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Time for a credibility checkup.

It's been a tough six months for CEOs, with a number of high-profile leaders losing their jobs and control of their companies, along with their reputations. Yet despite media coverage blaming the suddenly precarious nature of the top job on economic malaise, the reasons for these CEO departures remain remarkably similar to those in good times. Boards may pull the trigger more quickly now, but the reason they rid themselves of bosses is almost always a failure of trust and credibility with one or more groups of stakeholders, including:

Wall Street: The adage used to be: Fool me once, shame on you; fool me twice, shame on me. Wall Street and impatient shareholders have rewritten it for CEOs, however, to read: Fool me once, shame on you; fool me twice, enjoy your severance package.

A year ago, Enron was the new-era corporation that other organizations were supposed to emulate. Yet this fall, after a series of bad investments compounded by years of fuzzy financial statements, CEO Kenneth Lay found himself fighting for his company's survival and defending himself before angry shareholders who lost nearly all of their investment between August 2000 and November 2001. Whatever finally happens to Enron, its fate provides powerful lessons on the need for transparency in financial reporting, and on the first thing any CEO ought to have learned about Wall Street: No surprises.

Employees: Every CEO fancies himself a change agent. But every CEO also needs to be realistic about how much change his organization can endure over a short period of time. Jacques Nasser came to Ford Motor Co. with a sterling resume and a head full of initiatives. What he didn't bring was a sense of how Ford's culture might react to this velocity of change, and how a multiplicity of objectives might cause the company to lose focus--or how that loss of focus might cost Nasser the support of employees and board members.

Customers: Used to be nobody asked too many questions about how a CEO made money, as long as he kept making it. Not anymore. Now all sorts of people want to know how you generate profits, and whether they come from serving or fleecing customers.

At Providian Financial Corp., CEO Shailesh Mehta used high-powered marketing to create the country's fifth-largest credit card company. Unfortunately, some of that growth came because Providian "misled and deceived" consumers--at least according to the Comptroller of the Currency and the San Francisco district attorney's office. Though the bank did not admit fault, it did pay $300 million last year to settle the charges. The resulting press, combined with charge-offs for uncollectible loans of 10.3 percent or more, led to Mehta's announcement that he would leave as soon as a successor could be found. Unless, of course, Providian is sold before it can find a new CEO.

How is your credibility with Wall Street, employees, and customers?

John Brandt

President & Editorial Director
COPYRIGHT 2002 Chief Executive Publishing
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2002, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Author:Brandt, John
Publication:Chief Executive (U.S.)
Article Type:Editorial
Geographic Code:1USA
Date:Jan 1, 2002
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