PREMIUM SEARCH Search by job title, geography and build a list of executive contacts
As Jack Welch goes, so will the majority of the nation's CEOs. That's what management experts are betting in the wake of a stunning series of events that started with Welch's wife, Jane, making public in divorce filings the details of a rich retirement package General Electric (GE
) provided its former CEO.
First a firestorm erupted that threatened to lump Welch and GE into the same class of corporate malefactors as Enron, WorldCom, Tyco, and other scandal-ridden companies. Next came Welch's defense of his perks as perfectly legal and well-deserved -- along with an offer to nonetheless reimburse his former company for use of a corporate jet and New York City apartment, a Mercedes, golf club memberships, and theater and sports tickets, among other things. Too late, Jack. Even as the ink was drying on that promise, the Securities & Exchange Commission began an informal inquiry into the compensation of the man who once was called "the manager of the century."
OPEN TO SCRUTINY? Most experts don't expect the SEC to turn up anything that will be more damaging to Welch than the embarrassment he has already suffered as a result of his messy marital breakup -- which was caused by his well-publicized affair with former Harvard Business Review editor Susie Wetlaufer (see BW Online, 3/28/02, "Where's the Heat on Neutron Jack?"). The most lasting impact, they say, might be on the hundreds or thousands of public companies across the land that have lavished on their CEOs the type of largesse Welch has enjoyed.
Boards of directors "are going to realize that this can become very public," says Harvard Business School associate professor Brian J. Hall, an executive-compensation expert. "They're going to ask themselves, 'If this [compensation package] is made public, would we be willing to stand by it?'"
Rakesh Khurana, Hall's HBS colleague and author of the recently published Searching for a Corporate Savior: The Irrational Quest for Charismatic CEOs, agrees. Khurana predicts that, in the wake of l'affaire Welch, corporate-compensation committees will be "more cautious in approving things they might have previously rubber-stamped." No longer will corporate boards so blithely cloak lavish deals in ambiguous language or proxy statement footnotes, he says.
LIKE IT OR NOT. Patrick McGurn, a vice-president of the public interest group Institutional Shareholder Services, thinks companies may not have a choice from now on. As a result of the Welch brouhaha, he expects the SEC to issue new guidelines on what companies must disclose about executive compensation.
It's an idea that's gaining momentum. In early September, the director of the New York Federal Reserve publicly criticized the bloated salaries of CEOs -- saying execs should take a pay cut. And on Sept. 17, the New York-based Conference Board, a management group, issued a report on executive compensation that, among other things, calls for increased disclosure of megapay arrangements, though it doesn't mention Welch or GE specifically.
The fact that Welch himself has disavowed his normal level of extravagance, and that a company as well respected as GE is under investigation, will only add to the pressure for change. "It may help set a moral tone for other [top executives] to offer similar acts of contrition," says Wharton management professor Michael Useem. "If anybody is going to set the tone for others, it's Jack Welch."
R. Edward Freeman, a professor of business ethics at the University of Virginia's Darden School of Business, notes that GE has been setting examples for Corporate America for decades. New policies it adopts, Freeman predicts, "will be seen as a best practice."
Of course, not everyone agrees. Georgetown management professor Robert Bies thinks the Welch incident will stimulate more debate over executive compensation, but he's skeptical that many companies will follow GE's example. Bies contends that the millions Welch pulled in each year set him apart from other, less-compensated executives.
STILL A TITAN. As for Welch himself, his champions in the academy -- and he still has plenty -- applaud the "honorable" way in which he has dealt with the freebies flap. Welch's quick renunciation, after finding himself once again thrust into the tabloids, amounted to a decisive counterattack against his detractors, in the eye's of Welch's fans. Says Columbia University B-school professor Barbara L. Toffler: "It sounds like perhaps he's worthy of some of the honors we've heaped on him."
Thus, for the execs and companies that have made Welch and GE templates for the way they do business, what other choice can there be but to continue to follow Jack's lead?
Copyright 2002, Bloomberg L.P.
Printer-Friendly Version
