A Smarter Alternative
It takes a lot to excite me. I blame the chilly English blood that courses through my veins for my general apathy. But a recent development had me doing back flips. It wasn't the birth of my first child in February. Nor was it the Chicago Bears getting to the...
February 28, 2007 at 07:00 PM
3 minute read
It takes a lot to excite me. I blame the chilly English blood that courses through my veins for my general apathy. But a recent development had me doing back flips. It wasn't the birth of my first child in February. Nor was it the Chicago Bears getting to the Super Bowl. It was former Sen. Paul Sarbanes agreeing to speak at our conference May 15 and 16 in Chicago.
Sen. Sarbanes hasn't spoken much in public about the Act that bears his name. So it was quite a coup to get him. During his keynote address, he will offer insight into whether he thinks SOX has fixed the problems that led to Enron's demise.
Obviously SOX has helped. But the one thing SOX hasn't done is change the Wall Street culture that forces executives into making decisions that boost the stock price at the expense of the company's long-term health. And it's often this pressure that leads executives astray.
The British recently took a stab at resolving this issue in their version of SOX–the Companies Act of 2006. Buried deep within the 1,500 clauses that make up this monstrous piece of legislation is the requirement that executives work to promote the company's “success.” It also makes it a director's duty to consider the effect of his or her decisions on the environment, employees and community.
A goal of the Act is to make executives and directors consider the long-term impact of their decisions on the company's future, as well as on constituents that include not only shareholders, but also customers, employees and the public. There's little doubt this Act will be a nightmare to enforce. But will it put UK companies at a competitive disadvantage?
I think not. A smart leader who is given the freedom to operate in an environment that embraces long-term decision making and social responsibility should be as successful as one who's focused on meeting quarterly goals–perhaps more so.
I recently interviewed a GC who works for one such leader. The GC was Jay Stieber, and his boss is Rich Melman, a legend in the restaurant business. Melman has an uncanny ability to churn out highly profitable and successful restaurants. I asked Stieber why Melman hadn't taken his company public. Stieber said Melman often makes decisions that are good for customers and employees, but aren't always profitable in the short term. These decisions, though, often pay off tenfold down the road.
Stieber doesn't think Wall Street would allow Melman to operate this way. He's probably right.
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