Bankers, regulators, politicians, and mortgage borrowers were deemed most responsible for the economic crisis. And when asked which of the same groups would be most responsible for the economic recovery, respondents more positively pointed to executive teams and CEOs.
Directors and CEOs see themselves as part of the solution, whereas some 52 percent of journalists ranked regulators as the most responsible for better times ahead. Survey respondents, when asked the question of whether the media had been fair in its criticism of directors and CEOs, largely concurred that they had; 77 percent of respondents felt director criticism was fair, while 82 percent felt CEO criticism was fair. Journalists led the pack in this regard, with 95 percent agreeing or strongly agreeing that the media had been even-handed in its treatment of the matter.
Business leaders themselves have been mostly resigned to the media backlash. When it came to the criticism leveled against CEOs, 62 percent of directors and 70 percent of C-suite officers agreed that such criticism was fair. However, when it came to criticism against directors, nearly half, or 48 percent, agreed with the fairness of the criticism (as compared to 63 percent of C-suite officers). And, again getting to the heart of what has swayed public opinion away from directors and executives, the “Main Street” view was firmly in accordance with media criticism, with 86 percent agreeing with such criticism of directors and 78 percent agreeing with similar critiques of CEO.
The Money
Though there are certainly a multitude of unique issues facing Corporate America today, we often return to our favorite theme, the money. Most of the “What Society Thinks” survey respondents agreed that compensation was an important issue; when asked why CEOs are motivated to perform, compensation led the pack with 73 percent of respondents listing it as a main motivator (“accomplishment” was second, with 60 percent).
But how does society view present compensation policy? Well, as the headlines reflect, an overwhelming majority (77 percent, including 70 percent of directors) believes CEOs are overpaid, with 22 percent reporting that CEO pay is adequate as it stands.
As for directors, who haven’t received as much attention for their compensation compared to what was handed out to high-profile executives, 49 percent of respondents said they were adequately paid, 41 percent said they were overpaid, and the remaining 10 percent said that board members should be paid more.
Another issue: the correlation between company performance and compensation levels and the question of whether it should or should not be capped, received a unilateral vote. Though 52 percent of respondents said CEO salary should be capped, and a somewhat surprising 48 percent said it should be uncapped, 94 percent agreed that, in any case, compensation should be linked to company performance. As for just how much CEOs should make (in the event that compensation is indeed capped), the results were more diverse. However, most people (67 percent) believed that CEO compensation at a large-sized company should fall at or below $10 million. C-suite officer respondents were naturally the most generous on this issue, with 26 percent proposing a cap of $20 million, and 16 percent suggesting $100 million. For those in the trenches, 82 percent of “What Society Thinks?” respondents agreed that employees were underpaid compared to the CEO, with ratios of 10:1 (25 percent), 20:1 (31 percent), and 50:1 (21 percent) being the most popular of those proposed (multipliers of 100, 250, and 500 were less popular).
Looking Forward
There are numerous possible conclusions to be drawn from the research. Many sectors bear responsibility for the crisis that are not always part of the popular discussion, including, for instance, homeowners who over-extended themselves. A further overarching question is that of the responsibility of institutional investors to perform more thorough due diligence on risk, and limit their reliance on the credit-rating agencies while restricting their appetite for short-term highest yield at any cost. That’s an area of oversight now of fervent interest to the Securities and Exchange Commission, which has in recent months expanded the resources and staff of the Office of Investor Education and Advocacy.
Other possible reactions are that it will no longer be practical for the boardroom to remain a closed inner sanctum while the world of Internet, media, blogs, and word of mouth presses for more information with accuracy playing second fiddle to timeliness.
“What Society Thinks” reveals that directors need clear guidance on public attitudes and equally clear strategies for responding to them. “The findings support our belief that as directors continue to aspire to be more productive and more effective, knowing what the investor community and the broader public thinks about the boardroom will only enhance both the role—and we hope the image—that the board director plays, particularly as our country and companies make their way back to recovery,” says Deloitte’s Lewis. The findings also suggest that getting engaged with the shareholders in corporate governance matters—while seeking appropriate legal counsel as well as ensuring that management and the board speak with one voice—will be a significant contributor to improved perceptions.
Should directors be worried? If you accept that business is cyclical, perhaps some of this negativity will dissipate as the recovery takes hold and the memory of the loss becomes stale. The research points to some obvious remedies: establishing best practices for board processes, making sure the board’s composition is perfectly attuned to the company’s strategic needs, and a firm willingness to work as hard as the new director role will require, are imperatives. Important new responsibilities will include effectively communicating to lower ranks of management and employees, in addition to investors, and finding ways to make their work known to the Main Street public. Compensation will continue to be a focus, so knowing how to structure a program that stands up to various fairness tests, and to be able to tell that story well may yet be “job one” for a while longer. Perception is reality.
As used in this document, “Deloitte” means Deloitte LLP and its subsidiaries. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. In the United States, Deloitte provides audit, consulting, financial advisory, risk management and tax services to selected clients through more than 40,000 employees in 90 cities.
The survey of societal perceptions of board performance is an important assessment that exposes “glass half full/glass half empty” differences between Board/C Suite and Main Street perceptions. However, the research missed an opportunity to isolate the perceptions of corporate employees. (They appear to be included in the Main Street and Management cohorts, but it’s hard to tell to what extent.) This is a grave oversight of the survey because employees are a critical component of corporate performance.
Corporate employees are tasked with implementing the strategy set at the top, and measured on their ability to perform. The standards to which they are held, the resources they can use, and the specific issues on which they must focus are set for them by members of Boards and inhabitants of the C suite. So their perspective matters, but its invisibility in this study reflects its typical invisibility in too many companies.
It is ironic that those most involved with the operations and performance of a corporation are lost in the shuffle, but not surprising. The attention of Boards and C-suite inhabitants may be so drawn to strategic issues that they forget to lead and care about the people who work for them. Consequently, they are less likely to understand and appreciate the view from the middle or the bottom of an enterprise, where customers are served and work gets done.
Employees are a diverse group with multiple perspectives and interests. Employees may manage others, be professionals and union members, and sometimes both. They are more and less skilled, and more and less engaged in their work. Employees live on Main Street. They are customers and shareholders of the firms that employ them, and of other firms. And employees suffer directly the consequences of the poor strategic decisions made at the top. In today’s economic downturn, employees are paying a high price in layoffs, pay freezes, reductions in benefits and overall economic hardship. As directors face critical decisions that may determine their firm’s very survival, they need also to pay critical attention to “employee well-being”. Why? Because employees will make their decisions come to life. Unfortunately, most directors are detached from the challenges employees face daily.
Boards can improve their relationship with employees, and address their well-being, by refreshing themselves with new members who bring a different perspective. Not expansion through the blueblood or “blood brother” practices of the past. Boards can develop a “human capital” perspective by selecting directors with human resource expertise, so the effect of board decisions on the people who carry them out will always be considered. Human capital decisions are at least as important as capital investment decisions, even though they are not a line item on a balance sheet.
Poor employee relations and the failure to engage the workforce can be very costly, and damaging to a company’s reputation. Human capitalists on the boards can add value with a critical business perspective about the illusive link between people and corporate performance. As a result, the quality of corporate governance may improve, along with society’s view of corporations.
Michele M. Dunn
January 12, 2010
Wilton, CT, USA
MicheleDunn@MicheleDunn.com
Michele Dunn has 25 years of experience training more than 10,000 executives for major leading corporations throughout the world. She is an executive coach and expert in group dynamics, corporate culture and emotional intelligence.