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| EXECUTIVE EXCESS | |
 December 4, 2002  | |
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Paul Solman explores the rise of charismatic CEOs and how it has influenced CEO compensation.
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SPOKESMAN: Today we've arrived.... PAUL SOLMAN: The 2001 stock analysts meeting of Houston's then surging energy provider, El Paso -- with corporate gushing galore in modern business speak.
PAUL SOLMAN: Sociologist Rakesh Khurana, a Harvard Business School professor deeply skeptical of the new language of business. RAKESH KHURANA, Harvard Business School: We wanted our employees to work 24/7 and stopped calling them employees, they were partners, associate all sorts of euphemisms were brought in, and we started seeing implication terms about mission, values, vision as if they were sort of quasi-religious institutions. | |||||||||||||||||||
| The rise of the new CEO | ||||||||||||||||||||
| PAUL SOLMAN: Quasi-religious institutions, says Khurana, with quasi-religious leaders running them: The new face of corporate culture in America.
PAUL SOLMAN: Khurana traces this trend in a new book Searching for a Corporate Savior: The Irrational Quest for Charismatic CEOs -- charismatic as in personally magnetic from the Greek charisma meaning "gift from God." Khurana starts in the 1970s. RAKESH KHURANA: I believe the cultural marker for this was really Lee Iacocca. LEE IACOCCA: We found out the hard way you stand still in the car business you get run over. RAKESH KHURANA: When Lee Iacocca was appointed the outside CEO of Chrysler Corporation, he was seen as sort of single-handedly rescuing the company. SPOKESMAN: Me, I'm in the car business…
SPOKESMAN: One more thing, if you can find a better car, buy it. RAKESH KHURANA: Many people often forget he had the assistance of a $2.1 billion federally guaranteed loan; however, he made every other CEO look positively bland standing next to him. SPOKESMAN: The truth is we have got advantages over the Japanese in every car we make. RAKESH KHURANA: In fact, there was calls for him to run for President of the United States. Now, after that the notion that our CEOs should be leaders began being imported into organizations and there was a whole sort of leadership consulting industrial complex that grew up around this idea of leaderships with a capital "L." SPOKESMAN: Mr. Lee Iacocca. |  | |||||||||||||||||||
| Increasing visibility and increasing rewards | ||||||||||||||||||||
| PAUL SOLMAN: Another Iacocca legacy -- unprecedented CEO pay. Though he only took a dollar a year to start, by 1986 Lee Iacocca was making $20 million and had become America's most well compensated CEO. But that's nothing compared with the nine figure pay packages bestowed on today's CEOs like recently retired Jack Welch of GE, though of course Welch as any of us might, thinks he earned every penny.
PAUL SOLMAN: But even as GE's stock sank, Welch's bounty of benefits continued right in to retirement. JACK WELCH: What I wanted was to have use of GE's plane and have use of GE's apartment. PAUL SOLMAN: Plus a limo, tickets to high profile sporting events and a great deal more. Once these became public in his divorce case, Welch gave them back to the company. Khurana, however, viewed such perks not just as the rewards of power but as symbols of it. RAKESH KHURANA: In primitive societies much of the sort of notion of leadership began to be transferred into things like the scepters and the robes that the individuals wear --- you know -- the sort of mask that the shaman or the medicine man would wear. Now, in contemporary form some of that charismatic attribution comes from things like private airplanes, you know, Gulf stream 5, it comes from well tailored Brioni suits, it comes from that apartment overlooking Central Park. PAUL SOLMAN: Jack Welch, meanwhile, is familiar with Khurana's whole charisma thesis. JACK WELCH: Your job as a CEO is to give people the vision of where you are going. PAUL SOLMAN: But how important is it for the success of your company that you have a powerful or at least persuasive public presentation? JACK WELCH: Well, I think morale of the company is always important: highly energized, prouder to be part of it. Now, the negative side of that is a bad image publicly for the CEO and others, which ends up,…which is what we're going through now. PAUL SOLMAN: So charisma can help... LEE IACOCCA: This handsome Town and Country; this dazzling convertible.... PAUL SOLMAN: Or backfire if CEOs abuse it; but in other case to former executive consultant gray crystal CEO charisma has become a commodity that PR people sell, that CEOs have an interest in buying. |  | |||||||||||||||||||
| A belief in an all-powerful CEO | ||||||||||||||||||||
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PAUL SOLMAN: But General Schwarzkopf was the face Americans saw on TV during the Gulf War. GENERAL NORMAN SCHWARZKOPF: We are absolutely doing more than we ever have and I think any nation has in the history of warfare. PAUL SOLMAN: Just as they saw Jack Welch during the great market boom that followed. On the other hand says Welch... JACK WELCH: I never once wanted interview or raised my hand, I didn't call you to come here. You called me. PAUL SOLMAN: That's correct.
