The Ceo Party Is Over

It's official. After all the perp walks, Martha's mess, Jack's divorce and implosions of companies like Enron and WorldCom, CEOs now rank below funeral directors and lawyers in a new Gallup poll. Worse still, they're even facing the wrath of what was once their biggest cheering section: their boards of directors. "Lousy performance won't be tolerated," says Barbara Franklin, who sits on five corporate boards. "Now we're trying to get ahead of the curve and make changes before you have an absolute crisis." Franklin should know. This month the Dow Chemical board she sits on canned its CEO after just two years on the job. She declines to discuss details, but the company said the board dumped the CEO because of Dow's "disappointing financial performance."

The Year of Scandal in Corporate America is about to give way to the Year of Atonement. Wall Street brokerages just agreed to pay more than $1 billion in fines to settle charges that they misled investors. But that's just the beginning. There will be more CEO firings this year as previously passive corporate boards get tough with the boss, predicts Franklin and corporate governance experts. For the CEOs who survive the purge, there will be about 10 percent less in their pay packet, according to exec-comp consultant Pearl Meyer. (Corporate directors, however, will get a 20 percent raise to compensate for longer hours policing the CEO, says Meyer.) And at least a few of the CEOs who did perp walks this year will trade in their pinstripes for prison stripes in 2003, many experts predict. Even Congress helped in this ritual purification by ramming through tough new corporate-governance laws last summer. "Out of the storm of Enron and WorldCom came a silver lining: legitimate, long-term reform," says Charles Elson, director of the Center for Corporate Governance at the University of Delaware. "The celebrity CEO is now old school."

That doesn't mean investors are ready to trust big business again. Sure, the market has ticked up a little lately. But the mom-and-pop investors who made the bull run in the '90s and then watched their 401(k)s vaporize this year are still staying away. Consider Dan Ryterband, who makes his living advising corporate boards on how much to pay the CEO. "I have not bought a single stock in 2002 and I don't plan to in 2003 because I don't trust anybody," says Ryterband, managing director at Frederic W. Cook & Co. "Who knows where the next scandal will come from?" It will take years for investors to trust again, say shareholder advocates. And that means there will be no return to the Neverland Economy of the '90s any time soon. "The scandals cut the heart out of confidence," says Carolyn Brancato of the Conference Board. "We're stalled."

Seeing a few CEOs get their comeuppance would sure boost investors' spirits. It's bad enough that the top five execs at each of America's 1,500 largest companies pocketed a total of $154 billion in the past 10 years, according to "In the Company of Owners," a book coming out in January by Joseph Blasi, Douglas Kruse and Aaron Bernstein. What outrages investors is that many of the execs accused of ill-gotten gains still face no charges. Former Enron chairman Ken Lay, whose bankrupt company seemed to kick off this wave of scandals a year ago, remains indictment-free. And Martha ("I want to focus on my salad") Stewart is still deboning turkeys and fluffing egg whites on her TV show while investigators dither on whether to file insider-trading charges. No wonder the new Gallup poll finds just 17 percent of Americans give execs high marks for honesty and ethics, a 32 percent decline from last year. (That's still better than stockbrokers, whom only 12 percent of Americans find highly honest and ethical.)

Contrition might be hard to come by for many CEOs. But it appears that America's future corporate chieftains are getting religion. The hottest course in today's business schools: ethics. "Students have realized, probably for the first time, that ethics has some connection to business," says W. Michael Hoffman at Bentley College in Waltham, Mass. M.B.A. programs that once used Enron as a case study for building a New Economy powerhouse have revised it to "The Rise and Fall of Enron." And even if few corporate rogues go to jail, Hoffman says all the scandals give him a chance to teach students that "what is ethical and what is legal is different." If CEOs can master that lesson, maybe they'll move ahead of lawyers in next year's Gallup poll.