The view from the edge.

As business weather the wrath of disgruntled investor and the stormy winds of a volatile marketplace, the once-lofty post of the chief executive now seems more like a scary precipice.

High-profile CEOs like Worldcom's Bernard J. Ebbers and Tyco's Dennis Kozlowski have gone from being lauded the covers of business journals as corporate heroes to serving as punching bags for a headline-hungry media. Even former luminaries such as General Electric's Jack Welch and ABB's Percy Barnevik have seen their starry reputations tarnished amid swirling allegations of excessive compensation and negligent governance.

The repercussions of the public's sudden zeal for vilifying CEOs--after nearly a decade of celebrating them--continue to sweep across corporate America. No longer visionary giants riding the crest of a bull market, today's business leaders face not only a sobering downturn but also fallout from the slew of scandals that has decimated the reputations of some of their highest-profile peers and the faith of employees, shareholders, customers and other stakeholders.

These combined forces, pointed out Gerard Kleisterlee, president and CEO of Royal Philips Electronics, have landed chief executives squarely in the hot seat. "The world of business has entered into something of a perfect storm over the past 18 months," said Kleisterlee, the keynote speaker at the CEO2CEO Conference, held in November at the St. Regis Hotel in New York. "Never before has the job of the CEO been more challenging. Never before have we been more exposed--and, in fact, there might be no more endangered species than the CEO of today"

To turn the tide, leaders will have to navigate a turbulent marketplace and reassure skittish investors--while at the same time coping with the scrutiny of regulators, the media and their own stakeholders, noted John Brandt, president and editorial director of the Chief Executive Group, which sponsored the conference. "CEOs today are asked not just to lead an organization to profitability but also to serve as visionaries, as strategists, as change agents, as statesmen, as diplomats, as spokespersons and as brand icons' Brandt asserted, "all while still returning outstanding revenues and making sure that our companies, our employees and our partners are good corporate citizens in thousands of jurisdictions around the globe."

But while the current environment is undeniably difficult--even downright hostile--the trying circumstances have also served to clarify the daunting task ahead, agreed both conference speakers and attendees who outlined five critical challenges brought into sharp relief during the seminars and ensuing conversations.

1 Rebuilding Trust

"Crisis of confidence" is quickly becoming an overused phrase, yet there's no denying that the flameout of the dot-com economy and a rash of corporate scandals have taken their toll on the way employees, investors and the public view both corporate leaders and industry as a whole. "We as CEOs are operating in a zero trust, zero tolerance environment," said Kleisterlee, who sees addressing this crisis of trust as the most pressing imperative facing CEOs today "Until we rebuild trust, we will find it difficult to regain the confidence of the financial market."

But restoring trust is much harder than building it in the first place. Just ask Bernie Ebbers or Enron's Jeff Skillings. What's more, as leaders are quick to acknowledge, the real problem runs far deeper than beholden board members and questionable options accounting; addressing it will require wide-scale change.

"As a group we have been all talk and no action," said Kleisterlee. "Yes, we need to look at our boards and clean them up. Yes, we need to be financially transparent. But it's the pressure to manage for the short term that has in large part created many of our problems. It's excessive use of stock-option programs and an extreme focus on next quarter's earnings. We need to start looking again at business growth from a long-term perspective."

That struggle to deliver in the short term drove many companies scrambling to find ways to meet or beat earnings forecasts that were unreasonable in the first place, and to push the accounting envelope--for which they are now paying the price, said Stephen Cooper, who, as interim CEO of Enron, is intimately familiar with that scenario. "When we lived in a world of 2 to 4 percent growth of GDP, to promise to deliver 15 to 20 percent compounded by way of organic growth every year is absolutely crazy," he said. "Yet we've seen senior management, inclusive of the CEOs, setting and then being forced to dance to crazy expectations about growth in earrnngs year over year, quarter over quarter, month over month. They actually put their organizations on steroids for 90 to 180 days and burn them out."

But is Wall Street ready for real-world earnings forecasts? And are investors capable of looking past the quarterly earnings statement to a company's long-term prospects? Probably not, acknowledged Cooper, who believes CEOs must resist the temptation to perform the quarterly rain dance anyway. "Not only does this quarter-to-quarter metric not make sense financially, but operationally what it does is create an enormous number of internal upsets and inefficiencies," he said. "If you look at the gyrations companies go through operationally the last two or three weeks of a quarter, you'll see weird shipping patterns, weird sales patterns."

Such machinations are simply not sustainable. "If you play the game for 90-day horizons, after a while you're just cutting your own throat. It's better to let Wall Street and the media catch up with you as opposed to you dancing to a beat that is very shortsighted, very short term and very fickle," Cooper said.