PAUL SOLMAN: You don't think you're being charismatic right now by the way? JACK WELCH: I have no idea. PAUL SOLMAN: Let's take a vote in the room. JACK WELCH: I'm not trying to be, I'm just talking to you about what this is about. PAUL SOLMAN: Rakesh Khurana, however, emphasizes the CEO's increasingly active role in all of this -- even in the world of high tech. RAKESH KHURANA: Where CEOs in the past used to be more anonymous, about as well known as their chauffeurs or dentist, CEOs now are expected to be in front of CNBC through the force of will and through the force of their personality be able to convey this continual optimism about the future. John Chambers was a example of that. Many people in Fortune Magazine, for example, described him as a sort of Southern Baptist preacher in the way he communicated to his employees and to investors. PAUL SOLMAN: That was in a May 2000 cover story when Cisco's stock was still soaring and we ourselves were witnessing John Chambers' evangelical zeal.
PAUL SOLMAN: Now even at the height of the high tech boom this sounded a tad extravagant but the aura around Chambers was such that few were willing to doubt him publicly until of course Cisco's stock swooned. Exactly one year after Fortune Magazine asked if he was the best CEO ever, a reversal of fortune had John Chambers being fingered for the fall. RAKESH KHURANA: As a society we sort of all agree CEOs actually were the main corporate performance; that if a firm was doing well, it was because of the CEO and if a firm was doing poorly, it was because of the CEO. PAUL SOLMAN: In other words, we all played a role in creating the charismatic CEO: The leader who may have a gift from God or has just come to see himself as God's gift. | ||||||||||||||||||||
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SPOKESMAN:
Vision, value, people. Raised to the power of El Paso. 
RAKESH
KHURANA: So interestingly we wanted our CEOs to look more like people who would
lead revival meetings. 
PAUL
SOLMAN: It was image -- Khurana argues -- mostly TV image that helped turn Iacocca
into icon at a time when the public began investing move of its own money and
thus looking for business superheroes. 
JACK
WELCH: GE did fantastic; he increased market share $250 billion over the time
frame, became number one market cap in the world, most admired global company
for five years in a row, I gave it all I had. 
GRAEF
CRYSTAL: They come to believe their own flax I think that I am the cause of this
marvelous performance, I'm Jack Welch. A lot of Americans I actually think they
actually believe that in 1991 Norman Schwarzkopf possibly with the aid his driver
single-handedly kicked the crap out of the whole Iraqi army and they never really
concentrated on the fact there were 500,000 troops not in back of the general
leading the charge but in front of him. 
JACK
WELCH: We resist 99.9 percent of all interviews. It happens to be when you're
in a big company and your company is successful because of a lot of people, you
end up getting your mug shot all the time. You end up on television all the time
and then you're called a quote, charismatic CEO, out trying to do something. You're
not trying to be charismatic. You're trying to motivate employees, you're trying
to work internally, you are trying to improve processes, you are not trying to
get publicity because half the time it's crappy. You'd like the mole to go away.
JOHN
CHAMBERS: We're growing 30 to 50 percent per year and maintaining perhaps the
best profits in history in the computer industry, and it comes down to empowerment,
empowerment of the individual, empowerment of democracy, empowerment of creativity.
And if we're going to be successful in the future, which I give us good odds that
we will be, it will be because of how we used our own technology and the culture
that we convey as far as empowerment of our employees and then sharing the success
with our customers or our employees in ways that one has ever done before.