68. Tough at the top

The jobs of big-company bosses have become more difficult and less glamorous, and their image has taken a terrible pasting

CORPORATE leaders are having a rotten time. Accounting scandals, lavish pay increases and collapsing stockmarkets have conspired to turn the world against them. They are regarded with cynicism and mistrust everywhere. In America, the bosses of big companies command only slightly more respect in public-opinion polls than used-car salesmen. Rebuilding lost trust will be slow work.

At the same time, leaders of large companies are increasingly in the public gaze. A company's boss is now expected to take personal responsibility for its fortunes as never before. This is reflected not just in new corporate-governance rules, but also in the way that financial markets scrutinise the appointment of a new corporate boss and that companies feel they have to defend executive pay packages.

Yet the task of a corporate leader has never been more demanding. This is partly because of changing corporate structures. Big companies often operate in many countries or product markets, and joint ventures, outsourcing and alliances add further complexity. Layers of middle management have gone, so that more divisions report directly to the person at the top. The pace of innovation is quicker, new technologies have to be applied faster and product life-cycles have become shorter.

Corporate leaders are struggling to keep up momentum in their businesses when economic activity is sluggish. They also need time to spend with the people they lead: for more and more businesses, the abilities of a relatively small number of people are thought to be the key to success, and retaining and developing their talents is vital. Swamped with e-mails (which some of them answer themselves), voicemails and demands for appearances on breakfast television and at grand dinners, many corporate leaders find it harder and harder to make time to think.

In addition, for anyone in charge of a large quoted company, the level of outside scrutiny—whether by government, consumer groups, the press or the financial markets—is far beyond anything a corporate leader would have been subjected to in the past. For many bosses, this sense of managing in a goldfish bowl has become particularly onerous. The chairman of two large publicly traded British companies says in exasperation: “I spend my life advising friends of mine not to become chief executives of quoted companies, and by and large they take my advice.” Many look longingly at the more secluded world of private equity.

Whatever the reason, people have come to expect more from corporate leaders. Profiles and interviews published in the business press ensure that the more telegenic or talkative business folk are as well known as minor Hollywood celebrities. In the heady stockmarkets of the late 1990s, some chief executives acquired heroic status, and not always reluctantly. As Rakesh Khurana at Harvard Business School points out in a book debunking the cult of the charismatic boss, in 1981 only one cover of Business Week featured a chief executive from a Fortune 1,000 firm, but in 2000, when the markets peaked, the number rose to 18. These days, a company's performance and, more alarmingly, its share price, are often seen as largely determined by its CEO.

Financial markets continue to harbour exaggerated expectations. “The pressure people are feeling at the top of organisations is unbelievable,” says John Kotter, also at Harvard Business School. If earnings growth drops 3%, he says, the share price may fall by 30%. Yet earnings are unlikely to grow faster than GDP for more than short periods, and GDP is likely to remain sluggish in most countries for several years to come. Moreover, most companies jog along at much the same pace as the rest of their industry most of the time. A recent study by Nitin Nohria of Harvard Business School and a group of colleagues found that fewer than 5% of publicly traded companies maintained a total return to shareholders greater than did their industry peers for more than ten years. To expect bosses consistently to deliver double-digit growth is to ask the impossible.

This gap between expectations and reality has helped to sweep corporate heroes from their pedestals, especially in America, where the cult of the business leader went to the most ludicrous lengths. A poll in July last year found that only 23% of Americans thought the bosses of large corporations could be trusted, even fewer than the 38% who (unwisely) trusted journalists. The same poll found, though, that 51% of respondents trusted accountants (whose failings contributed to several corporate scandals), and a remarkable 75% trusted people who run small businesses.

In response, a raft of new measures has been launched to improve corporate governance. Many governments, and some international bodies such as the Paris-based OECD, have been drawing up new codes of conduct. Most of these aim to ensure that boards of directors keep a closer eye on the behaviour and competence of corporate leaders. The effect has generally been to increase the professionalism of corporate boards, and to make them take their duties more seriously. Companies now pay more attention to internal controls and guard their reputation more jealously. The number of ethics courses taught in business schools has increased markedly. But few people believe that this will bring a big reduction in fraud, the cause of the worst recent scandals; and hardly anyone thinks that it will make companies expand faster or invest more wisely.