JIM LEHRER: Mr. Secretary, welcome.
PAUL O'NEILL: Thank you.
JIM LEHRER: How did we get to this situation today, where the president of the United States is calling on the leaders of American business to stop cheating, to stop stealing, and stop lying?
PAUL O'NEILL: Well, I think we got here with some famous cases that have developed over the last few months, and with a sense on our part, and the president said for himself, that the number of these cases, count however many you want, 20 or 30 or so, have created the sense that it's very questionable that you can trust the information that's being provided by companies.
And so the president is saying we need to take action so that people can count on what's said to them. And in a way, this is closing loopholes that I think for most of us, we didn't know there were loopholes. When I was CEO of ALCOA, it never occurred to me…
JIM LEHRER: For 13 years you were CEO.
PAUL O'NEILL: Right. When I went there, I called in the chief financial officer and the comptroller and I said to them, "I don't want to ever be accused of or guilty of managing earnings", that is to say making earnings that that they really aren't as a consequence of operations. It never occurred to me that that isn't what all CEOs do, that they give instructions to their staff that we're going to run a value-based place. But it's clear from the number of cases we've had that people had a different idea about what was all right to do. And so we need to close the loopholes off so there is no ambiguity.
JIM LEHRER: But the president himself just said it isn't just closing loopholes. It's in the mind. It's an attitude. Do you detect that attitude as well as the president?
PAUL O'NEILL: Well, it's clear that we've had 10s and 20s and 30s of these cases and that suggests that there are people who don't understand the difference between right and wrong and we need to spell it out more clearly, what is right and what is wrong and what the consequences are of doing wrong.
JIM LEHRER: The president also said that there are more of these scandals hiding in corporate America. What kind of scandals? What is he talking about?
PAUL O'NEILL: Well, I'll tell you, I think we are going to find out Chairman of the SEC, Harvey Pitt has issued an order to of what is basically a thousand of the largest companies in the land, saying to the CEOs and chief financial officers, at your next filing which is required under the law and regulation, after the middle of August, you must certify that everything you reported in the previous 12 months is true and that you certify its veracity.
And we are going to find out because I don't think there are many CEOs and chief financial officers that, with this new regime of finding people who are abusers of their trust and responsibility, tracking them down, putting them in the slammer, I don't think many people are going to take the risk of certifying something that, on reflection, is not true. And so if we are going to have a flurry of additional cases, I suspect it will come as people are required to make these new certifications to the SEC.
JIM LEHRER: And that will be, as you say in August--
PAUL O'NEILL: After the middle of August and for the next six weeks or so companies are going to be making these, in effect, re-certifications to the SEC, and I think people who have got any doubt are going to come clean.
JIM LEHRER: What does your experience, your knowledge, and your gut tell you about how many of these are still to come?
PAUL O'NEILL: Well, I think we're going to see a dwindling stock of these things coming forward. You know, the case that was presented yesterday, the MERCK case, where there's no misstatement of earnings, but they followed an accounting practice of booking revenues that were really not revenues to them, but co-payments to pharmacies.
It misstates revenues and that's not a great thing, but it's not the same as misstating earnings and misleading the real value creation ability of a corporation. I think that case illustrates that what we are going to begin seeing now are offshoots of real abuses and we'll see what one might characterize as questionable practices rather than fraud and direct abuse of responsibility. That's my guess.
JIM LEHRER: The implication to the non-business types who have been watching these scandals come out one after another, of all kinds now, is that this must have been-- this must be very easy to get away with. In other words, these corporate financial officers and CEOs assumed they were going to get away with this or clearly they wouldn't have done it. Based on your experience on the inside, wouldn't it have been easy for you to have done the same thing and probably gotten away with it?
PAUL O'NEILL: Well, in your question is the presumption that I don't agree with, which is the way we get our system to work right is to have hoards of auditors and financial police and, you know, inspectors and the rest of that. Our system depends on what the president said; it depends on the integrity of people who are given large responsibility and authority with an expectation that they can be trusted. What we found is there are some people who can't measure up to that, have not measured up, and in fact that we haven't apparently been clear enough to people about what is right and wrong and apparently we haven't had severe enough penalties so that if people make a calculated risk that they're going to do something that they know or suspect could be wrong, they're going to go spend ten years in jail.
I think it's unfortunate that we have to do those things, but at the end of the day our system depends on the American people living by rules of good conduct and integrity. Look at our tax system. If people didn't voluntarily comply, there is no way that we could collect $2 trillion worth of money from the population without willing cooperation. The same is true of running companies. At the end of the day, we're very dependent on the integrity that we give people trust.
