'The wickedness of Wall Street.' No, not a slogan from an anti-corporate campaign, but the title of a cover-page story in that well-known radical magazine, The Economist. And it was not unusual, as Business Week, Fortune and other mainstream business magazines lamented a crisis of confidence at the heart of Corporate America. Goldman Sachs CEO Hank Paulson was reported as saying that, in his lifetime, 'American business has never been under such scrutiny, and to be blunt, much of it deserved.'

Let us review the evidence. Enron eclipsed after it was found to have cooked the books. Andersen atomised as it was found guilty of shredding records about those Enron recipes. K-mart KO'ed and under investigation for similarly creative accounting. Dynegy in denial over debt cover-ups. Former telecom superpowers WorldCom, Qwest and Global Crossing humbled as all are investigated. Adelphia and Tyco wobbling as their CEOs resign under suspicions of malpractice or incompetence. 1

While Business Week pointed the finger at the managers of these companies, The Economist preferred to blame 'arrogant investment bankers' who 'exploited their supposedly independent analysts to peddle dubious shares to gullible investors'. Fortune magazine thought that, taken together, phoney revenues, wildly high executive pay, interest-conflicted investment analysts, and boards of directors asleep at the helm were symptoms of something deeper. 'This isn't just a few bad apples we're talking about here. This, my friends, is a systemic breakdown. Nearly every known check on corporate behavior—moral, regulatory, you name it—fell by the wayside, replaced by the stupendous greed that marked the end of the bubble. And that has created a crisis of investor confidence the likes of which hasn't been seen since—well, since the Great Depression.' 2

According to a Pew Forum survey, now Americans think more highly of Washington politicians than they do of business executives. 3 'Yes, it is that bad', said Fortune. 'Rarely have business and its leaders been held in such low esteem', said Business Week. Clearly, investing, like all aspects of commerce, requires a degree of trust. Without the trust that directors and auditors aren't fiddling the figures, that analysts are playing it fair and reported numbers reflect reality so that investors aren't being conned—capital markets will grind to a halt. Chairman of the Securities and Exchange Commission (SEC), Harvey L. Pitt, said 'It would be hard to overstate the need to remedy the loss of confidence ... Restoring public confidence is the No. 1 goal on our agenda.' Fortune agreed, saying that 'real reform is once again needed to restore confidence in the system'.

The big investors have woken up to this need for reform. Pension and mutual funds have nearly US$8 trillion riding on the US stock market, 65% of its value, up from 51% in 1990. Therefore they both have a stake in the general health of the stock market rather than individual firms and a voice that cannot be ignored. Chris Davis, who oversees US$35 billion at New York investment firm Davis Selected Advisors began putting together a group who together manage US$500 billion–1 trillion, or nearly 10% of the stock market. This group is targeting companies in the Standard & Poor's 500-stock index on corporate governance and executive compensation issues. Business Week reports that 'Labor unions are taking up the cause, too, using their vast pension funds as a big stick to beat up errant management.' They report that 'sometimes the threat of a vote does the trick. The AFL–CIO withdrew shareholder resolutions it filed after Goldman Sachs, Merrill and J.P. Morgan Chase all agreed to break the links between compensating research analysts for the investment-banking business they help generate.' The magazine reported that these pressures were helping to create reforms in the New York Stock Exchange (NYSE) and Nasdaq who were now 'falling over themselves to prove that they offer superior protection to long term investors'. 4

What kinds of reform would do the job? The NYSE set out new corporate governance requirements for companies whose shares it trades, to take effect from August. The proposed requirements included that a majority of a company's board of directors must be independent (i.e. they must not have a material relationship with the company, nor worked for their company or auditor in the past five years) and that a shareholder vote will be necessary for all stock option plans.

Meanwhile the SEC, which was itself established after the last crisis in confidence at the time of the Great Depression, published a range of new measures to reform oversight and improve accountability of auditors of public companies. The proposed rules established the framework for a Public Accountability Board—a system of 'private-sector' (but not 'self-') regulation that would not be under the control of the accounting profession. 5 Other new rules proposed included a requirement that CEOs personally certify the accuracy of financial statements put out by their companies. As these measures were announced, President George W. Bush said that 'there's been a lot of talk about corporate responsibility here in America, and there needs to be'. 6

Thus it was shareholder concerns, rather than those of other stakeholders, that mainstreamed corporate responsibility mid-2002. It was self-interest rather than social and environmental solidarity that led mainstream corporate America to talk of the responsibilities of professionals in business and commerce. While corporate citizenship academics, consultants and managers were busy attending to their sweatshop codes, recycling projects and stakeholder dialogues, someone else's version of corporate responsibility exploded onto the front pages.

As much of the pressure for reform is coming from self-interested shareholders, so some of the reforms may actually undermine some of those aspects of corporate responsibility that people have been working on for a while. For example, the rule changes on stock option plans may not only help curtail wild 'fat cat' payments but also innovative approaches to encouraging employee commitment to and participation in a business through employee share ownership plans (ESOPs). 7

For example, in the UK 75,000 staff of the supermarket Tesco received £38 million-worth of shares, which had been held in trust for three years. Tesco staff can choose to keep their shares or cash them in. 8 Another example is the proposal from Nasdaq that directors whose charities receive large donations from their companies should be thrown off audit committees, something that could undermine corporate philanthropy. Therefore, the time must be right for those who have been working on wider corporate responsibility issues to stand up and be heard to explain the broader corporate responsibility agenda that recognises shareholders among a web of other stakeholders and acknowledges that pension owners may have concerns other than maximising dividends and share price.

The time is right for this kind of leadership, which must address values as well as regulatory reforms if it is to succeed. Former Federal Reserve Board Chairmen Paul A. Volcker told Business Week he believes that the real problem is one of values in corporate America. 'Corporate responsibility is mainly a matter of attitudes and the attitudes got corrupted by the mentality in the markets in the 1990s. We went from "greed is good" being said as a joke to people thinking that "greed is good" was a fundamental fact.' 9

The magazine wished 'If Only CEO Meant Chief Ethical Officer' and argued that the very same personal attributes that propelled people to the top were those that led to abuse, and made them ill equipped to lead business out of its current confidence crisis. 10 They suggest that 'this year's CEO scandals could even end up changing what companies look for in a CEO as they attempt to restore investor confidence ... For instance, stakeholders are likely to become increasingly skeptical of highly aggressive CEOs.' The magazine cites Michael Hoffman, executive director of the Bentley College Center for Business Ethics, as suggesting that a new type of 'servant leader' will be required—one who looks out more for employees, customers and the company rather than for him or herself. 'I think boards of directors and search firms need to begin looking for people with a tremendous amount of integrity,' Hoffman said. 'If you can't trust a business and you can't trust a person running it, you're probably not going to invest in it.' Already NGOs have appointed former corporate CEOs to run their affairs. Could we witness a time when former directors of NGOs take the helm of major multinationals?