"This concept of making [expectations] by a penny is ludicrous," agreed Howard Lutnick, chairman and CEO of Cantor Fitzgerald, L.P. "The best way through it is to run your business to make more money and try to get away from this penny stuff, And sooner or later your stock will get there."

2 Fostering Leaders

There's a catch-22 emerging in the upper echelons of corporate hierarchies. While recent surveys report that business leaders view investing in leadership development as a greater priority in the wake of layoffs and the economic downturn, more than half of senior executives in a recent poll said they would not want to be a CEO today. What's more, with CEO-bashing fast becoming a favorite national pastime and downsizing programs taking their toll on employee morale, these contradictory goals may prove hard to reconcile.

"Developing the next generation of leaders is a top priority, yet no one wants our job," said Kleisterlee. "We don't know what the impact of that might be as we go forward. If the brass ring has traditionally been to reach the corner office, what kind of environment are we in when we've just narrowed our succession options significantly?"

Keeping top employees engaged, grooming them for leadership positions and retaining them once they've risen through the ranks are perennial business challenges that have only intensified in the current corporate climate. "To create and keep meaningful leaders for our future, we need to understand them better," said Kleisterlee, who pointed to a shift in priorities among up-and-coming executives that businesses must address. "We know from our top potentials that their aspirations for leadership are rooted more in a sense of personal achievement and growth and less in the acquisition of power and financial gains. They want the financial rewards that success brings, but they would rather have more quality of life than more money.

Balance in the ranks of future leaders may help, suggests a recent Conference Board survey of European executives, which revealed that one-third of women executives--as compared to just 25 percent of their male peers--aspires to top jobs in their companies. "This says something about the untapped potential of women executives," noted Kleisterlee. "We need to look for more women for leadership positions."

3 Managing Today--for Tomorrow

Tough times call for tough measures, so the current rash of belt-tightening measures--from layoffs to budget slashing--are de rigueur in the present economic environment. Yet they're also dangerous. In the rush to squeeze costs today, it can be all too easy to lose your focus on delivering tomorrow's growth and to alienate the only people who can ensure your firm's survival--your employees.

"All of us collectively must grapple with the tidal waves caused by 9/11, the crisis of confidence, and the uncertainties caused by the war against terrorism and the demands of globalization," said Cyrus F. Freidheim Jr., who took the helm of beleaguered Chiquita Brands International in March 2002. "In my own company, which just emerged from bankruptcy, I can add a few other things. We have to change a corporate image from plunderer of the environment and human rights to a model of corporate responsibility. We've got to convert a culture from entitlement to performance. And we have to retain the skills, passions and loyalty of those that have made Chiquita great in the past."

How do you manage through a downturn while simultaneously positioning your company for growth? "Every time and every industry -- and every country and every company -- has its own particular challenges," shrugged Freidheim, who maintains that strong corporate culture and values will serve as a foundation for growth in good times and bad. "The best corporate and government leaders in our times, or in any times, are those who have strong values attuned to current challenges and the courage to act on them."

A strong -- and compassionate - corporate culture also serves as a foundation for survival in a time of crisis, said Cantor Fitzgerald's Lutnick, who credits employee values for his firm's rebound after losing more than 700 employees in the attacks on the World Trade Center. "What I learned in living through the worst of circumstances is that you will reap the seeds that you sow," he said. "The corporate culture that you build over time will come out in the old adage that people's colors don't change in a crisis, they just get brighter.

"We had a particular business strategy at our company in that we encouraged hiring family and friends, or nepotism, which meant that all of our employees lost their best friends and family members," Lutnick said. "After what we'd been through, there was only one reason to go back to work -- to rebuild the company to take care of the families of those we had lost. It was that desire that carried us through."

4 Good Direction

When CEOs talked about finding and retaining talent in the go-go '90s, chances are they were referring to employees. But these days those words are more likely to apply to a far more elusive commodity -- experienced, dedicated board members. And for good reason, said John Gutfreund, senior managing partner of C.E. Unterberg, Towbin, who notes that in an era characterized by rampant shareholder lawsuits and intense media scrutiny, board seats are too warm for comfort.

"I think the future for a while is going to be very glum in terms of being a corporate director," Gutfreund predicted. "There's nothing but liability involved; beyond liability, in the financial sense, the public media will absolutely eat you alive. If it's really the right thing and you really believe, maybe you'd do it. Otherwise, I'd have to be a big shareholder to bother?'

Gone are the days when a board seat was a low-profile, part-time affair, added Cooper, whose four-person board has been logging overtime since Enron's implosion. "We have weekly board meetings that typically last three or four hours because of the number of transactions, the depth of the transactions and the fact that we're under an electron microscope," he reported. "It has to get scrubbed six ways from Sunday, so the board has put in an enormous amount of effort because of the degree of scrutiny and transparency required?'

