Published: August 7, 2008
Buliding Trust
Transparency, Accountability Are the Best Defense
Does an Enron scandal taint all publicly traded companies in the public’s mind? And if it does, what can corporations do about it?
Huge growth in the size of the investing public in the past 20 years is one reason the premise probably is correct, said Michael Oxley, addressing an event co-hosted by the Ethics Resource Center on July 15 at the U.S. Chamber of Commerce in Washington, D.C.
The jailing of Wall Street star Michael Milken two decades ago drew headlines but had relatively little impact, said Oxley, former chairman of the House Financial Services Committee and co-author of the far-reaching Sarbanes-Oxley legislation of 2003. But “between Milken and Enron [in late 2001], we became a nation of investors.” Fifty-four percent of American households owned stock by the time Sarbanes-Oxley was enacted. “When people read about Enron,” he said, “they said, ‘This affects us. It’s our money.’”
The investor disgust that grew with each Enron revelation did spill over to other corporations, according to Oxley. “The attitude of my constituents toward CEOs was, ‘Let’s give ‘em a fair trial and then hang ‘em.’”
The key component of Sarbanes-Oxley was to restore investor confidence through transparency and accountability, he said. “One of my greatest fears was that other countries would take advantage of it [the decline in investor confidence] and we’d have a race to the bottom. Instead, we’ve had a race to better standards.” General Electric, for example, he said, spent $35 million on compliance worldwide after Sarbanes-Oxley took effect. But GE CEO and Chairman Jeff Immelt “felt that from a business and investor standpoint, he had no choice. . . This subject is incredibly important. It goes to the heart of what our country is about.”
Noting that Sarbanes-Oxley has become known by nicknames such as “Sox,” Oxley joked that a similar initiative in Japan is known as “J-sox” and in Russia, “Red Sox.”
Other presentations included panels led by ERC President Patricia Harned and Stephen Jordan, vice president and executive director of the Business Civic Leadership Center, an affiliate of the U.S. Chamber and co-host of the event.
Jordan and two panelists – Michael Hershman, president of the Fairfax Group, and Julia Sutherland, a managing director of Public Strategies, Inc. – discussed strategies to help innocent companies avoid being damaged by another corporation’s wrongdoing.
Harned’s panel agreed that consumer and investor trust in a company is critical to business success. “Trust may be something that emerges from creating value,” suggested Brian Moriarty of the Business Roundtable Institute for Corporate Ethics. Timothy Munoz, senior vice president and head of corporate marketing and communications at brokerage house Legg Mason, agreed, saying that “people are largely tribal. When people lack a connection to something outside their group, a lot of people default to whatever they read if they don’t have a personal connection. Trust equals a personal sense of engagement. Companies do a poor job of showing what value they create. Trust takes time. Companies have to do a consistent, ongoing job over time. Trust takes work and requires personal relevance.”
Trust also relies on leadership, added William Senhauser, senior vice president and chief compliance officer at Fannie Mae. Responding to recent troubles at the government-backed mortgage giant, Senhauser said the executive team has worked on parallel tracks. They built an ethics and compliance program in line with Sarbanes-Oxley requirements, but also put Fannie Mae CEO Daniel Mudd “front and center” with employees and stakeholders.
“If you don’t have [support from] the C-suite,” said Senhauser, “you have nothing. We had two wheels off the cliff. It was ethics or die. I knew it and Dan knew it.”