In his Political Capital column in today's WSJ ($), Alan Murray suggests that CEO responsibility might be the "right cure" for the woes of corporate governance:
The Enron scandal -- and those at WorldCom, Tyco, Adelphia and others -- exposed a glaring flaw in the oversight of America's top executives. At the time, three cures were suggested: the regulatory cure, the corporate-governance cure, and a third tonic, advocated by U.S. Federal Reserve Board Chairman Alan Greenspan and former Treasury Secretary Paul O'Neill, which might be called the "CEO responsibility" cure.
After explaining that neither of the first two have proven fully satisfactory, Murray turns to the possibility of using CEO responsibility as the basis for regulating corporations:
In unusually clear testimony in July 2002, Chairman Greenspan railed against the "infectious greed" that had invaded American business, arguing that the best antidote was strong and ethical CEOs. "It has been my experience on numerous corporate boards that CEOs who insist that their auditors render objective accounts get them," Mr. Greenspan said, "and CEOs who discourage corner-cutting by subordinates are rarely exposed to it." "Although we may not be able to change the character of corporate officers," he concluded, "we can change behavior through incentives and penalties."
I agree completely. In fact, many of my posts in this blog have made the case for using CEO responsibility as a principal - if not the principal - tool for deterring corporate misconduct. The argument is most fully developed, however, in my TCS column The Wrong Way to Right Wrongs.
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