While Enron's circumstances are extreme, Cooper conceded, board seats are irrefutably - and perhaps permanently -- more time-intensive than ever before. "To find people going forward who are willing to actually spend the time, the energy and the effort to be truly excellent board members, given the downside -- reputations wrecked, lawsuits and so forth -- is very tough," he said. "Considering the effort you have to put in to be an excellent director as opposed to just a director, I don't know where we're going to find these people in the future."

5 The Sustainability Imperative

While unquestionably disruptive to both the business world and the American economy, the market downturn and business scandals can also be viewed as opening the door for far-reaching change. "If addressed properly, we ran use this opportunity to create not only value for shareholders, but real longer-term meaning as well -- and in the process reinvent ourselves and our roles in the corporate world:' asserted Kleisterlee, describing what he dubbed "the sustainability imperative" challenge.

By calling into question the practice of treating stock prices as an end in and of themselves rather than a byproduct of successful management, the events of the past 18 months may enable CEOs to abandon the path of attempting to appease unrealistic expectations in favor of pursuing true, sustainable growth.

"We need to stay connected to the purpose of our firms and create lasting organizations in the face of white-hot pressure to enhance share performance," Kleisterlee contended. "We have the opportunity to create lasting, sustainable organizations that deliver meaningful value to all our stakeholders, including investors, boards, customers, employees and the public at large -- and thus create a shill away from the one-dimensional shareholder focus of the past on quarterly earnings. With that we can truly lead the future."

RELATED ARTICLE: Outflanking Competitors in a Downturn

Ever wonder why while most companies flounder in a downturn, a select few not only survive, but actually prosper? Accenture decided to stop wondering and find out. So the consulting firm took a hard look at the last several recessionary periods to identify companies that clearly outperformed their competitors and find out how they did it -- and what other firms can learn about managing in a downturn from those successes.

After looking at 848 companies, Accenture chose 33 to explore in depth through interviews with multiple members of the management teams, according to Michael Sutcliff, global managing partner for finance and performance management at Accenture, who shared the results of Accenture's research at the CEO2CEO Conference. "The first thing that struck us is that these companies started the conversation by saying, 'Recessions are great,"' he explained. "'During the recession we're going to take advantage of the fact that our competitors' attention is turned to restructuring, or that they are financially weak and can't keep up with the moves we are making. We're going to go out while the prices of materials and executive talent and financial capital and potential acquisitions are all down and make moves that we might have thought of years ago but not actually been prepared to execute against.'"

Of course, the tricky part isn't necessarily spotting opportunities in a recession, but being in a position to act on them, added Sutcliff, who reports that Accenture's study revealed that winning firms typically shared three operating principles:

* Sound, Value-Based Financial Management. Emphasizing cash flow and strong balance sheets during good times enabled these companies to provide flexibility and financial muscle during the bad periods. 'Winning companies managed for value with discipline all the time," said Sutcliff. "They all believed in strong balance sheets and wanted to remain flexible and unencumbered by debt."

The companies were equally cautious and disciplined when it came to cutting costs. "They thoughtfully pursued internal improvement initiatives on a regular basis, but they never reverted to across-the-board cost reductions," said Sutcliff. "Not one company we spoke with had implemented any kind of 10 percent across-the-board cuts."

* Strong Strategic Positioning. Drawing on a deep understanding of value drivers, winning companies forged resilient strategies -- often incurring criticism along the way -- during the good periods to position themselves to take advantage of bad times.

"Northrup Grumman began transitioning from airplanes to electronics in the early 1990s, right in the middle of an upcycle for the Gulf War, which was boosting revenues for the [airplane] business," noted Sutcliff. "The company had done the homework and concluded that the value would shift from airplanes themselves to the electronics stuffed inside airplanes." Despite being roundly criticized at the time of its repositioning, Northrup Grumman prospered in the long term as a result of its foresight -- and its commitment to endure skepticism and act on it.

* Execute Differently During a Recession. Winning firms differentiate themselves in governance and decision-making, in the knowledge and understanding of value drivers, in customer focus and in their use of information systems. "Post-recession winners take advantage of the flexibility created by their value-based management approach," explained Sutcliff. "They don't just eliminate spending programs, but instead direct discretionary spending to those programs that can actually create value, and they seem to have a better understanding of what those are.

Winners also looked externally for new opportunities. "They continued to invest in systems to collect, analyze and deliver business intelligence." said Sutcliff. "They focused not only on their own cost issues but on understanding their customers cost structures and problems, and developing products and services to help solve them. And they had new products and services as a result."