The Last Word: Bill Esrey

The United States has had no shortage of corporate critics in recent months. From fraud to rigged IPOs to simple, naked greed, a stream of negative revelations has badly tarnished the image of the U.S. boardroom. Up until now, many of the captains of American commerce have remained silent, understandably reluctant to challenge the wave of popular outrage.

Last week, though, Corporate America seemed to find its collective voice. Speaking at a conference in West Virginia, leaders of some of America's largest companies--including JPMorgan Chase and Hewlett-Packard--challenged the prevailing image of the crooked CEO and defended the virtues of American capitalism. They also warned that heavy regulation and costly litigation could discourage innovation and risk-taking. Bill Esrey, chief executive of Sprint and one of the conference participants, argued the CEOs' case to NEWSWEEK's Adam Piore. Excerpts:

PIORE: Up until now, Corporate America has been reluctant to step up and say, in effect, "Let's get back to business." Why did you choose to do so this week?

ESREY: I think there is a feeling that we needed to take the initiative to convince people that the vast majority of business people were outraged by what was going on. The man on the street thinks that most business people are crooks, but the reality is different. It's up to corporate leaders to re-establish trust.

I think what we've done so far, legislatively and voluntarily, has been needed to help restore public confidence and public trust. On the other hand, what business people and boards also need to be worried about is that they don't look over their shoulders too much and be so concerned that people will second-guess them that they get overly cautious. That's the last thing the economy really needs at this point.

Do you see that happening?

It's a matter of degrees. But I do think it's a real risk, particularly when the economy is going through an adjustment. Then you impose new regulatory requirements. In talking with people down in West Virginia, chief executives seemed more cautious than I had ever seen them.

Your company almost merged with WorldCom. Are you relieved that the merger didn't go through? And what impact did its fraudulent accounting methods have on other firms?

You can say we dodged a bullet--maybe dodged a cannon. If the people in our company had known of the things that were going on at WorldCom, they would not have been a part of it.

Everybody in the telecommunications industry was damaged by what WorldCom did. We looked at them last year as a price leader. We, along with a lot of other companies, were trying to get our costs down to what WorldCom was claiming their costs to be. We were reducing our employee base, wondering what we were missing. Well, it turns out we really weren't missing anything. If they had actually earned what they said they had earned, what would they have had their price at to get the earnings they reported? The entire industry would have had a different pricing structure. In 2001 alone, Sprint would have made an additional half-billion dollars in profits.

We've seen a clear backlash in Europe against the American business model. Do we have anything to learn from the way companies do business in Asia and Europe?

I think we ought to look and we ought to learn. Look, in the telecom industry investors lost $2 trillion in debt and equity in the last couple of years. Then they see in our industries some companies basically cheated on their accounting and took personal advantage with IPOs. Heck, I'd be mad, too; I'd be furious. But I don't believe the system is broken. Is our system perfect? No. Can it be improved? Yes. But it would be a terrible mistake to throw it out and start over. We still have the most vibrant, successful economy in the world. We had at our meeting a number of European and a number of Asian people who said the American system is still the best. It's still the most transparent. It's dented but not broken.

There's been a lot of criticism of stock options, and you have been mentioned in the press as receiving millions of dollars' worth. How do you defend that at a time when critics are calling them a symbol of the problems with American business?

I think there's a market out there for compensation, as there is for a job in any industry. But you have to keep how we got here in perspective. In the 1980s there was a real push by institutional investors to align executives with investors--"Let's have them do well only if investors do well." Then some of those options became of much greater value than people had anticipated because of the bull market. It caused a reaction and an outcry that now is being addressed. Some people sold; some had it on paper and never did cash out. I personally happen to be in that boat. But I think there'll be corporate reforms. American business has to respond to criticisms like those intelligently.

The Last Word: Bill Esrey | News