JIM LEHRER: The president's harshest words today, at least…anybody could interpret them any way they want to, but my interpretation just listening to him, the tone and whatever, his harshest words were for corporate CEOS. Do you agree with him? Do they deserve the harsh rhetoric they got from the president today and everybody else recently?
PAUL O'NEILL: I think this. I think people who do the right thing shouldn't take it personally because he's not talking to them. He is talking to hopefully the limited numbers of people who have abused their trust. And I think he is collecting and displaying the anger that American people have that they've been abused by people that they gave trust to. If you think about a CEO walking away with hundreds of millions of dollars because of options and other compensation techniques that have been employed and thousands of people losing their jobs and thousands of people losing their pensions, I think all of us who care about this country have a right to be angry, the president is expressing that anger, and yes he is saying to those CEOs who are guilty of those abuses, we are not going to let you get away with it. We are going to prosecute you to the full extent of the law.
And you know one thing that occurred to me in listening to this and being part of this, there are so many wonderful decent human beings who are running small and medium-sized and even large corporations. They need to be celebrated, too. In our country, I think we tend to run from one side of the ship to the other. And it would be pretty good for people to stop and reflect and maybe say a word to the people that they work for that are helping create jobs and innovating new products -- thanks a lot, you know you're not guilty of this stuff and we appreciate it that you're helping our economy to be the envy of the world.
JIM LEHRER: The president also seemed to suggest, and I'm not talking here now about illegality or anything else but having CEOs sign their financial statements, things like that. Also he spoke about compensation. Do you think CEOs are worth what they're paid?
PAUL O'NEILL: Some are. And by exclusion, some are not. You know, I think this is an important issue for compensation committees to wrestle with. I found in my own situation that the compensation committee deliberated without me and decided what the rules of compensation should be. And my own advice to them was please pay me less than the average of people in my situation get from the survey data in the basic compensation, and give me enough options so that if I can demonstrate that we've beat the competition handily, that my total compensation will end up being better and reflective of the value created for shareholders. I found that really worked. It was a way of saying to all the people inside my corporation I'm not going to take away a huge basket of money on a basic compensation level. I'm going to be paid below the median or the average for people in my situation. And I think that is the way that you can communicate with shareholders and with employees, you know. I'm at the end of the gravy line. I'm not at the front of the gravy line. That's an important thing for leadership to do, to always…
JIM LEHRER: You make the money first then you get it.
PAUL O'NEILL: Absolutely. Leaders should always be the first in the water and the last out.
JIM LEHRER: But you made…I looked at this today. You made a lot of money running ALCOA.
PAUL O'NEILL: I did.
JIM LEHRER: Your salary was a couple million dollars a year but you got stock options.
PAUL O'NEILL: Actually, I think my base salary was never more than $950,000 a year, but I made a huge amount of money because in the 13 years I was there, because of the actions of my team, we moved the value of the company from $4.5 billion to over $32 billion, so that we increased the value of the shareholders stock by 800 percent in 13 years. And, you know, in retrospect, I got more money - remembering what it was like to be a poor kid - more money than I ever imagined, but I never felt like I had to apologize for a single penny of it because what we did, what my team did for shareholders, was truly amazing.
JIM LEHRER: Did you do what the president said corporate CEOs should do, which is explain your compensation in your annual report?
PAUL O'NEILL: You know, I frankly went way beyond what is now being called for. I was the only inside director on my board, by my decision. I thought it was the right thing to do.
JIM LEHRER: Inside meaning the only one who worked for the company.
PAUL O'NEILL: I was the only employee who was on the board of directors, which I think, for me, it really worked.
JIM LEHRER: Why is that important? The president said that today.
PAUL O'NEILL: Everyone else is independent. They're not beholden to me. None of my directors ever got a dime of money for consultation or for other services. I wanted my directors to be my strongest, friendliest critics. But, you know, not everybody apparently views directors' roles in the way I did. I wanted my directors to challenge me when I was doing some of the--.
JIM LEHRER: You really wanted them to do it?
PAUL O'NEILL: You bet. And they did it. They were wonderful. I had a great collection of directors and they helped me avoid making some mistakes where I was going to jump way out in front of what other people had done and they helped me to see the world in a way that was very, very helpful.
JIM LEHRER: Mr. Secretary, thank you very much.
PAUL O'NEILL: My pleasure.