problematic past performance leads to more power, not less--the power to decide where the shrunken job base will reside. And along the way, so much for airbags, and gas mileage, safety, and environmental standards. Public officials regularly make spectacles of themselves in relentless pursuit of new jobs. And businessmen have learned to play the game.

Though the business agenda is much narrower than Nader wishes, business activism is at an alltime high. As it should be. The stakes are awesome. The current tax code resulted in a negative 1 percent tax rate for the chemical industry, compared to 27 percent for pharmaceuticals and 26 percent for computers. Sadly, I feel, victories in Washington, D.C. on even minor tax-code issues achieve the biggest return on a chief executive's investment of time. Lobbying will determine more of a CEO's legacy than whether or not his company's car or phone system or computer works effectively. McGowan of MCI, the closest to a Nader hero in this set of profiles, is an exemplar of the new priorities. The MCI founder, Jack Goecken, wished to create a company that provided innovative services; since his ouster by McGowan, for instance, he has become the founder of Airfone. McGowan's forte is very different: he is MCI's master of litigation and regulatory strategy.

Nader does not provide any framework to deal with how businesses ought to use the power they have--the power to create jobs, to capriciously shift jobs about, to shift industry focus, to affect the Washington agenda regarding the industry, to affect a broader social agenda. Vignettes on the use, abuse or shunning of power dot the book, but no systematic conclusions are reached.

Robert Reich, in The Next American Frontier, coined the phrase, "paper entrepreneurship.' He chronicled the growing tendency of managers to value manipulating paper over constructing quality products and delivering quality service. The paper entrepreneurs' game is the number one business power game, and Nader chose to neglect it. Its cost, in terms of failure to attend to business basics, is huge. In addition, economists Barry Bluestone and Bennett Harrison, in The De-industrialization of America, estimate that 27 million people have been dislocated because of the heartland's economic trauma. How many of the uprootings could have been avoided by attention to business basics is, of course, not calculable. But Nader's failure to examine this abuse of power--the failure to use it in pursuit of sound products and services--is unfortunate.

Roderick's answer to steel's problems is to get out of steel as fast as he can. He steadfastly denies most of big steel's shortcomings. But it is a fact that there are highly profitable (more profitable than even IBM), fast-growing and sizeable (billions of dollars) companies in the U.S. steel industry, such as Nucor Corporation, Chaparrell and Worthington Industries. Thus there are steel strategies that would have worked, or at least would have lessened the agony of transition, which could have paralleled those Oreffice followed in the chemical industry. Why didn't Roderick follow them? Moreover, Nucor's (et al) strategies are consistent with the emerging and clear-cut shape of American competitive winners--flatter, less flabby, closer to the customer, more flexible, more innovative, more service-oriented and more quality-oriented.

General Motors still can't make cars that work, and virtually all of its models look alike. And it has not deigned to go after new market segments. The most profitable car company in the world is one of the smaller ones--BMW, which follows an equivalent strategy to that of the American winners in the steel race. Smith rests his claim to fame on more abstract notions--computerization of cars, factories and car distribution systems (the Japanese won't move as fast as Smith does, because of their concerns with reliability) and some questionable acquisitions such as the $5 billion purchase of Hughes Aircraft. In fact, some say that Smith is after bigger game, with rumors up to and including giant American Express.

American business, especially its manufacturing core, desperately needs a new vision and a bold one--and quickly. What is it? I know what it is not. Nader approvingly explains that Norris of CDC "distinguishes the Control Data strategy from the traditional corporate approach to social responsibility, which he said emphasizes greater concern for employee welfare, product quality and participation. "Social responsibility thus defined was an appropriate place to start 25 years ago. But it is not nearly good enough, because our society has been going downhill.'' Perhaps our society has been going downhill, but there is dubious merit to the argument that attributes the problem to businesses' failure to more beyond quality and worker participation. We are getting clobbered in more than 75 percent of our manufacturing businesses, from semiconductors to steel. And we are getting clobbered on the basis of quality and service. In turn, quality and service stems from emphasizing human, rather than financial capital, and from wholesale worker participation and partnership. We can sadly say that we have not yet achieved success with the more limited agenda, regardless of the merits of the broader one.

And to listen to Nader's CEOs, we aren't even trying the limited agenda. It is so distressing to read page after page of commentary on Smith, Roderick, even Norris, and find no mention whatsoever of an altered view of working with people and the unions. (The unions, and Nader makes this abundantly clear, have no bold vision either.) A bit shines through in McGowan's case and with Oreffice. But even those two do not articulate a broader vision. This, clearly, is a distressing failure to use power that could be readily exercised within the confines of the most conservative board of directors imaginable. Few boards would fight decent product quality brought about through widespread employee involvement, though, tragically, few demand it.

My criticism of Nader is unfair in part. Nader's agenda is not mine. He ranged far beyond the commonplace business analysis as he probed business participation across a broad agenda. Above all, Nader has convincingly demonstrated that even a non-ally of business can write an incredibly detailed and thoughtful book about chief executive officers. Only Ken Auletta's study of Schlumberger's former CEO, the late Jean Riboud, in The Art of Corporate Success, matches these Nader portraits. It's the kind of analysis that should be done. Big business performance is more vital than ever to America's social as well as economic performance. (And perhaps geopolitical, too, as transnational business activities increasingly dominate economic and political affairs.) The study of business leaders, especially in industries amid wrenching transition, has been shamefully limited. The only appropriate closing word about this Nader undertaking is: Bravo!